Document ID: SEC-2008-0979-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-07-15T04:00Z

[Federal Register: July 15, 2008 (Volume 73, Number 136)]
[Notices]               
[Page 40647-40648]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy08-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58118; File No. SR-FINRA-2008-030]

 
Self-Regulatory Organizations: Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 3130 (Annual Certification of Compliance and Supervisory 
Processes) in the Consolidated FINRA Rulebook

July 8, 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 June 18, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing 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 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.\3\ The proposed rule change would renumber NASD Rule 3013 and IM-
3013 as FINRA Rule 3130 in the consolidated FINRA rulebook. The text of 
the proposed rule change is at FINRA's Web site at http://
www.finra.org, at FINRA's principal office, and at the Commission's 
Public Reference Room.
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    \3\ See infra note 4 regarding ``Incorporated NYSE Rules.''
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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 the new consolidated rulebook 
(the ``Consolidated FINRA Rulebook''),\4\ FINRA is proposing to adopt 
NASD Rule 3013 (Annual Certification of Compliance and Supervisory 
Processes) and IM-3013-1 (Annual Compliance and Supervision 
Certification) as a FINRA Rule in the Consolidated FINRA Rulebook.
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    \4\ The 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 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).
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    NASD Rule 3013 and Incorporated NYSE Rule 342 require each member 
to designate one or more principals to serve as a chief compliance 
officer (``CCO''). These Rules further require that the chief executive 
officer(s) (``CEO'') certify annually that the member has in place 
processes to establish, maintain, review, modify and test policies and 
procedures reasonably designed to achieve compliance with applicable 
NASD (or NYSE) rules and federal securities laws and regulations. The 
certification includes not only a statement that the member has in 
place certain compliance processes, but also that the CEO(s) has 
conducted one or more meetings with the CCO(s) in the preceding 12 
months to discuss the processes. Incorporated NYSE Rule 342 and NASD 
IM-3013 explain that the mandated meetings between the CEO(s) and 
CCO(s) must include a discussion of the member's compliance efforts to 
date and identify and address significant compliance problems and plans 
for emerging business areas. NASD IM-3013 contains additional guidance, 
including setting forth the expertise that is expected of a CCO. The 
same expertise requirements are also found in Incorporated NYSE Rule 
Interpretation 342.30.
    There currently are four differences in the rules. First, NASD IM-
3013 requires that the member provide to its board of directors and 
audit committees (or equivalent bodies) the report that evidences the 
processes to which the CEO(s) certifies either prior to execution of 
the certification or at the earlier of their next scheduled meetings or 
within 45 days of certification. The Incorporated NYSE rules require 
submission of the report to those bodies prior to certification. FINRA 
does not intend to require the board of directors or audit committee to 
review or consider the report as a condition to the CEO executing the 
certification; rather, FINRA intends the provision to ensure that those 
governing bodies remain informed of this aspect of the member's 
compliance system in the context of their overall responsibility for 
governance and internal controls of the member for which they serve. 
Accordingly, the proposed rule change would maintain the NASD rule 
requirements.
    Second, the current rules differ in the certification deadline. 
Incorporated NYSE Rule 342.30 requires certification as part of the 
submission of a member's annual compliance report, which is due by 
April 1 of each year. NASD Rule 3013 requires certification not later 
than the anniversary of the prior year's certification. And while NASD 
allowed members to execute their first certification no later than 
April 1, 2006, to accommodate Dual Members, many FINRA-only firms 
executed their first certification earlier than that and thus have 
differing anniversary dates. Moreover, new members are required to 
execute their first certification within a year of approval for 
membership; therefore some firms necessarily are on a cycle that does 
not correspond to April 1. The proposed rule change would maintain the 
NASD rule deadline to provide firms the flexibility to certify on a 
schedule that meets with their

[[Page 40648]]

organizational structure and procedures. Firms that have certified on 
April 1 of each year could continue to do so on that date.
    Third, Incorporated NYSE Rule 342.30 requires that the member 
submit its certification to the Exchange, whereas the NASD rule 
requires only that the certification be maintained for inspection. 
FINRA believes the submission of the certification creates an 
unnecessary--albeit small--additional burden on members with no 
attendant benefits to FINRA's examination program. Therefore, the 
proposed rule change would retain the NASD requirement that the 
certifications be kept for inspection by members.
    Finally, while both rules permit designation of multiple CCOs 
subject to certain conditions, Incorporated NYSE Rule Interpretation 
311(b)(5) requires Exchange approval of the allocation of supervisory 
responsibilities between those CCOs. By comparison, the NASD rules rely 
on the business judgment of the member and require only that the member 
define and document the areas of responsibility allocated to each CCO. 
FINRA believes the NASD approach is more appropriate, and therefore the 
proposed rule change would not adopt the approval requirement into the 
new rule in the Consolidated FINRA Rulebook.
    The proposed rule change would replace NASD Rule 3013 and IM-3013 
with a single rule that integrates the substance of the IM either as 
provisions in the new rule or as supplementary material.
    As noted above, FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 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,\5\ 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 rules being adopted as part of the Consolidated 
FINRA Rulebook previously have been found to meet the statutory 
requirements, and FINRA believes those rules have since proven 
effective in achieving the statutory mandates.
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    \5\ 15 U.S.C. 78o-3(b)(6).
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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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2008-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2008-030. 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-2008-030 and 
should be submitted on or before August 5, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15989 Filed 7-14-08; 8:45 am]

BILLING CODE 8010-01-P