7340 Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 

6The proposed rule change would not affect the 

contractual obligations that exist between 

underwriters and intermediary firms. Some dealer 

agreements may, for example, restrict the ability of 

underwriters and product wholesalers to send their 

sales material directly to a retail firm’s sales force. 

These restrictions can facilitate the intermediary 

firm’s ability to supervise its sales force. The 

proposed rule change would not alter the 

underwriter’s obligations to comply with these 

contractual restrictions. 

7Supra note 4. 

8FSI letter; NPB letter. 

9 ICI letter. 

10FSI letter; ICI letter. 

11NPB letter. 

12 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). 

13 15 U.S.C. 78o–3(b)(6). 

14 15 U.S.C. 78s(b)(2). 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On July 26, 2007, the Commission approved a 

proposed rule change filed by NASD to amend 

NASD’s Certificate of Incorporation to reflect its 

name change to the Financial Industry Regulatory 

Authority, Inc., or FINRA, in connection with the 

consolidation of the member firm regulatory 

functions of NASD and NYSE Regulation, Inc. See 

Securities Exchange Act Release No. 56145 (July 26, 

2007), 72 FR 42169 (August 1, 2007). 

review letter finding that the material 

appears to be consistent with applicable 

standards. 

The intermediary firm that relies on 

this exception could not materially alter 

the sales material or use it in a manner 

that is inconsistent with any conditions 

stated in the Department’s review letter. 

For example, if the Department’s review 

letter was based in part upon the 

representation by the filing firm that the 

sales material would be accompanied by 

a fund prospectus, the intermediary firm 

would be subject to a similar constraint. 

Although FINRA anticipates that 

firms will utilize the exception 

primarily with respect to mutual fund 

and variable insurance product sales 

material, the exception is not limited to 

sales material for particular products. 

Thus, the exception also would apply to 

sales material for other products, such 

as real estate investment trusts or direct 

participation programs, provided the 

sales material meets the exception’s 

requirements. 

FINRA believes this exception would 

save intermediary firms’ compliance 

personnel numerous hours that are 

currently spent reviewing sales material 

that has already been approved by a 

registered principal at the product 

underwriter, and that the Department 

staff also has reviewed and found to be 

consistent with applicable standards. Of 

course, some firms may want to 

continue to review this sales material, 

and the proposal would allow them to 

do so.6

The proposed rule change would also 

revise certain of the advertising recordkeeping requirements. Today, Rule 

2210(b)(2)(A) states that firms must 

maintain a copy of all sales material for 

a period of three years from the date of 

last use. Existing practice has been to 

assume that the recordkeeping 

requirement begins on the date of first 

use. The proposal would codify this 

position. For sales material subject to 

the principal approval exception, firms 

would have to keep a record of the name 

of the firm that filed the sales material 

and a copy of the related FINRA review 

letter. 

III. Comment Letters 

The Commission received three 

comment letters in response to the 

proposed rule change.7 All of the 

commenters supported the proposed 

rule change. Two commenters stated 

that the proposed rule change would 

eliminate hours of unnecessary work.8

One commenter expressed support for 

the proposal, stating it would be a less 

burdensome alternative for intermediary 

firms.9 Moreover, two commenters 

indicated that the proposed rule change 

should not compromise investor 

protection.10 Similarly, one commenter 

opined that the existing requirement 

serves no useful or beneficial purpose, 

in terms of additional investor 

protection concerns.11

IV. Discussion and Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act, and the rules and regulations 

thereunder that are applicable to a 

national securities association. 12 In 

particular, the Commission believes that 

the proposed rule change is consistent 

with the provisions of section 15A(b)(6) 

of the Act,13 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. The 

Commission believes that eliminating 

the requirement for firms to re-approve 

sales material in limited circumstances 

when a registered principal of a firm has 

previously approved the sales material 

and the Department has previously 

supplied a favorable review letter will 

eliminate a compliance redundancy 

while maintaining investor protections. 

Notably, the initial firm creating all 

sales material subject to this exception 

will continue to be required to obtain 

sales material approval from its 

registered principal, file the sales 

material for review with the 

Department, and obtain a favorable 

review letter from the Department. 

V. Conclusions 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,14 that the 

proposed rule change (SR–FINRA–

2007–020) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2161 Filed 2–6–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57259; File No. SR–FINRA–

2008–001] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change Relating to 

Amendments to FINRA’s Gross Income 

Assessment and Technical Changes to 

Schedule A to FINRA’s By-Laws 

February 1, 2008. 

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 January 

10, 2008, 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 

substantially prepared by FINRA.3 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 amend 

Schedule A to the FINRA By-Laws to 

amend the Gross Income Assessment 

(‘‘GIA’’) paid by each FINRA member 

and to update the references to NASD 

that appear in Schedule A to the FINRA 

By-Laws. The text of the proposed rule 

change is available at NASD, the 

Commission’s Public Reference Room, 

and http://www.finra.org. 


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4See Securities Exchange Act Release No. 56145 

(July 26, 2007); 72 FR 42169 (August 1, 2007) 

(Order Approving SR–NASD–2007–023). 

5See Securities Exchange Act Release No. 56181 

(August 1, 2007), 72 FR 44206 (August 7, 2007) 

(Notice of Filing and Immediate Effectiveness of 

SR–NYSE–2007–70). 

6See Section 1(c) of Schedule A. 

7See NYSE Rule 342, Supplementary Material 

.11. 

8See Section 4(a) of Schedule A. 

9See NYSE Rule 345, Supplementary Material 

.14. 

10See Section 4(b) of Schedule A. 

11See Securities Exchange Act Release No. 57093 

(January 3, 2008), 73 FR 1654 (January 9, 2008) 

(Notice of Filing and Immediate Effectiveness of 

SR–NYSE–2007–127). 

12The NYSE will continue to charge its member 

organizations an annual gross FOCUS fee; however, 

the fee was reduced by 75 percent beginning in 

2008. See Securities Exchange Act Release No. 

56181 (August 1, 2007), 72 FR 44206 (August 7, 

2007) (Notice of Filing and Immediate Effectiveness 

of SR–NYSE–2007–70). The reduced gross FOCUS 

fee charged by NYSE will be retained by NYSE and 

will not be forwarded to FINRA. 

13 Gross revenue for assessment purposes is set 

out in Section 2 of Schedule A, which defines gross 

revenue as total income as reported on FOCUS form 

Part II or IIA excluding commodities income. 

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 

On July 30, 2007, NASD and the New 

York Stock Exchange (‘‘NYSE’’) 

consolidated their member firm 

regulation operations into a combined 

organization, FINRA. The proposed rule 

change seeks to consolidate certain 

regulatory fees imposed by NASD and 

NYSE Regulation, Inc. (‘‘NYSE 

Regulation’’) to develop a single fee 

structure for FINRA that avoids 

duplicating fees charged by the two 

organizations. 

FINRA’s member regulatory pricing 

structure currently consists primarily of 

the following fees: the GIA; the Trading 

Activity Fee (‘‘TAF’’); the Personnel 

Assessment (‘‘PA’’); and the Branch 

Office Assessment (‘‘BOA’’). As part of 

the consolidation, NYSE committed to 

transfer to FINRA certain regulatory 

revenues for the remainder of 2007.4

NYSE fees subject to the transfer 

agreement include a gross FOCUS 

(Financial and Operational Combined 

Uniform Single Report) fee (‘‘GFF’’)5

(comparable to NASD’s GIA)6 and 

registration fees for branch offices7

(comparable to NASD’s Branch Office 

System Processing Fee)8 and registered 

representatives9 (comparable to NASD’s 

registration fees for the registration of 

representatives or principals).10

In anticipation of the termination of 

the agreement to remit fees collected by 

NYSE, FINRA evaluated whether to 

consolidate or eliminate any duplicative 

fees, as well as whether to maintain or 

increase any non-duplicative fees. 

FINRA undertook its regulatory pricing 

review with the objectives of 

maintaining a fair assessment level for 

firms and of preserving revenue levels 

necessary to fund FINRA’s member 

regulatory activities, including the 

regulation of members through 

examination, policymaking, rulemaking 

and enforcement activities. 

To achieve these objectives, FINRA 

determined that the most appropriate 

regulatory pricing structure would be to: 

(1) Eliminate NYSE Regulation’s legacy 

registration fees for branch offices and 

registered representatives, which totals 

approximately $18.6 million in fee 

reductions;11 (2) maintain NASD’s fee 

structures and levels for the TAF, the 

BOA and the PA; and (3) consolidate, 

with certain adjustments, NASD’s GIA 

rate structure with NYSE Regulation’s 

GFF rate structure.12

The GIA is currently assessed through 

a three-tier rate structure with a 

minimum GIA of $1,200.00. Under the 

current GIA, members are required to 

pay an annual GIA equal to the greater 

of $1,200.00 or the total of: 

(1) 0.125% of annual gross revenue 

less than or equal to $100 million; 

(2) 0.029% of annual gross revenue 

greater than $100 million up to $1 

billion; and 

(3) 0.014% of annual gross revenue 

greater than $1 billion.13

In contrast, the legacy GFF was 

assessed at a flat rate of $0.42 per $1,000 

of gross FOCUS revenue (or 0.042%). 

To consolidate these two legacy fees, 

FINRA proposes that the minimum 

assessment under the GIA of $1,200.00 

will remain, with the ceiling increased 

from $960,000.00 to $1 million of 

annual assessable revenue. Because 

FINRA has committed to reduce the GIA 

by $1,200.00 per year for five years, 

subject to annual Board approval, this 

will effectively reduce the GIA to $0 for 

the first $1 million of annual assessable 

revenue. FINRA proposes that for 

annual gross revenue over $1 million, 

the regressive rate structure of the 

legacy GIA and the flat rate structure of 

the legacy GFF be combined into a new 

rate structure. Specifically, FINRA 

proposes to create a seven-tiered rate 

structure that balances the legacy GIA 

tiered rate structure with the legacy GFF 

flat rate structure. 

Under the proposed rule change, 

members will be assessed a GIA of: 

(1) $1,200 on annual gross revenue up 

to $1 million; 

(2) 0.1215% of annual gross revenue 

greater than $1 million up to $25 

million; 

(3) 0.2599% of annual gross revenue 

greater than $25 million up to $50 

million; 

(4) 0.0518% of annual gross revenue 

greater than $50 million up to $100 

million; 

(5) 0.0365% of annual gross revenue 

greater than $100 million up to $5 

billion; 

(6) 0.0397% of annual gross revenue 

greater than $5 billion up to $25 billion; 

and 

(7) 0.0855% of annual gross revenue 

greater than $25 billion. 

FINRA estimates that the proposed 

rule change will result in aggregate fee 

reductions of approximately $25 million 

dollars in 2008 and forward, 

approximately $18.6 million of which 

relates to the elimination of NYSE 

Regulation’s legacy registration fees and 

approximately $6.4 million for GIA 

rebates given to all FINRA member 

firms. FINRA estimates that, under the 

proposed rate structure described above, 

93 percent of member firms will have 

either no change to their GIA or a 

reduced GIA due to this new rate 

structure. Certain firms with annual 

gross revenue exceeding $35 million 

dollars, however, will have an increase 

to their GIA under the proposed rate 

structure. 

To minimize the impact on members, 

the new rate structure will be 

implemented over a three-year period 

beginning in 2008. During this period, 

the change in the GIA paid to FINRA by 

each member will be subject to a cap 

based on the fees that the member 

would have paid under the prior NASD 

and NYSE rate structures. In 2008, a 

member’s GIA will not be impacted by 

the new rate structure. In 2009, any 

increase or decrease to the member’s 

GIA resulting from the new rate 

structure will be capped at a five 

percent increase or decrease. In 2010, 

any increase or decrease to the 

member’s GIA resulting from the new 

rate structure will be capped at a ten 

percent increase or decrease. During this 

implementation period, a firm’s GIA 


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7342 Federal Register / Vol. 73, No. 26 / Thursday, February 7, 2008 / Notices 

14 In calculating the cap based upon the GFF that 

a member would have paid under the prior NYSE 

GFF rate structure, FINRA will use only that 

portion of the GFF that would have been transferred 

by the NYSE to FINRA (i.e., 75 percent of the GFF 

paid by the member firm). 

15For example, assume that a Dual Member has 

gross revenue of $5 billion and assessable revenue 

(based on the prior year) of $4.95 billion for each 

of the first three years of the new fee rate structure. 

Under the legacy rate structures, the firm would 

have paid income assessments to FINRA of 

$2,512,800 each year (a legacy GFF of $1,575,000 

transferred to FINRA (i.e., 75 percent of the firm’s 

GFF); a legacy GIA to FINRA of $939,000; and net 

of a $1,200 rebate). Under the new rate structure in 

the proposed rule filing, the total income 

assessment charged by FINRA to the firm, without 

the cap, would be $1,892,224 (a GIA of $1,893,424 

net of a $1,200 rebate). This would represent a 

decrease of $620,576. However, because the change 

is capped at zero percent in 2008, the firm would 

be assessed a GIA under the new rate structure of 

$2,512,800 (i.e., the same amount as what the firm 

would have paid under the two legacy rate 

structures). In 2009, the firm would pay a GIA of 

$2,387,160 (reflecting the maximum five percent 

change), and in 2010, the firm would pay a GIA of 

$2,261,520 (reflecting the maximum ten percent 

change). As discussed in footnote 12 above, Dual 

Members will also be subject to a reduced GFF 

charged by NYSE. Telephone conference between 

Kathleen O’Mara, Associate General Counsel, 

FINRA; Carrie DiValerio, Senior Director, FINRA; 

Nancy Burke-Sanow, Assistant Director, Division of 

Trading and Markets (‘‘Division’’), Commission; 

and Jan Woo, Special Counsel, Division, 

Commission, on January 31, 2008. 

16 15 U.S.C. 78o–3(b)(5). 

17 15 U.S.C. 78o–3(b)(5). 

may increase or decrease due to a 

change in the member’s assessable 

revenue from year to year; however, any 

changes to the firm’s GIA that result 

from the change in rate structure will be 

subject to the cap. 

For firms that were members of NASD 

only (not NYSE) as of July 30, 2007, the 

cap will be calculated based upon the 

GIA that the member firm would have 

paid under the prior NASD GIA rate 

structure. For firms that became, or 

become, FINRA members on or after 

July 30, 2007 (excluding those firms that 

were members of NYSE only as of July 

30, 2007 and were subsequently 

required to become FINRA members 

pursuant to NYSE Rule 2), the cap will 

be calculated based upon the GIA that 

the member firm would have paid under 

the prior NASD GIA rate structure. For 

firms that were members of the NYSE 

only (not NASD) as of July 30, 2007, the 

cap will be calculated based upon the 

NYSE GFF that the member would have 

paid under the prior NYSE GFF rate 

structure.14 For firms that were 

members of both NASD and the NYSE 

as of July 30, 2007 (‘‘Dual Members’’), 

the cap will be calculated based upon 

the GIA and the GFF that the member 

would have paid under the prior NASD 

GIA rate structure and the prior NYSE 

GFF rate structure.15

Despite the reduction in revenue that 

will result from the new rate structure, 

FINRA believes that the revenue 

collected under the pricing proposal 

will fund its member regulatory 

programs. The integration of the 

member firm regulation operations of 

NASD and NYSE into FINRA should 

take up to three years, given FINRA’s 

need to establish a new examination 

and enforcement program under a 

consolidated rule book. A new cost 

structure and revised pricing structure 

will be evaluated once the integration is 

complete. 

FINRA is proposing that the effective 

date of the proposed rule change will be 

retroactive to January 1, 2008. FINRA 

will announce the proposed rule change 

and subsequent approval in a 

Regulatory Notice. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of section 15A(b)(5) of the Act,16 which 

requires, among other things, that 

FINRA rules provide for the equitable 

allocation of reasonable dues, fees, and 

other charges among members and 

issuers and other persons using any 

facility or system that FINRA operates 

or controls. FINRA believes that the 

proposed rule change balances NASD 

and NYSE Regulation legacy fees in a 

manner that is consistent with FINRA’s 

statutory obligation under section 

15A(b)(5) of the Act 17 to ensure that its 

fees are reasonable and equitably 

allocated. FINRA believes that the 

modified rates and the introduction of 

additional tiers appropriately balance 

the legacy fees. Moreover, FINRA has 

sought to minimize the impact that the 

proposed rule change will have on its 

members by phasing-in the proposed 

changes so that the changes will have 

minimal impact on members for the first 

three years. 

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 NASD consents, the 

Commission will: 

(A) By order approve such proposed 

rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–FINRA–2008–001 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2008–001. 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. 


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18 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a et seq. 

3 17 CFR 240.19b–4. 

4 17 CFR 240.19b–4(f)(6). 

5FINRA has incorporated into its rulebook 

certain rules of NYSE, including NYSE Rules 421, 

440F and 440G. These incorporated NYSE rules 

apply solely to those members of FINRA that also 

are members of NYSE on or after July 30, 2007 

(‘‘Dual Members’’), until such time as FINRA adopts 

a consolidated rulebook applicable to all of its 

members. The incorporated NYSE rules apply to the 

same categories of persons to which they applied 

as of July 30, 2007. In applying the incorporated 

NYSE rules to Dual Members, FINRA also has 

incorporated the related interpretive positions set 

forth in the NYSE Rule Interpretations Handbook 

and NYSE Information Memos. 

6 17 CFR 240.10a–1. 

7 17 CFR 240.200–203. 

8See Securities Exchange Act Release No. 55970 

(June 28, 2007), 72 FR 36348 (July 3, 2007). 

9See File No. SR–NYSE–2007–62 (‘‘NYSE’s 

filing’’). 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2008–001 and 

should be submitted on or before 

February 28, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.18

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E8–2182 Filed 2–6–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–57252; File No. SR–FINRA–

2007–025] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Amendments 

to FINRA’s NYSE Rules 421, 440F, and 

440G 

February 1, 2008. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on December 

4, 2007, 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 and 

II below, which Items have been 

substantially prepared by FINRA. 

FINRA has designated the proposed rule 

change as constituting a ‘‘noncontroversial’’ rule change under 

paragraph (f)(6) of Rule 19b–4 under the 

Act,4 which renders the proposal 

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 

FINRA is proposing to amend 

FINRA’s NYSE Rules 421 (Periodic 

Reports), 440F (Public Short Sale 

Transactions Effected on the Exchange) 

and 440G (Transactions in Stock and 

Warrants for the Accounts of Members, 

Allied Members and Member 

Organizations) 5 to conform such rules 

with the SEC’s amendments to Rule 

10a–1 6 (‘‘SEC Rule 10a–1’’) and 

Regulation SHO 7 under the Act.8 The 

proposed rule change makes conforming 

changes to FINRA’s NYSE Rules 421, 

440F and 440G, consistent with the 

proposed rule change by the New York 

Stock Exchange, LLC (‘‘NYSE’’) to its 

versions of Rules 421, 440F and 440G.9

Below is the text of the proposed rule 

change. Proposed new language is in 

italics; proposed deletions are in 

brackets. 

* * * * * 

Rule 421. Periodic Reports 

No Change. 

* * * Supplementary Material: 

.10 Short positions.—Member 

organizations for which the Exchange is 

the designated examining authority are 

required to report ‘‘short’’ positions, 

including odd lots, in each stock or 

warrant listed on the Exchange, and in 

each other stock or warrant not listed on 

the Exchange which is not otherwise 

reported to another United States 

securities exchange or securities 

association, using such automated 

format and methods as prescribed by the 

Exchange. Such reports must include 

customer and proprietary positions and 

must be made at such times and 

covering such time period as may be 

designated by the Exchange. 

Member organizations for which the 

Exchange is not the designated 

examining authority must report ‘‘short’’

positions to the self-regulatory 

organization which is its designated 

examining authority (‘‘DEA’’) if such 

DEA has a requirement for such reports. 

If the DEA does not have such a 

reporting requirement, then such 

member organization must comply with 

the provisions of Rule 421. 

The term ‘‘designated examining 

authority’’ means the self-regulatory 

organization which has been assigned 

responsibility for examining a member 

organization for compliance with 

applicable financial responsibility rules. 

(See Rule 17d–1 under the Securities 

Exchange Act of 1934 (the ‘‘Exchange 

Act’’).) 

‘‘Short’’ positions to be reported are 

those resulting from ‘‘short’’ sales as 

defined in Rule 200(a) of the Securities 

and Exchange Commission’s Regulation 

SHO, but excluding positions that meet 

the following requirements: 

(1) any sale by any person, for an 

account in which he has an interest, if 

such person owns the security sold and 

intends to deliver such security as soon 

as is possible without undue 

inconvenience or expense; 

(2) any sale of a security covered by 

a short sale rule on a national securities 

exchange (except a sale to a stabilizing 

bid complying with Rule 104 of 

Regulation M) effected with the 

approval of such exchange which is 

necessary to equalize the price of such 

security thereon with the current price 

of such security on another national 

securities exchange which is the 

principal exchange market for such 

security; 

(3) any sale of a security for a special 

arbitrage account by a person who then 

owns another security by virtue of which 

he is, or presently will be, entitled to 

acquire an equivalent number of 

securities of the same class as the 

securities sold; provided such sale, or 

the purchase which such sale offsets, is 

effected for the bona fide purpose of 

profiting from a current difference 

between the price of security sold and 

the security owned and that such right 

of acquisition was originally attached to 

or represented by another security or 

was issued to all the holders of any such 

class of securities of the issuer; 

(4) any sale of a security registered on, 

or admitted to unlisted trading 

privileges on, a national securities 

exchange effected for a special 

international arbitrage account for the 

bona fide purpose of profiting from a 

current difference between the price of 

such security on a securities market not 

within or subject to the jurisdiction of 

the United States and on a securities 

market subject to the jurisdiction of the 

United States; provided the seller at the 

time of such sale knows or, by virtue of 

information currently received, has 


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