Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices 37077 

5For example, if the Exchange routes a 

participant’s buy order to the participant’s chosen 

destination (Router ABC) and Router ABC gets an 

execution of that order in another market against 

market maker XYZ, the first leg of the transaction 

(ABC buying from XYZ) will be reported to clearing 

by the other market. The Router ABC would send 

an execution report back to the Exchange (for 

routing to the original order-sending participant). 

Under this proposal, if the participant and Router 

ABC had requested, the Exchange would take the 

execution report and create a clearing-only record, 

flipping the execution from Router ABC’s account 

to the account of the order-sending participant 

(ABC selling to the order-sending participant). 

6 15 U.S.C. 78f(b)(4) 

7 15 U.S.C. 78f(b)(5) 

8 In approving this rule, the Commission notes 

that it has considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

9 15 U.S.C. 78f(b)(5). 

10See CHX Rules Article 20, Rule 5, 

Interpretations and Policies .03. 

11See Securities Exchange Act Release No. 54963 

(December 19, 2006), 71 FR 77834 (December 17, 

2006) (SR–CHX–2006–30). 

12 15 U.S.C. 78s(b)(2). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 59784 

(April 17, 2009), 74 FR 18779 (April 24, 2009) 

(‘‘Notice’’). 

4See letter to Florence E. Harmon, Deputy 

Secretary, Commission, from Bari Havlik, Senior 

Vice President and Chief Compliance Officer, 

Charles Schwab & Co., Inc., dated May 15, 2009 

(‘‘Schwab Letter’’). 

5See letter to Elizabeth M. Murphy, Secretary, 

Commission, from Patricia Albrecht, Assistant 

General Counsel, FINRA, dated July 8, 2009 

(‘‘Response Letter’’). 

6Member firms use the Central Registration 

Depository (CRD), a Web based system, to submit 

the form on behalf of the associated person by 

typing the person’s name into the signature box on 

the electronic form. 

7The member, as part of its recordkeeping 

requirements pursuant to Rule 17a–4(e)(1) under 

the Act, would be required to retain the written 

acknowledgment and make it available promptly 

upon request. 

report that second leg of the awaymarket transaction to clearing.5

The Exchange will provide its Routing 

Services pursuant to the proposed rule 

and three separate agreements, to the 

extent that they are applicable to a 

specific routing decision and deemed 

necessary by the Exchange and/or a 

third-party broker-dealer providing 

connectivity to other markets. The 

Exchange will provide such Routing 

Services in compliance with its rules 

and with the provisions of the Act and 

the rules thereunder, including, but not 

limited to, the requirements of Sections 

6(b)(4) 6 and (5) 7 of the Act that the 

rules of a national securities exchange 

provide for the equitable allocation of 

dues, fees and other charges among its 

members and issues and other persons 

using its facilities, and not be designed 

to permit unfair discrimination between 

customers, issuers, brokers or dealers. 

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 

exchange.8 In particular, the 

Commission believes that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act,9 in that it is designed 

to promote just and equitable principles 

of trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

The Commission believes that the 

proposed rule change may increase the 

efficiency of Exchange Participants in 

seeking to execute their customers’ 

orders that are ineligible for execution 

or display in the Exchange’s Matching 

System. In particular, odd-lot orders 

that are not immediately displayed in 

the Matching System or orders that 

otherwise would be cancelled back to a 

participant may be sent directly to a 

destination chosen by the participant for 

handling. The Commission notes that 

the Exchange’s proposed generic routing 

rule will operate in the same manner as 

its current routing rule for orders 

rejected by the Exchange’s Matching 

System under its NMS trade-through 

validation rule,10 which was previously 

approved by the Commission.11

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,12 that the 

proposed rule change (SR–CHX–2009– 

02) be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–17766 Filed 7–24–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60348; File No. SR–FINRA– 

2009–019] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Adopt 

FINRA Rules 1010 (Electronic Filing 

Requirements for Uniform Forms) and 

2263 (Arbitration Disclosure to 

Associated Persons Signing or 

Acknowledging Form U4) in the 

Consolidated FINRA Rulebook 

July 20, 2009. 

I. Introduction 

On April 7, 2009, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a ‘‘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, subject to certain 

amendments, NASD Rule 1140 

(Electronic Filing Rules) as new FINRA 

Rule 1010 (Electronic Filing 

Requirements for Uniform Forms) and 

NASD Rule 3080 (Disclosure to 

Associated Persons When Signing Form 

U–4) as new FINRA Rule 2263 

(Arbitration Disclosure to Associated 

Persons Signing or Acknowledging 

Form U4) in the consolidated FINRA 

rulebook. The proposal was published 

for comment in the Federal Register on 

April 24, 2009.3 The Commission 

received one comment letter, on May 

15, 2009, on the proposal.4 FINRA 

responded to the commenter on July 8, 

2009.5 This order approves the 

proposed rule change. 

II. Description of the Proposal 

Proposed FINRA Rule 1010 

NASD’s Rule 1140 specifies that an 

electronic initial and transfer Form U4 

must be based on a signed Form U4, but 

the rule does not expressly state that the 

signatures must be manual. The 

proposed rule would require that every 

initial Form U4 and every Form U4 filed 

to transfer a registered person’s 

association from one firm to another 

firm be based on an original, manuallysigned Form U4 provided to the member 

by the person on whose behalf the Form 

U4 is being filed.6

The proposed rule change also 

modifies the signature requirement with 

respect to amendments to disclosure 

information in the Form U4. NASD’s 

Rule 1140 requires the associated 

person on whose behalf the filing is 

made to sign amendments to Form U4 

that provide disclosure information. 

Proposed FINRA Rule 1010 would 

permit a firm to file amendments to the 

Form U4 disclosure information without 

obtaining the registered person’s manual 

signature if the firm uses reasonable 

efforts to i) provide the registered 

person with a copy of the amended 

disclosure information before filing and 

ii) obtain the registered person’s written 

acknowledgment that the information 

has been received and reviewed, which 

may be accomplished electronically, 

before filing.7


jlentini on DSKJ8SOYB1PROD with NOTICES
37078 Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices 

8See Securities Exchange Act Release No. 41575 

(June 29, 1999), 64 FR 36728, 36729 n.7 (July 7, 

1999) (Order Approving File No. SR–NASD–99–28); 

see also Securities Exchange Act Release No. 37439 

(July 15, 1996), 61 FR 37950 (July 22, 1996) (Order 

Approving File No. SR–NASD–96–21). 

9See Securities Exchange Act Release No. 59358 

(February 4, 2009), 74 FR 6928 (February 11, 2009) 

(Order Approving File No. SR–FINRA–2008–051). 

10See Schwab Letter at 2–3. 

11See Response Letter at 2. 

12 Id. at 2–3. 

13See Schwab Letter at 4. 

14See Response Letter at 4. 

15See Schwab Letter at 4–5. 

16 Id. 

17See Response Letter at 4. 

18 In approving this proposed rule change, the 

Commission has considered the proposed rule’s 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

19 15 U.S.C. 78o–3(b)(6). 

In the event the member is not able 

to obtain an associated person’s manual 

signature or written acknowledgement 

of an amendment to disclosure 

information before filing the amended 

Form U4, the proposal would require 

that the member file disclosure 

information of which it has knowledge, 

and the member would enter 

‘‘Representative Refused to Sign/ 

Acknowledge’’ or ‘‘Representative Not 

Available’’ or a substantially similar 

phrase in the signature box of the 

electronic form. This change codifies 

the member’s obligation in Article V, 

Section 2 of FINRA’s By-Laws that every 

Form U4 be kept current. 

Fourth, the proposed rule change 

incorporates the practice in the Web 

CRD of permitting administrative 

information (such as the addition of 

state or self-regulatory organization 

registrations, exam scheduling, and 

updates to residential, business, and 

personal history) to be amended on 

Form U4 without obtaining the 

associated person’s signature.8 If that 

occurs, the member must use reasonable 

efforts to provide the associated person 

with a copy of the amended 

administrative information that was 

filed. 

Fifth, the proposal would permit the 

registered principal(s) or corporate 

officer(s) who is responsible for 

supervising a firm’s electronic filings to 

delegate to another associated person, 

who need not be registered, the 

electronic filing of the member’s forms 

via Web CRD. The principal(s) or 

corporate officer(s) may not, however, 

delegate any of his supervision, review 

or approval responsibilities and must 

take reasonable and appropriate action 

to ensure that all delegated electronic 

filing functions are properly executed 

and supervised. 

Proposed FINRA Rule 2263 

The proposed rule change transfers 

NASD Rule 3080 into the consolidated 

FINRA Rulebook as FINRA Rule 2263 

with several minor changes. First, the 

proposed rule change amends the 

current title ‘‘Disclosure to Associated 

Person When Signing Form U–4’’ to 

‘‘Arbitration Disclosure to Associated 

Persons Signing or Acknowledging 

Form U4’’ to clarify that the rule relates 

to arbitration disclosures. Second, 

proposed FINRA Rule 2263 clarifies that 

a member must provide the required 

arbitration disclosures whenever a 

member asks an associated person, 

pursuant to proposed FINRA Rule 1010, 

to manually sign an initial or amended 

Form U4, or to otherwise provide 

written acknowledgement, which may 

be electronic, of an amendment to the 

Form. Third, the proposed rule updates 

language to reflect amendments to 

FINRA’s Code of Arbitration Procedure 

requiring arbitrators to provide an 

explained decision to the parties in 

eligible cases if there is a joint request 

by all parties at least twenty days before 

the first scheduled hearing date.9

III. Summary of Comments 

Proposed FINRA Rule 1010(c)(3) 

While the Schwab Letter generally 

supports the proposal, it expressed 

several concerns, including that the 

aspect of the proposed rule that requires 

the member to file amendments to U4 

regarding disclosure information as to 

which it has knowledge, proposed 

FINRA Rule 1010(c)(3) would require a 

firm to file a Form U4 disclosure 

amendment when the firm may have 

inaccurate or incomplete information. 

Schwab also argues that the proposal 

may dilute the standard that the primary 

responsibility for updating and keeping 

current Form U4 lies with the associated 

person.10

FINRA responded that the proposal 

merely codifies a member’s existing 

obligation under Article V, Section 2(c) 

of FINRA’s By-Laws that every U4 be 

kept current, and implicit in this duty 

is the expectation that the member will 

seek to ensure that such information is 

accurate and complete.11 FINRA noted 

that the member’s obligation is in 

addition to the associated person’s 

obligation to keep Form U4 current, 

which is set forth generally in Article V, 

Section 2 of the FINRA By-Laws.12

Proposed FINRA Rule 1010(c)(4) 

Schwab supports allowing firms to 

file amendments to administrative 

information without obtaining the 

associated person’s signature, but it 

objects to the requirement that the 

member firm use reasonable efforts to 

provide the associated person with a 

copy of the amended administrative 

information and believes that this could 

cause firms to incur significant system 

changes and costs.13 FINRA responded 

that Web CRD is used to help protect 

investors, and its effectiveness depends 

on accurate information.14 Thus, FINRA 

believes this aspect of the proposal is 

appropriate in that it encourages 

members to verify information with an 

associated person while allowing firms 

the flexibility to do so after amendments 

to administrative information have been 

filed. 

Proposed FINRA Rule 1010(c)(1) and (2) 

and FINRA Rule 2263 

Schwab believes that the 

requirements imposed on a firm, in 

connection with filing amendments to 

Form U4 disclosure information without 

obtaining the associated person’s 

manual signature, and providing the 

written statement related to arbitration 

disclosure, may prove costly and 

complex for firms to implement.15

Schwab opines that the goal of having 

clear evidence of the registered person’s 

knowledge and acceptance of disclosure 

information may be achieved using 

existing procedures and electronic 

systems that accomplish certain 

functions.16 FINRA stated that this 

concern can be addressed with 

interpretive guidance and that it would 

address it accordingly, assuming 

approval of the proposal.17

IV. Discussion and Commission 

Findings 

After carefully reviewing the 

proposed rule change, the Schwab 

Letter, and the Response Letter, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities association.18 In particular, 

the Commission finds that the proposal 

is consistent with Section 15A(b)(6) of 

the Act,19 which requires, among other 

things that FINRA’s rules be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

The Commission believes that the 

revisions FINRA proposed in 

connection with moving NASD Rule 

1140 and Rule 3080 to the consolidated 

FINRA Rulebook as new FINRA Rule 

1010 and new FINRA Rule 2263 should, 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices 37079 

20 15 U.S.C. 78s(b)(2). 

21 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)(i). 

4 17 CFR 240.19b–4(f)(1). 

among other things, strike a fair balance 

between providing notice to associated 

persons of changes to their U4 where 

obtaining a signature may prove 

difficult and allowing firms to 

expeditiously update information. In 

addition, the Commission believes that 

it is appropriate for FINRA to make 

explicit in its rules a member’s 

obligation to ensure that information in 

Form U4 regarding its associated 

persons is accurate, even though this 

requirement is explicit in FINRA’s ByLaws. Ensuring that information in Web 

CRD is current and accurate enhances 

the usefulness of Web CRD. 

The Commission believes that FINRA, 

in its Response Letter, adequately 

addressed the comments raised in the 

Schwab Letter. The Commission 

emphasizes that FINRA correctly noted 

that both firms and associated persons 

have a duty to keep information in Web 

CRD current, and both are responsible 

for ensuring that disclosure information 

is accurate; this proposal merely 

codifies this obligation. The 

Commission also agrees with FINRA 

that firms should try to ensure the 

accuracy and completeness of 

information submitted. This purpose 

should be served by the rule requiring 

a firm to use reasonable efforts to 

provide the associated person with a 

copy of the amended disclosure 

information post-filing, since the firm 

should have contact information for the 

associated person, whom it is 

responsible for regulating, and the 

associated person can ensure that the 

amended information is accurate. 

For the reasons discussed above, the 

Commission finds that the rule change 

is consistent with the Act and the rules 

and regulations thereunder. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,20 that the 

proposed rule change (SR–FINRA– 

2009–019), be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.21

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–17764 Filed 7–24–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60359; File No. SR–MSRB– 

2009–08] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Guidance on 

Disclosure and Other Sales Practice 

Obligations to Individual and Other 

Retail Investors in Municipal Securities 

July 21, 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 July 14, 

2009, the Municipal Securities 

Rulemaking Board (‘‘MSRB’’), filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II and III below, which Items 

have been substantially prepared by the 

MSRB. The MSRB has designated the 

proposed rule change as constituting a 

stated policy, practice, or interpretation 

with respect to the meaning, 

administration, or enforcement of an 

existing rule of the self-regulatory 

organization pursuant to Section 

19(b)(3)(A)(i) of the Act,3 and Rule 19b– 

4(f)(1) thereunder,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 

The MSRB has filed with the 

Commission a proposed rule change 

consisting of interpretive guidance on 

disclosure and other sales practice 

obligations of brokers, dealers and 

municipal securities dealers (‘‘dealers’’) 

relating to sales of municipal securities 

to individual and other retail investors. 

The text of the proposed rule change is 

available on the MSRB’s Web site 

(http://www.msrb.org), at the MSRB’s 

principal office, 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 

MSRB 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. The MSRB 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 

The proposed rule change provides 

guidance to brokers, dealers and 

municipal securities dealers (‘‘dealers’’) 

of their sales practice obligations under 

MSRB rules as applied specifically to 

individual and other retail investors. 

Among other things, the proposed rule 

change updates guidance to dealers on 

(i) their obligations to disclose material 

information about issuers, their 

securities and credit/liquidity support 

for such securities in connection with 

the fulfillment of their disclosure 

obligations under MSRB Rule G–17, (ii) 

their obligations to use such material 

information in fulfilling their suitability 

obligations under MSRB Rule G–19, and 

(iii) their fair pricing obligations under 

MSRB Rules G–18 and G–30. The 

proposed rule change also applies 

previous guidance on bond insurance 

rating downgrades and wide-scale 

auction failures for municipal auction 

rate securities (‘‘ARS’’), to municipal 

securities transactions in general and 

specifically to transactions with 

individual and other retail investors in 

variable rate demand obligations 

(‘‘VRDOs’’). 

Disclosure 

The proposed rule change makes clear 

that dealers are responsible under Rule 

G–17 for disclosing to their customers, 

at or prior to the time of trade for any 

municipal securities transaction, all 

material information about the 

transaction known by the dealer, as well 

as material information about the 

security that is reasonably accessible to 

the market, including information 

available from established industry 

sources. Dealers must provide such 

disclosures notwithstanding the 

availability to investors of 

comprehensive information from the 

MSRB’s Electronic Municipal Market 

Access system (EMMA) and other 

established industry sources. Dealers are 

expected to establish procedures 

reasonably designed to ensure that 

information known to the dealer is 

communicated internally or otherwise 


jlentini on DSKJ8SOYB1PROD with NOTICES