32668 Federal Register / Vol. 74, No. 129 / Wednesday, July 8, 2009 / Notices 

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

2 17 CFR 240.19b–4. 

3The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

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

The new 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). 

4For convenience, the proposed rule change 

refers to Incorporated NYSE Rules as NYSE Rules. 

5FINRA is proposing to replace NASD Rule 3040 

with new provisions in proposed FINRA Rule 

3110(b)(3), as part of the consolidated FINRA rules 

addressing supervision and supervisory controls. 

See FINRA Regulatory Notice 08–24 (May 2008). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60199; File No. SR–FINRA– 

2009–042] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change Relating to 

Outside Business Activities of 

Registered Persons 

June 30, 2009. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 notice is hereby 

given that on June 8, 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 substantially prepared by 

FINRA. The Commission is publishing 

this notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to adopt NASD 

Rule 3030 (Outside Business Activities 

of an Associated Person) as FINRA Rule 

3270 (Outside Business Activities of 

Registered Persons) in the consolidated 

FINRA rulebook with moderate changes. 

The proposed rule change would delete 

Incorporated NYSE Rule 346 

(Limitations—Employment and 

Association with Members and Member 

Organizations) and its interpretations. 

The proposed rule change would 

require registered persons to give notice 

to member firms prior to engaging in an 

outside business activity (as defined 

therein). 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to adopt NASD 

Rule 3030 (Outside Business Activities 

of an Associated Person) as FINRA Rule 

3270 (Outside Business Activities of 

Registered Persons) in the Consolidated 

FINRA Rulebook with moderate 

changes. The proposed rule change 

would delete NYSE Rule 346 4

(Limitations—Employment and 

Association with Members and Member 

Organizations) and its interpretations. 

However, as further described below, 

the proposed rule change would 

incorporate certain provisions of NYSE 

Rule 346 into new FINRA Rule 3270. 

(1) Proposed FINRA Rule 3270 (Outside 

Business Activities of Registered 

Persons) 

Proposed FINRA Rule 3270 would 

prohibit any registered person from 

being an employee, independent 

contractor, sole proprietor, officer, 

director or partner of another person, or 

being compensated, or having the 

reasonable expectation of compensation, 

from another person as a result of any 

business activity outside the scope of 

the relationship with his or her member 

firm, unless he or she has provided 

prior written notice to the member. The 

proposed rule change would expand the 

obligations imposed under NASD Rule 

3030, which prohibits any registered 

person from being employed by or 

accepting any compensation from any 

person as a result of any outside 

business activity, other than passive 

investment, unless he has provided 

prompt written notice to his member 

firm. In contrast, NYSE Rule 346(b) 

generally prohibits any member (as 

defined in the NYSE rules) or employee 

of a member organization from being 

engaged in any other business, or being 

employed or compensated by any other 

person, or serving as an officer, director, 

partner or employee of another business 

organization or owning any stock or 

having any direct or indirect financial 

interest in any other organization 

engaged in any securities, financial or 

kindred business unless such person 

has made a written request to, and 

received prior written consent from, his 

or her member organization employer. 

The primary difference between the 

existing NASD and NYSE rules is the 

timing of the required notice and the 

requirement in the NYSE rule for a 

member’s prior written consent. With 

respect to timing, FINRA believes that 

registered persons should not be 

permitted to engage in outside business 

activities without the firm’s prior 

knowledge. Potential investor harm 

could ensue in the interim period 

between the time the registered person 

commences an outside business activity 

and the time a firm receives ‘‘prompt’’ 

written notice. Also, because the term 

‘‘prompt’’ is susceptible to differing 

interpretations, adopting a prior written 

notice standard in this context would 

promote consistency within the 

securities industry, though FINRA 

understands that, in practice, many 

firms already require prior written 

notice. Further, a prior written notice 

standard would allow a firm an 

opportunity to determine whether the 

proposed outside business activity is 

properly being characterized by the 

registered representative as an outside 

business activity, or whether it is an 

outside securities activity, subject to 

NASD Rule 3040 (Private Securities 

Transactions of an Associated Person).5

For these reasons, FINRA proposes 

that FINRA Rule 3270 require prior 

written notice whenever a registered 

representative will be an employee, 

independent contractor, sole proprietor, 

officer, director or partner of another 

person, or will be compensated, or have 

the reasonable expectation of 

compensation, from any other person as 

a result of any outside business activity. 

With respect to the requirement in 

NYSE Rule 346(b) for prior written 

consent, FINRA believes that requiring 

prior written consent for outside 

business activities is unnecessary. To 

the extent that these activities may 

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Federal Register / Vol. 74, No. 129 / Wednesday, July 8, 2009 / Notices 32669 

6FINRA is proposing to replace NASD Rule 3040 

with new provisions in proposed FINRA Rule 

3110(b)(3), as part of the consolidated FINRA rules 

addressing supervision and supervisory controls. 

See FINRA Regulatory Notice 08–24 (May 2008). 

7FINRA is separately considering NASD Rule 

3050 (Transactions for or by Associated Persons) as 

part of the rulebook consolidation process and will 

consider whether transactions subject to NASD 

Rule 3050, as proposed to be amended, also should 

be exempted from proposed FINRA Rule 3270. 

8 15 U.S.C. 78o–3. 

9See supra note 5. 

10 15 U.S.C. 78c(a)(39). 

11For further discussion, see Securities Exchange 

Act Release No. 59586 (March 17, 2009), 74 FR 

12166 (March 23, 2009) (Order Approving SR– 

FINRA–2008–045). 

12This was confirmed in a conversation with 

Gary Goldshelle of FINRA on June 29, 2009. 

nevertheless raise investor protection 

concerns and adversely impact the 

individual’s business within the firm, 

the proposed rule change has 

supplementary material, drawn in part 

from procedures required in NYSE Rule 

346(e), that sets forth the obligations of 

a member upon receipt of a written 

notice of a proposed outside business 

activity. FINRA believes that firms must 

review the registered person’s 

participation in the outside activity to 

determine whether it raises investor 

protection concerns. Specifically, the 

supplementary material states that a 

member must make a determination as 

to whether the proposed activity raises 

investor protection concerns, and if so, 

the firm must implement procedures or 

restrictions on the activity to protect 

investors, or prohibit the activity. A 

member also must evaluate the 

proposed activity to determine whether 

the activity properly is characterized as 

an outside business activity or whether 

it should be treated as an outside 

securities activity subject to the 

requirements of NASD Rule 3040.6

The proposed rule change also 

harmonizes and simplifies the standards 

for what constitutes an outside business 

activity. Currently, the NASD and NYSE 

rules have a number of overlapping 

provisions. NYSE Rule 346(b) generally 

requires, subject to certain exceptions, 

written notice whenever a member or 

employee of a member organization is 

employed or compensated by any other 

person; serves as an officer, director, 

partner or employee of another 

organization; or owns any stock or has, 

directly or indirectly, any financial 

interest in any other organization 

engaged in any securities, financial or 

kindred business. NASD Rule 3030 

generally requires notice whenever a 

registered person is employed by or 

accepts any compensation from any 

person as a result of any outside 

business activity, other than passive 

investment. In reconciling these two 

standards, the proposed rule change 

requires prior written notice whenever a 

registered representative will be an 

employee, independent contractor, sole 

proprietor, officer, director or partner of 

another person, or will be compensated, 

or have the reasonable expectation of 

compensation, from any other person as 

a result of any outside business activity. 

The inclusion of the phrase ‘‘or have the 

reasonable expectation of 

compensation’’ addresses situations in 

which an outside activity does not 

immediately yield compensation (e.g., 

where a registered person intends to 

work for a start-up business). FINRA 

believes that a registered person should 

not be able to engage in an activity in 

which he or she reasonably expects to 

be compensated without providing the 

firm with prior written notice, and 

FINRA believes that a rule dependent 

on the prior receipt of compensation is 

too narrow and may be susceptible to 

abuse. Proposed Rule 3270 retains the 

exemptions in NASD Rule 3030 for 

‘‘passive investments’’ and activities 

subject to the requirements of NASD 

Rule 3040.7

In addition, the proposed rule would 

streamline the text by replacing the 

phrase ‘‘person associated with a 

member in any registered capacity’’ 

with ‘‘registered person’’ and would retitle the rule ‘‘Outside Business 

Activities of Registered Persons’’ to 

better reflect its application to registered 

persons. 

(2) Deleted Provisions of Incorporated 

NYSE Rule 346 and Its Supplementary 

Material and Interpretations 

FINRA proposes to delete other 

provisions of NYSE Rule 346 that are 

unnecessary and/or duplicative of 

provisions in the federal securities laws 

or the FINRA Rulebook and delete 

NYSE Rule Interpretations that are 

unnecessary or inconsistent with 

Proposed Rule 3270. 

NYSE Rule 346(a) and related NYSE 

Interpretation 346/01 require natural 

persons not associated with entities that 

are registered broker-dealers to register 

with the SEC unless specifically 

exempted by the Exchange Act. FINRA 

proposes to delete these provisions as 

redundant in light of Section 15(a) of 

the Exchange Act.8

NYSE Rule 346(c) provides that where 

a member organization approves an 

employee’s participation in a private 

securities transaction in which regard 

the employee has or may receive selling 

compensation, the transaction shall be 

recorded on the books and records of 

the member organization, which shall 

supervise such participation as if the 

transaction were executed on its behalf. 

FINRA proposes to delete this provision 

as redundant of NASD Rule 3040 

(Private Securities Transactions of an 

Associated Person).9

NYSE Rule 346(d) provides that no 

member shall qualify more than one 

member organization for membership. 

This provision is inconsistent with 

FINRA’s approach to membership, 

which allows the same individual to 

qualify more than one firm for 

membership, as appropriate. FINRA 

examines separately the merits of each 

membership application and proposes 

to delete the prohibition in the NYSE 

rule. 

NYSE Rule 346(e) requires every 

employee of a member organization who 

is assigned or delegated any 

responsibility or authority pursuant to 

NYSE Rule 342 to devote his entire time 

during business hours to the business of 

such member organization unless an 

alternative arrangement has been 

approved in writing by the member 

organization. FINRA believes that the 

existing and proposed rules on 

supervision and outside business 

activities adequately ensure that the 

member firm’s business is not adversely 

affected by outside activities. Moreover, 

associated persons in the independent 

broker-dealer channel at times devote 

substantial time to non-member 

business and this provision would 

create unnecessary administrative 

burdens if applied to them. 

Accordingly, FINRA proposes to delete 

this provision. 

NYSE 346(f) provides that unless 

otherwise permitted by the Exchange, 

no member, member organization, 

approved person, employee or any 

person directly or indirectly controlling, 

controlled by or under common control 

with a member or member organization 

shall have associated with him or it any 

person who is known, or in the exercise 

of reasonable care should be known, to 

be subject to any ‘‘statutory 

disqualification’’ defined in Section 

3(a)(39) of the Exchange Act.10 In 

connection with FINRA’s consolidation 

transaction, FINRA amended its 

definition of disqualification in its ByLaws to align with the Exchange Act 

definition, thereby incorporating 

additional categories of statutory 

disqualification, including certain 

affiliated relationships.11 Accordingly, 

FINRA proposes to delete NYSE Rule 

346(f) as redundant.12

Finally, FINRA proposes to delete 

NYSE Rule Interpretations 346/02 and/ 

03, which address personal business 

expenses and factors to consider when 

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32670 Federal Register / Vol. 74, No. 129 / Wednesday, July 8, 2009 / Notices 

13 15 U.S.C. 78o–3(b)(6). 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

approving outside activities, FINRA 

believes the Interpretations are 

unnecessary or inconsistent with 

proposed FINRA Rule 3270. In 

particular, the provisions in NYSE Rule 

Interpretation 346/02 requiring a firm to 

assume responsibility for all activities 

effected on its behalf and under its 

name are addressed by other FINRA 

rules, including supervision rules. In 

addition, FINRA has chosen not to 

impose a requirement for firms to 

approve all advertisements of an outside 

business, although a firm may impose 

such restrictions as part of its 

obligations under supplementary 

material .01. FINRA requires firms to 

approve all advertisements for member 

firm business, even if an advertisement 

relates to the firm’s non-securities 

business; however, FINRA does not 

believe that approval should be required 

for outside business activities permitted 

under the proposed rule change. 

For the reasons noted above, FINRA 

proposes to transfer NASD Rule 3030 

into the Consolidated FINRA Rulebook 

with the changes described herein. In 

addition, FINRA proposes to delete 

NYSE Rule 346 and its interpretations 

from the Transitional Rulebook also as 

described herein. 

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,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 proposed rule 

change will clarify and streamline 

NASD Rule 3030 for adoption as a 

FINRA rule in the new Consolidated 

FINRA Rulebook, while also 

implementing additional protections 

such as the need for registered persons 

to provide prior written notice to its 

member firms of proposed outside 

business activities and for firms to 

determine whether the proposed 

activities raise investor protection 

concerns. 

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–2009–042 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–2009–042. 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. 

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–2009–042 and 

should be submitted on or before July 

29, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–15996 Filed 7–7–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60201; File No. SR– 

NASDAQ–2009–062] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Order Granting Accelerated 

Approval of Proposed Rule Change To 

Extend the Pilot Program for NASDAQ 

Last Sale Data Feeds 

June 30, 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 June 26, 

2009, the NASDAQ Stock Market LLC 

(‘‘NASDAQ’’ or ‘‘Exchange’’) 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 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons, and is 

approving the proposal on an 

accelerated basis. 

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