Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices 57393 

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 two sets 

of rules: (1) NASD Rules and (2) rules incorporated 

from NYSE (‘‘Incorporated NYSE Rules’’) (together 

referred to as the ‘‘Transitional Rulebook’’). The 

Incorporated NYSE Rules (hereinafter, ‘‘NYSE 

Rules’’) apply only to those members of FINRA that 

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

Dual Members also must comply with NASD Rules. 

For more information about the rulebook 

consolidation process, see FINRA Information 

Notice, March 12, 2008 (Rulebook Consolidation 

Process). 

4See Securities Exchange Act Release No. 34– 

58308 (August 5, 2008); 73 FR 46664 (Aug. 11, 

2008) (notice). 

5See letter from Amal Aly, Managing Director 

and Associate General Counsel, Securities Industry 

and Financial Markets Association, dated Sept. 2, 

2008 (‘‘SIFMA letter’’). 

6See NASD Notice to Members 93–8 (February 

1993) (SEC Approval of Amendment Relating to the 

Payment of Gratuities or Anything of Value by 

Members to Others); see also Securities Exchange 

Act Release No. 21074 (June 20, 1984), 49 FR 26330 

(June 27, 1984) (SR–NASD–84–8) (approval order). 

7 In addition, NYSE Rule 350(a)(1) prohibits any 

member from employing or compensating any 

person for services rendered except with the prior 

consent of that person’s employer. FINRA proposed 

to delete this provision, even though it does not 

pertain to gifts, because a substantively identical 

provision exists in NYSE Rule 346(b). FINRA 

intends to review NYSE Rule 346(b) as part of a 

later phase of the rulebook consolidation process. 

8See NASD Notice to Members 06–69 (December 

2006) (Gifts and Gratuities). 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2008–047 and 

should be submitted on or before 

October 23, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23195 Filed 10–1–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58660; File No. SR–FINRA– 

2008–027] 

Self-Regulatory Organizations: 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change Relating to the 

Adoption of FINRA Rule 3220 

(Influencing or Rewarding Employees 

of Others) and FINRA Rule 2070 

(Transactions Involving FINRA 

Employees) in the Consolidated FINRA 

Rulebook 

September 26, 2008. 

I. Introduction 

On July 18, 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 (‘‘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 

relating to the adoption of FINRA Rule 

3220 (Influencing or Rewarding 

Employees of Others) and FINRA Rule 

2070 (Transactions Involving FINRA 

Employees) in the new consolidated 

FINRA rulebook (‘‘Consolidated FINRA 

Rulebook’’).3 The proposed rule change 

was published for comment in the 

Federal Register on August 11, 2008.4

The Commission received one comment 

letter in response to the proposed rule 

change.5 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

As part of the process of developing 

the Consolidated FINRA Rulebook, 

FINRA proposed to transfer without 

material change NASD Rules 3060 

(Influencing or Rewarding Employees of 

Others) and 3090 (Transactions 

Involving Association and American 

Stock Exchange Employees) into the 

Consolidated FINRA Rulebook and to 

delete the corresponding provisions in 

Incorporated NYSE Rules 350, 350.10, 

407(a), 407.10 and NYSE Rule 

Interpretations 350/01 through 350/03. 

The proposed rule change would 

renumber NASD Rule 3060 as FINRA 

Rule 3220 and NASD Rule 3090 as 

FINRA Rule 2070 in the Consolidated 

FINRA Rulebook, and would delete 

NASD Rules 3060 and 3090 in their 

entirety from the Transitional Rulebook. 

(A) Proposed FINRA Rule 3220 

(1) Background 

NASD Rule 3060 (Influencing or 

Rewarding Employees of Others) 

currently states that no member or 

associated person shall give gifts or 

gratuities to an agent or employee of 

another person in excess of $100 per 

year where the gift or gratuity is in 

relation to the business of the employer 

of the recipient. The rule, which 

protects against improprieties that may 

arise when members or their associated 

persons give gifts or gratuities to 

employees of a customer, has been in 

effect in its current form since 1969, 

with changes only to the dollar 

amounts, rising from $25 to $50 to 

$100.6 The rule requires each member to 

maintain a separate record of all gifts or 

gratuities. The rule also contains an 

express exclusion for payments made 

pursuant to bona fide, written 

employment contracts. 

NYSE Rule 350 (Compensation or 

Gratuities to Employees of Others) 

reaches similar conduct in prohibiting, 

absent prior written consent of the 

recipient’s employer, any member or 

member organization from giving any 

gratuity in excess of $100 per person per 

year to any principal, officer, or 

employee of another member or member 

organization, financial institution, news 

or financial information media, or nonmember broker or dealer in securities, 

commodities or money instruments.7

NYSE Rule 350 has specific provisions 

addressing compensation to operations 

employees of members (e.g., NYSE Floor 

personnel). In addition, NYSE Rule 350 

requires that records of all such 

gratuities and compensation be retained 

for at least three years. 

(2) Proposal 

FINRA proposed to transfer NASD 

Rule 3060 into the Consolidated FINRA 

Rulebook without material change and 

renumbered as FINRA Rule 3220. One 

of the advantages of the existing 

regulatory standard is the clarity of the 

rule’s application—it prevents gifts in 

excess of a fixed amount, currently 

$100. Both the NASD and NYSE rules 

have a $100 limitation on gifts. 

FINRA believes that NASD Rule 3060 

generally is well understood by 

members. FINRA recently issued 

additional guidance on NASD Rule 3060 

in Notice to Members 06–69.8 Among 

the issues addressed in that Notice was 

the fact that NASD Rule 3060 does not 

apply to gifts of de minimis value, or to 

promotional items of nominal value 

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57394 Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices 

9See Interpretive Letter dated December 17, 2007 

to Amal Aly, SIFMA from Gary L. Goldsholle, 

FINRA, available at: http://www.finra.org/ 

RulesRegulation/PublicationsGuidance/ 

InterpretiveLetters/ConductRules/P037695. 

10NYSE Rule Interpretation 350/02 would be 

deleted in its entirety. Note that NYSE Rule 350 

also contains provisions that address gifts and 

gratuities to employees of the NYSE. These 

provisions are addressed in connection with 

FINRA’s proposal to adopt FINRA Rule 2070. See 

Section (B) under Item II.A.1. FINRA’s proposals 

with respect to FINRA Rules 3220 and 2070 would, 

in combination, delete NYSE Rule 350 in its 

entirety. 

11NYSE Rule 350.10 also contains provisions that 

address employment or compensation of NYSE 

employees by members or member organizations. 

These provisions are addressed in connection with 

FINRA’s proposal to adopt FINRA Rule 2070. See 

Section (B) under Item II.A.1. Because Proposed 

FINRA Rules 3220 and 2070 would address the 

substance of NYSE Rule 350.10, FINRA proposed to 

delete NYSE Rule 350.10 in its entirety. 

12See Securities Exchange Act Release No. 55765 

(May 15, 2007), 72 FR 28743 (May 22, 2007) (notice) 

see also Amendment No. 3 to File No. SR–NASD– 

2006–044 (January 2, 2008). 

13Telephone conference among Gary Goldsholle 

and Adam Arkel, FINRA, and Haimera Workie, 

Branch Chief, Alicia Goldin, Special Counsel, 

Sharon Lawson, Senior Special Counsel and Steve 

Kuan, Special Counsel, Commission, on September 

11, 2008. 

14These interpretative letters are currently 

available at FINRA’s web site at http:// 

www.finra.org/Industry/Regulation/Guidance/ 

InterpretiveLetters/ConductRules/index.htm. 

15See, e.g., letter to Henry H. Hopkins and Sarah 

McCafferty, T. Rowe Price Investment Services, 

Inc., dated June 24, 1999. 

16NYSE Rule 407(a) requires duplicate 

confirmations and account statements with respect 

to accounts or transactions of members, allied 

members and employees associated with another 

member or member organizations. 17NYSE Rule 350.10 provides that requests for 

NYSE consent under Rule 350(a)(1) should be sent 

to the NYSE’s Human Resources Department at 

least 10 days in advance of the proposed date of 

employment. NYSE Rule 350.10 states that approval 

to employ an NYSE employee outside the hours of 

regular employment by the NYSE will be limited to 

employment of a routine or clerical nature. NYSE 

Rule 350.10 further states that when the NYSE has 

granted permission for part-time employment of a 

NYSE employee, no approval is required for a 

subsequent gratuity or bonus to such person 

provided it is in proportion to gratuities given to 

full-time employees of the employing organization. 

18The proposal included stylistic edits to NASD 

Rule 3090 for purposes of clarity and readability. 

displaying a firm’s logo. The Notice 

stated that NASD Rule 3060 does not 

prohibit customary Lucite tombstones, 

plaques or other similar solely 

decorative items commemorating a 

business transaction or event. The 

Notice also stated that gifts should be 

valued at the higher of cost or market 

value and tickets should be valued at 

the higher of cost or face value. In 

addition, FINRA staff has used its 

interpretive authority to address 

unintended consequences of the rule, 

such as unreasonable limitations on 

giving a bereavement or sympathy gift.9

FINRA proposed to eliminate the 

provision in NYSE Rule 350 permitting 

member firms to obtain prior written 

consent of the recipient’s employer for 

any gift over $100. FINRA believes that 

the gift rule should establish a fixed 

amount and does not see any business 

need to justify giving gifts in amounts 

greater than the limits specified in the 

rule. FINRA also would delete the 

provisions in NYSE Rule 350 and NYSE 

Rule Interpretation 350/02 addressing 

compensation to operations/Floor 

employees of NYSE as they are not 

relevant for FINRA.10 For similar 

reasons, provisions in NYSE Rule 

350.10 pertaining to employment of or 

gratuities to personnel working the 

Floor of other exchanges would be 

deleted.11 Finally, FINRA would 

eliminate the provisions of NYSE Rule 

350 relating to record retention, as 

NASD Rule 3060(c) addresses the same 

issue. FINRA proposed to eliminate 

NYSE Rule Interpretation 350/01, and 

provisions in NYSE Rule 350.10 

pertaining to gifts among close relatives, 

because the concepts contained in both 

are adequately addressed by proposed 

FINRA Rule 3220 and existing guidance. 

Lastly, FINRA would eliminate NYSE 

Rule Interpretation 350/03 because 

FINRA has proposed a separate rule that 

addresses business entertainment.12

Any guidance provided under NASD 

Rule 3060, including, without 

limitation, notices to members and 

interpretation letters, also would apply 

to the proposed FINRA Rule 3220.13 The 

Commission notes three interpretative 

letters previously issued with respect to 

NASD Rule 3060.14 The interpretative 

letters include FINRA’s rule on 

members providing business 

entertainment.15

(B) Proposed FINRA Rule 2070 

(1) Background 

Both NASD and NYSE rules address 

conflicts of interest involving FINRA 

and NYSE employees. 

NASD Rule 3090 addresses this issue 

in three ways. First, NASD Rule 3090(a) 

requires a member, when it has actual 

notice that an NASD employee has a 

financial interest or controls trading in 

an account, to promptly obtain and 

implement an instruction from the 

employee directing that duplicate 

account statements be provided by the 

member to NASD. Second, NASD Rule 

3090(b) prohibits a member from 

making any loan of money or securities 

to an NASD employee. This prohibition 

does not apply to loans made in the 

context of disclosed, routine banking 

and brokerage agreements, or loans that 

are clearly motivated by a personal or 

family relationship. Third, NASD Rule 

3090(c) prohibits any member from 

directly or indirectly giving, or 

permitting to be given, anything of more 

than nominal value to any NASD 

employee who has responsibility for a 

regulatory matter involving the member. 

This applies regardless of the $100 per 

individual per year limitation set forth 

in NASD Rule 3060(a). The term 

‘‘regulatory matter’’ is defined to 

include, without limitation, 

examinations, disciplinary proceedings, 

membership applications, listing 

applications, delisting proceedings, and 

dispute-resolution proceedings that 

involve the member. 

The NYSE rules governing conflicts of 

interest involving NYSE employees 

differ from the NASD approach in two 

ways. First, rather than applying the 

duplicate statement approach to NYSE 

employees (which applies to NASD 

employees under NASD Rule 3090(a)), 

NYSE Rule 407(a) prohibits a member or 

member organization, without the prior 

written consent of the NYSE, from 

opening a securities or commodities 

account or executing any transaction in 

which an employee of the NYSE is 

directly or indirectly interested.16 NYSE 

Rule 401.10 states that an employee of 

the NYSE or any of its affiliated 

companies who wishes to open a 

securities or commodities account 

should apply for permission from the 

NYSE’s Ethics Officer. Second, the 

NYSE Rules differ from the nominal 

value approach set forth in NASD Rule 

3090(c) by instead setting procedures for 

outside compensation and placing a 

dollar limit on gifts. Specifically, with 

respect to outside compensation, NYSE 

Rule 350(a)(1) prohibits any member, 

allied member, member organization or 

employee thereof from employing or 

compensating any person for services 

rendered without the prior consent of 

the person’s employer (i.e., the NYSE 

with respect to NYSE employees).17

With respect to gifts, NYSE Rule 

350(a)(2) prohibits giving any gift or 

gratuity in excess of $50 per person per 

year to any principal, officer, or 

employee of the NYSE or its 

subsidiaries without the prior written 

consent of the NYSE. This rule is 

written without regard to whether the 

NYSE employee has responsibility for 

regulatory matters affecting the member. 

(2) Proposal 

FINRA proposed to transfer NASD 

Rule 3090 into the Consolidated FINRA 

Rulebook without material change,18

renumbered as FINRA Rule 2070 and 

that the corresponding provisions in 

NYSE Rules 350(a)(1), 350(a)(2), 350.10, 

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Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices 57395 

19With respect to NYSE Rule 407(a), the only 

change to the rule at this stage in the rulebook 

consolidation would be to delete language 

pertaining to employees of the NYSE. See Exhibit 

5. NYSE Rule 407.10 would be deleted in its 

entirety. With respect to NYSE Rules 350(a)(1), 

350(a)(2) and 350.10, see supra notes 10 and 11. 

20See supra, footnote 5. 

21See letter from Gary L. Goldsholle, Vice 

President and Associate General Counsel, FINRA 

Regulatory Group, dated September 11, 2008. 

22See SIFMA letter. 

23 Id. 

24 Id. 

25 Id. 

26See supra, footnote 21. 

27 Id. 

28 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). 

29 15 U.S.C. 78o–3(b)(6). 

30 15 U.S.C. 78s(b)(2). 

31 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See infra note 7 for discussion about the 

Consolidated FINRA Rulebook. 

4See infra note 7 regarding ‘‘Incorporated NYSE 

Rules.’’ 

407(a) and 407.10 be eliminated.19

Rather than requiring the member to 

obtain FINRA’s consent to open a 

securities or commodities account or 

execute a trade (as set forth under NYSE 

Rules 407(a) and 407.10), FINRA 

believes that it is sufficient, as set forth 

under NASD Rule 3090(a), to continue 

to require the member to obtain and 

implement an instruction from the 

FINRA employee directing the member 

to provide duplicate statements to 

FINRA. The proposed rule change 

would, as set forth in NASD Rule 

3090(b), continue to prohibit members 

from making any loan of money or 

securities to a FINRA employee, subject 

to the exceptions set forth in that rule. 

Lastly, the proposed rule change would, 

as set forth in NASD Rule 3090(c), 

continue to prohibit members from 

directly or indirectly giving, or 

permitting to be given, anything above 

nominal value to any FINRA employee 

who has responsibility for a ‘‘regulatory 

matter’’ involving the member. FINRA 

does not believe that its employees 

should be permitted to receive gifts of 

up to $50 per year when such 

employees have responsibility for a 

regulatory matter. In addition, FINRA 

proposed not to adopt the $50 limit in 

NYSE Rule 350(a)(2) for gifts to all other 

employees to maintain consistency with 

the FINRA Code of Conduct, which, like 

NASD Rule 3060(a) (and proposed 

FINRA Rule 3220(a)), establishes a $100 

limit. Rule 3090(c) need not be amended 

to address the employment and 

compensation issues as to NYSE 

employees in NYSE Rules 350(a)(1) and 

350.10 because the FINRA Code of 

Conduct addresses these issues through 

its provisions on Outside Activities or 

Employment. 

FINRA proposed to delete listing and 

delisting proceedings as potential 

‘‘regulatory matters’’ under NASD Rule 

3090(c) in light of FINRA’s separation 

from NASDAQ and The American Stock 

Exchange. 

III. Comment Letters 

The Commission received one 

comment letter on the proposal 20 and a 

response to comments from FINRA.21 In 

its comment letter, SIFMA supported 

FINRA’s effort to consolidate its two 

rulebooks.22 However, SIFMA suggested 

that FINRA should amend the proposed 

rule change with respect to NASD Rule 

3060 to incorporate a principles-based 

approach to gifts and gratuities.23

SIFMA said that FINRA should permit 

firms to establish their own gifts and 

gratuities policies and limits rather than 

retain the limits set forth in the rule.24

SIFMA also supports the inclusion of a 

safe harbor in new Rule 3220, under 

which a FINRA member firm would be 

deemed to be in compliance with new 

Rule 3220, if the aggregate annual 

amount of gifts and gratuities to any one 

person did not exceed a de minimis 

amount, such as $250.25

FINRA responded to the request by 

SIFMA for a principles-based approach 

to gifts and gratuities by stating that 

FINRA had given a great deal of 

consideration to this approach, but had 

determined to maintain the existing 

standards, which offer predictability 

and clarity.26 FINRA also noted that it 

does not believe that it is appropriate at 

this time to increase the limit for gifts 

and gratuities to $250 from $100.27

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.28 In 

particular, the Commission believes that 

the proposed rule change is consistent 

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

of the Act,29 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, as part of the 

FINRA rulebook consolidation process, 

the proposed rule change would 

streamline and reorganize existing rules 

that govern influencing or rewarding the 

employees of others and transactions 

involving FINRA employees. Further, 

the proposed rule change would provide 

greater regulatory clarity with respect to 

these issues. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,30 that the 

proposed rule change (SR–FINRA– 

2008–027) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–23196 Filed 10–1–08; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

Release No. 34–58661; File No. SR–FINRA– 

2008–030] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rule 3130 (Annual Certification 

of Compliance and Supervisory 

Processes) in the Consolidated FINRA 

Rulebook 

September 26, 2008. 

I. Introduction 

On June 18, 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 (‘‘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 adopt NASD Rule 3013 

(Annual Certification of Compliance 

and Supervisory Processes) and IM– 

3013 (Annual Compliance and 

Supervision Certification) as a FINRA 

rule in the consolidated FINRA 

rulebook (‘‘Consolidated FINRA 

Rulebook’’) 3 without material change, 

and to delete the corresponding 

provisions in Incorporated NYSE Rule 

342.30 and NYSE Rule Interpretations 

311(b)(5)/04 through /05 and 342.30(d)/ 

01 through (e)/01.4 The proposed rule 

change would renumber NASD Rule 

3013 and IM–3013 as FINRA Rule 3130 

in the Consolidated FINRA Rulebook. 

The proposed rule change was 

published for comment in the Federal 

mstockstill on PROD1PC66 with NOTICES