Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 61793 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 62318 

(June 17, 2010), 75 FR 36461 (‘‘Notice’’). 

4See letter from David M. Sobel, Esq., EVP/CCO, 

Abel/Noser Corp., to Elizabeth M. Murphy, 

Secretary, Commission, dated July 6, 2010 (‘‘Abel/ 

Noser Letter’’); letter from Larry Taunt, Chief 

Executive Officer, Regal Financial Group, to 

Elizabeth M. Murphy, Secretary, Commission, dated 

July 7, 2010 (‘‘Regal Letter’’); letter from Lisa Roth, 

NAIBD Member Advocacy Committee Chair, CEO/ 

CCO, National Association of Independent BrokerDealers, Inc., to Elizabeth M. Murphy, Secretary, 

Commission, dated July 9, 2010 (‘‘NAIBD Letter’’); 

letter from Chris Charles, President, Wulff, Hansen, 

& Co., to Elizabeth M. Murphy, Secretary, 

Commission, dated July 13, 2010 (‘‘Wulff Hansen 

Letter’’); letter from Tamara K. Salmon, Senior 

Associate Counsel, Investment Company Institute, 

to Elizabeth M. Murphy, Secretary, Commission, 

dated July 14, 2010 (‘‘ICI Letter’’); letter from Byron 

‘‘Pat’’ Treat, President/CEO, Great Nation 

Investment Corporation, to Elizabeth M. Murphy, 

Secretary, Commission, dated July 15, 2010 (‘‘Great 

Nation Letter’’); letter from Eric Segall, Sr. V.P., 

Manager, Business Conduct, and Edward W. 

Wedbush, President, Wedbush Securities, Inc., to 

Elizabeth M. Murphy, Secretary, Commission, dated 

July 15, 2010 (‘‘Wedbush Letter’’); letter from 

Raymond C. Holland, Vice-Chairman, Triad 

Securites Corp., to Elizabeth M. Murphy, Secretary, 

Commission, dated July 15, 2010 (‘‘Triad Letter I’’); 

letter from Sis DeMarco, Director of Compliance, 

Triad Securities Corp., to Elizabeth M. Murphy, 

Secretary, Commission, dated July 15, 2010 (‘‘Triad 

Letter II’’); letter from S. Kendrick Dunn, Assistant 

Vice President, Pacific Select Distributors, Inc. to 

Elizabeth M. Murphy, Secretary, Commission, dated 

July 16, 2010 (‘‘PSD Letter’’); and letter from Howard 

Spindel, Senior Managing Director, Integrated 

Management Solutions, to Elizabeth M. Murphy, 

Secretary, Commission, dated July 16, 2010 (‘‘IMS 

Letter’’). 

5See letter from Stan Macel, Assistant General 

Counsel, FINRA, to Elizabeth M. Murphy, 

Secretary, Commission, dated September 14, 2010 

(‘‘FINRA Letter’’). 

6See FINRA By-Laws, Article V, Section 4(a) 

(Retention of Jurisdiction). 

8. Capital Southwest requests an order 

pursuant to section 57(a)(4) and rule 

17d–1 to permit the Plan. Capital 

Southwest states that the Plan, although 

benefiting the Participants and Capital 

Southwest in different ways, is in the 

interests of Capital Southwest’s 

shareholders because the Plan will help 

align the interests of Capital 

Southwest’s employees and officers 

with those of its shareholders, which 

will encourage conduct on the part of 

those employees and officers designed 

to produce a better return for Capital 

Southwest’s shareholders. 

Applicant’s Conditions 

Applicant agrees that the order 

granting the requested relief will be 

subject to the following conditions: 

1. The Plan will be authorized by 

Capital Southwest’s shareholders. 

2. Each issuance of Restricted Stock to 

officers and employees will be approved 

by the required majority, as defined in 

section 57(o) of the Act, of Capital 

Southwest’s directors on the basis that 

such issuance is in the best interests of 

Capital Southwest and its shareholders. 

3. The amount of voting securities 

that would result from the exercise of all 

of Capital Southwest’s outstanding 

warrants, options, and rights, together 

with any Restricted Stock issued 

pursuant to the Plan, at the time of 

issuance shall not exceed 25% of the 

outstanding voting securities of Capital 

Southwest, except that if the amount of 

voting securities that would result from 

the exercise of all of Capital Southwest’s 

outstanding warrants, options, and 

rights issued to Capital Southwest’s 

directors, officers, and employees, 

together with any Restricted Stock 

issued pursuant to the Plan, would 

exceed 15% of the outstanding voting 

securities of Capital Southwest, then the 

total amount of voting securities that 

would result from the exercise of all 

outstanding warrants, options, and 

rights, together with any Restricted 

Stock issued pursuant to the Plan, at the 

time of issuance shall not exceed 20% 

of the outstanding voting securities of 

Capital Southwest. 

4. The maximum amount of shares of 

Restricted Stock that may be issued 

under the Plan will be 10% of the 

outstanding shares of common stock of 

Capital Southwest on the effective date 

of the Plan plus 10% of the number of 

shares of Capital Southwest’s common 

stock issued or delivered by Capital 

Southwest (other than pursuant to 

compensation plans) during the term of 

the Plan. 

5. The Board will review the Plan at 

least annually. In addition, the Board 

will review periodically the potential 

impact that the issuance of Restricted 

Stock under the Plan could have on 

Capital Southwest’s earnings and NAV 

per share, such review to take place 

prior to any decisions to grant Restricted 

Stock under the Plan, but in no event 

less frequently than annually. Adequate 

procedures and records will be 

maintained to permit such review. The 

Board will be authorized to take 

appropriate steps to ensure that the 

grant of Restricted Stock under the Plan 

would not have an effect contrary to the 

interests of Capital Southwest’s 

shareholders. This authority will 

include the authority to prevent or limit 

the granting of additional Restricted 

Stock under the Plan. All records 

maintained pursuant to this condition 

will be subject to examination by the 

Commission and its staff. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–25069 Filed 10–5–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63016; File No. SR–FINRA– 

2010–021] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change to Amend 

FINRA Rule 8210 to Require 

Information Provided via Portable 

Media Device be Encrypted 

September 29, 2010. 

I. Introduction 

On June 2, 2010, the Financial 

Industry Regulatory Authority, Inc. 

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

Exchange Commission (the 

‘‘Commission’’ or ‘‘SEC’’), pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (the ‘‘Exchange 

Act’’ or ‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend FINRA Rule 8210 to require that 

information provided via portable 

media device to FINRA in response to 

a request under the rule be encrypted. 

The proposed rule change was 

published for comment in the Federal 

Register on June 25, 2010.3

The Commission received eleven 

comment letters on the proposal.4

FINRA responded to these comment 

letters in a letter dated September 14, 

2010.5 This order approves the 

proposed rule change. 

II. Background and Description of 

Proposal 

FINRA Rule 8210 (Provision of 

Information and Testimony and 

Inspection and Copying of Books) 

confers on FINRA staff the authority to 

compel a member, person associated 

with a member, or other person over 

whom FINRA has jurisdiction, to 

produce documents, provide testimony, 

or supply written responses or 

electronic data in connection with an 

investigation, complaint, examination or 

adjudicatory proceeding. The rule 

applies to all members, associated 

persons, and other persons over whom 

FINRA has jurisdiction, including 

former associated persons subject to 

FINRA’s jurisdiction as described in the 

FINRA By-Laws.6 FINRA Rule 8210(c) 

provides that a member’s or person’s 

failure to provide information or 

testimony or to permit an inspection 

mstockstill on DSKH9S0YB1PROD with NOTICES

61794 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

7FINRA has emphasized that its members have 

an obligation under existing laws to protect 

confidential customer records and information 

pursuant to the requirements of SEC Regulation S– 

P. See, e.g., Notice to Members 05–49 (Safeguarding 

Confidential Customer Information). 

8The proposed rule change defines ‘‘portable 

media device’’ as a storage device for electronic 

information, including but not limited to a flash 

drive, CD–ROM, DVD, portable hard drive, laptop 

computer, disc, diskette, or any other portable 

device for storing and transporting electronic 

information. 

9 In its Notice, FINRA represents, for example, 

that some jurisdictions, including Massachusetts 

and Nevada, have recently enacted legislation that 

establishes minimum standards to safeguard 

personal information in electronic records. See, e.g., 

Commonwealth of Massachusetts, 201 CMR 17.00 

(Standards for the Protection of Personal 

Information of Residents of the Commonwealth), 

effective March 1, 2010; State of Nevada, NRS 

603A.215 (Security Measures for Data Collector that 

Accepts Payment Card; Use of Encryption; Liability 

for Damages; Applicability), effective January 1, 

2010. As stated in the Notice, these laws contain 

penalties that can be imposed on persons and 

entities for failures to adequately safeguard 

electronic records containing personal information. 

10See supra notes 4 and 5. 

11See ICI Letter. 

12See NAIBD Letter (endorsed by Triad I Letter 

and Triad II Letter), and PSD Letter. 

13See NAIBD Letter. 

14See Wedbush Letter. 

15See FINRA Letter. 

16See Abel/Noser Letter, IMS Letter, NAIBD 

Letter, PSD Letter, and Regal Letter, and Abel/Noser 

Letter. 

17See Regal Letter. 

18See Abel/Noser Letter. 

19See IMS Letter. 

20 Id. 

21See FINRA Letter. 

22 Id. 

23 Id. 

24 Id. 

25See Great Nation Letter, IMS Letter, and PSD 

Letter. 

26See FINRA Letter. 

and copying of books, records, or 

accounts is a violation of the rule. 

FINRA is proposing to amend FINRA 

Rule 8210 to require that information 

provided via a portable media device 

pursuant to a request under the rule be 

encrypted, as discussed further below. 

Requiring such information to be 

encrypted will help ensure that such 

information, which in many instances 

includes individuals’ personal 

information, is protected from 

unauthorized or improper use.7

According to FINRA, frequently, 

members and persons who respond to 

requests pursuant to FINRA Rule 8210 

provide information in electronic 

format. Because of the size of the 

electronic files, persons often provide 

information in electronic format using a 

portable media device such as a CD– 

ROM, DVD or portable hard drive.8 In 

many instances, the response contains 

personal information that, if accessed by 

an unauthorized person, could be used 

inappropriately. For example, a 

response may include a person’s first 

and last name, or first initial and last 

name, in combination with that 

person’s: (1) Social security number; (2) 

driver’s license, passport or 

government-issued identification 

number; or (3) financial account number 

(including but not limited to the number 

of a brokerage account, debit card, credit 

card, checking account, or savings 

account). If such personal information 

were to be intercepted by an 

unauthorized third party, it could be 

used improperly. 

Additionally, according to FINRA, 

data security issues regarding personal 

information have become increasingly 

important in recent years.9 In this 

regard, FINRA believes that requiring 

persons to encrypt information on 

portable media devices provided to 

FINRA in response to FINRA Rule 8210 

requests will help ensure that personal 

information is protected from improper 

use by unauthorized third parties. 

The proposed rule change would 

require that information provided via a 

portable media device be ‘‘encrypted,’’ 

i.e., the data must be encoded into a 

form in which meaning cannot be 

assigned without the use of a 

confidential process or key. To help 

ensure that encrypted information is 

secure, persons providing encrypted 

information to FINRA via a portable 

media device would be required: (1) To 

use an encryption method that meets 

industry standards for strong 

encryption; and (2) to provide FINRA 

staff with the confidential process or 

key regarding the encryption in a 

communication separate from the 

encrypted information itself (e.g., a 

separate e-mail, fax or letter). 

III. Discussion of Comment Letters and 

Commission Findings 

The Commission received eleven 

comment letters on the proposed rule 

change and FINRA responded to these 

comments.10 One commenter supported 

the proposal, but recommended that 

FINRA’s rules be amended to add 

information security rules for itself and 

notify registrants when their non-public 

information has been accessed.11 Two 

commenters questioned the need for the 

encryption requirement and suggested 

that FINRA, and not its members, 

should undertake the responsibility of 

establishing data protection 12 and 

controls.13 Another commenter believed 

that the proposed rule change did not 

address FINRA’s responsibility to 

maintain the confidentiality of the 

information it obtains and proposed that 

members be allowed to redact sensitive 

information.14 FINRA responded that 

these comments do not address the 

purpose of the proposal which is to 

safeguard information being delivered to 

FINRA via portable media device and 

noted that it has a ‘‘robust and current 

information security policy.’’ 15

Five commenters indicated that the 

application of the proposed rule to 

electronic media and not paper 

documents is too narrow or 

misplaced.16 One commenter noted that 

the proposed rule change did not cover 

‘‘hard data transfers’’ and was 

‘‘inconsistent,’’ therefore ‘‘adding an 

unnecessary layer of cost and 

inconvenience to the normal process of 

business.’’ 17 Another commenter 

believed that the proposed rule was 

‘‘form over function’’ and suggested that 

overnight delivery of the electronic files 

could accomplish the goals of the 

proposal.18 One commenter noted that 

FINRA wishes to remove the discretion 

of members to encrypt data and yet the 

proposal does not cover hard-copy, 

email and voluntary transmissions of 

information.19 This commenter stated 

that the proposed rule change ‘‘was a 

poor solution’’ and suggested that 

FINRA allow members discretion to 

determine encryption methods and 

apply them to all transmissions to 

FINRA.20 FINRA responded to these 

comments by stating that it believes that 

encryption is a useful method to protect 

electronic data and notes that it is not 

technically possible to encrypt 

information in paper form.21 FINRA 

suggested that it might accept only 

electronic submissions of information in 

the future, but currently must accept the 

limitations of paper delivery.22 FINRA 

also stated that it will explore 

encryption of other communication 

methods such as email.23 FINRA states 

that ‘‘the argument that the difficulty of 

the perfect encryption of all information 

irrespective of media is a reason not to 

protect that information which can be 

encrypted could be used to negate all 

iterative protections to investors and 

should not be credited as a matter of 

public policy.’’ 24

Three commenters indicated that 

requiring encryption of all information 

sent via portable media devices is 

overbroad and suggested lesser content 

encryption.25 FINRA responded that it 

‘‘believes it is simpler, more efficient 

and safer to require encryption of all 

information provided via portable 

media device pursuant to a request 

under the rule.’’ 26 FINRA stated that the 

requirement ‘‘obviates the need for 

FINRA to circumscribe and monitor, 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 61795 

27 Id. 

28 Id. 

29See Abel/Noser Letter, Great Nation Letter, 

NAIBD Letter, PSE Letter, Triad Letter I, Triad 

Letter II, and Wulff Hansen Letter. 

30See, e.g., Great Nation Letter, NAIBD Letter, 

and PSE Letter. 

31See Wulff Hansen Letter. 

32See FINRA Letter. 

33 Id. 

34 Id. 

35See NAIBD Letter, PSE Letter, and Great Nation 

Letter. 

36See FINRA Letter. 

37 Id. 

38 Id. 

39 Id. 

40 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). 

41 15 U.S.C. 78o–3(b)(6). 

42 15 U.S.C. 78s(b)(2). 

43 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

and for members to determine, the types 

of information that should or should not 

be encrypted under the rule.’’ 27 FINRA 

believes that the suggested alternatives 

would be more costly than the proposal 

and believes the proposal ‘‘further 

supports compliance with the laws in 

some jurisdictions.’’ 28

Seven commenters believed that the 

proposal was difficult or costly to 

implement.29 For example, some 

commenters believe that small firms 

lack the technical experience to 

implement the proposal and may have 

to hire third parties.30 One commenter 

suggested an exception when 

information is provided directly to 

FINRA staff or on the FINRA 

premises.31 FINRA questioned the 

burden on members ‘‘given the 

availability of web-based encryption 

solutions currently available at low- or 

no-cost.’’ 32 FINRA noted that ‘‘members 

may be subject to various data 

protection laws that are in part the 

impetus’’ of the proposal.33 FINRA 

stated that it would ‘‘help educate its 

members about the process of 

encryption’’ and would ‘‘endeavor to 

provide information regarding various 

options for encrypting data, including 

low- or no-cost web-based encryption 

software.’’ 34

Three commenters suggested that the 

proposed requirement to use an 

encryption method that ‘‘meets industry 

standards for strong encryption’’ is too 

vague and suggested alternatives such as 

providing members with the specific 

method of encryption.35 FINRA 

acknowledged that, as proposed, the 

rule does not mandate a specific method 

of encryption.36 However, FINRA 

believes that this standard, which it 

stated is ‘‘identical to that employed by 

Massachusettes and Nevada,’’ is 

necessary to ‘‘adapt to changing 

technology regarding encryption.’’ 37

FINRA stated that it does not believe 

that it is ‘‘appropriate at this time to 

dictate a ‘one size fits all’ approach’’ to 

encryption.38 As designed, this 

requirement will allow each member to 

choose an appropriate method of 

encryption that works for it.39

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.40 In particular, the 

Commission finds that the proposed 

rule change is consistent with the 

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

Act,41 which requires, among other 

things, that FINRA rules 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 the 

proposed rule change is reasonably 

designed to ensure that information 

provided to FINRA on a portable media 

device in response to Rule 8210 is 

secure. FINRA has represented that this 

requirement is necessary to address 

laws in some jurisdictions that establish 

safeguards for personal information and 

records. The Commission also notes 

FINRA’s representation that there are 

low- or no-cost ways to encrypt files and 

that it will help educate its members 

about the process of encryption and 

meeting their obligations under the rule. 

Although the Commission recognizes 

that the proposed rule change does not 

mandate a specific encryption method, 

the Commission believes that some 

flexibility is appropriate to allow for 

changes in technology and for members 

to choose encryption methods that meet 

their needs. Finally, the Commission 

believes that the fact that information 

produced to it in other forms, such as 

paper-based forms, for which there is no 

comparable means of protecting the 

information from unwanted disclosure, 

should not preclude the protection of 

information that can be protected. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19b(2) of the Act,42 that the 

proposed rule change (SR–FINRA– 

2010–021) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–25067 Filed 10–5–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63017; File No. SR–ISE– 

2010–95] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Amending Rule 717 

September 29, 2010. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on 

September 21, 2010, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which items have been prepared 

by the Exchange. The Exchange has 

filed the proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A)(iii) of 

the Act 3 and Rule 19b–4(f)(6) 

thereunder.4 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 Exchange proposes to amend to 

amend [sic] ISE Rule 717 (Limitations 

on Orders) to eliminate some of its 

restrictions. The text of the proposed 

rule change is available on the 

Exchange’s Web site http:// 

www.ise.com, at the principal office of 

the Exchange, 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, the 

Exchange included statements 

concerning the purpose of, and basis for, 

the proposed rule change and discussed 

mstockstill on DSKH9S0YB1PROD with NOTICES