Document ID: SEC-2012-2044-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-12-13T05:00Z

[Federal Register Volume 77, Number 240 (Thursday, December 13, 2012)]
[Notices]
[Pages 74253-74258]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30049]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68386; File No. SR-FINRA-2009-060]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment Nos. 1 and 2, and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2, Relating to FINRA Rule 8210 (Provision of 
Information and Testimony and Inspection and Copying of Books)

December 7, 2012.

I. Introduction

    On September 10, 2009, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed a proposed rule change with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') \1\ 
and Rule 19b-4 thereunder \2\ to amend FINRA Rule 8210 (Provision of 
Information and Testimony and Inspection and Copying of Books). The 
proposed rule change was published for comment in the Federal Register 
on October 22, 2009.\3\ The Commission received seven comment letters 
on the proposed rule change.\4\ On December 22, 2009, FINRA filed a 
letter with the Commission responding to these comments,\5\ and on

[[Page 74254]]

December 21, 2011, FINRA filed Amendment No. 1 with the Commission to 
further respond to the comments and to propose amendments in response 
thereto.\6\ On December 5, 2012, FINRA filed Amendment No. 2 with the 
Commission to modify a phrase that was included in Amendment No. 1.\7\ 
The Commission is publishing this notice and order to solicit comments 
on Amendment Nos. 1 and 2 and to approve the proposed rule change, as 
modified by Amendment Nos.1 and 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 60836 (Oct. 16, 2009), 74 FR 
54614 (Oct. 22, 2009) (Notice of Filing of Proposed Rule Change; 
File No. SR-FINRA-2009-060) (``Notice'').
    \4\ See letters from BTUD, to Elizabeth Murphy, Secretary, SEC, 
dated October 29, 2009 (the ``BTUD Letter''); Frederick T. Greene, 
CIMA, Senior V.P., Portfolio Manager, Woodforest Financial Services, 
Inc., to Elizabeth M. Murphy, Secretary, SEC, dated October 29, 2009 
(the ``Woodforest Letter''); Neal E. Nakagiri, President, CEO, CCO, 
NPB Financial Group, LLC, to Elizabeth Murphy, Secretary, SEC, dated 
October 29, 2009 (the ``NPB Letter''); Dale E. Brown, CAE, President 
& CEO, Financial Services Institute, Inc., to Elizabeth M. Murphy, 
Secretary, SEC, dated November 4, 2009 (the ``FSI Letter''); Bari 
Havlik, Chief Compliance Officer, Charles Schwab & Co., Inc., to 
Elizabeth M. Murphy, Secretary, SEC, dated November 12, 2009 (the 
``Schwab Letter''); Ronald C. Long, Director, Regulatory Affairs, 
Wells Fargo Advisors, to Elizabeth M. Murphy, Secretary, SEC, dated 
November 12, 2009 (the ``Wells Fargo Letter''); and Ira D. 
Hammerman, Senior Managing Director and General Counsel, Securities 
Industry and Financial Markets Association, to Elizabeth M. Murphy, 
Secretary, SEC, dated December 16, 2009 (the ``SIFMA Letter''). 
These letters are available on the SEC's Web site at http://www.sec.gov/comments/sr-finra-2009-060/finra2009060.shtml.
    \5\ See letter from Stan Macel, Assistant General Counsel, 
Regulatory Policy and Oversight, FINRA, to Elizabeth M. Murphy, 
Secretary, SEC, dated December 22, 2009 (``Response to Comments''). 
This letter is available on the SEC's Web site at http://www.sec.gov/comments/sr-finra-2009-060/finra2009060.shtml.
    \6\ See Amendment No. 1 dated December 21, 2011 (``Amendment No. 
1''). Amendment No. 1 is described below in Section III.B., and the 
text of Amendment No. 1 is available on FINRA's Web site at http://www.finra.org, at the principal office of FINRA, and on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
    \7\ See Amendment No. 2 dated December 5, 2012 (``Amendment No. 
2''). Amendment No. 2 is described below in Section III.B., and the 
text of Amendment No. 2 is available on FINRA's Web site at http://www.finra.org, at the principal office of FINRA, and on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
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II. Description of the Proposal

    FINRA has proposed to amend FINRA Rule 8210, which 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 proposed rule change would clarify the 
scope of FINRA's authority under the rule to inspect and copy the 
books, records, and accounts of such member or person, specify the 
method of service for certain unregistered persons under the rule, and 
authorize service on attorneys who are representing clients.
    FINRA Rule 8210 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.\8\ FINRA Rule 8210(c) provides that a member's or 
associated person's failure to provide information or testimony or to 
permit an inspection and copying of books, records, or accounts is a 
violation of the rule.
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    \8\ See FINRA By-Laws, Article V, Section 4(a) (Retention of 
Jurisdiction).
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Information in a Member's or Person's Possession, Custody or Control
    FINRA Rule 8210(a)(2) currently provides that FINRA staff shall 
have the right to inspect and copy the books, records, and accounts of 
all applicable members and persons with respect to any matter involved 
in an investigation, complaint, examination or proceeding.\9\ The 
proposed rule change would clarify that the information that FINRA 
staff shall have the right to inspect and copy must be in the member's 
or person's ``possession, custody or control.'' \10\ This language 
parallels the Federal Rules of Civil Procedure regarding document 
requests and subpoenas for documents.\11\
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    \9\ FINRA Rule 8210(a) provides FINRA adjudicators with the same 
rights as FINRA staff to request information. Although the proposed 
rule change would also clarify a FINRA adjudicator's authority, no 
commenters expressed any concerns that specifically addressed the 
powers of FINRA adjudicators.
    \10\ When filing the proposed rule change with the Commission, 
FINRA indicated that in using the word ``control,'' in addition to 
possession and custody, it intended to require members or persons 
covered by the rule to provide, for example, records that they have 
the legal right, authority, or ability to obtain upon demand. See 
Camden Iron & Metal v. Marubeni Am. Corp., 138 F.R.D. 438, 441 
(D.N.J. 1991) (``Federal courts construe `control' very broadly 
under [Federal] Rule [of Civil Procedure] 34.''). Moreover, FINRA 
indicated that the proposed addition of ``possession, custody or 
control'' to Rule 8210(a)(2) would address questions that have 
arisen in litigation regarding the scope of the rule. See, e.g., In 
re: Jay Alan Ochanpaugh, Exchange Act Release No. 54363 (Aug. 25, 
2006) (referred to hereafter as the ``Jay Alan Ochanpaugh'' decision 
or litigation).
    \11\ See Fed. R. Civ. P. 34.
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Notice to Associated But Unregistered Persons
    FINRA Rule 8210 addresses the legal concept of service of a written 
request by using the term ``notice'' of a request. Currently, FINRA 
Rule 8210(d) states that, with respect to members and associated 
persons, notice shall be deemed received by the member or associated 
person when a copy of the notice is mailed or otherwise transmitted to 
the last known relevant address of the member or associated person as 
reflected in the Central Registration Depository (``CRD''). The CRD 
system contains information concerning registered members and 
persons,\12\ but in most instances it does not contain information 
concerning unregistered persons who are or were associated with a 
member.\13\
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    \12\ Members and registered persons have an affirmative duty to 
update CRD with their current address for at least two years after 
they have had their registration terminated. See Notice to Members 
99-77 (noting that FINRA requests for information and disciplinary 
complaints issued during the period of FINRA's retained jurisdiction 
will be mailed to a person's last address in FINRA's records).
    \13\ In some limited instances, CRD may contain information 
concerning unregistered associated persons who were required to 
submit information, including fingerprint information, to CRD in 
connection with their employment.
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    Although not routine, some investigations require FINRA examiners 
or investigators to request information from persons currently or 
formerly associated with a member in an unregistered capacity.\14\ The 
current rule is unclear as to what would constitute proper notice on 
such persons for whom information is not available in CRD. The proposed 
rule change would explicitly address the methods by which notice would 
be deemed received by persons currently or formerly associated with a 
member in an unregistered capacity.
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    \14\ Persons associated with a member who are unregistered may 
include persons exempt from registration, e.g., those whose 
functions are solely and exclusively clerical or ministerial; those 
whose functions are related solely and exclusively to the member's 
need for nominal corporate officers or for capital participation; 
and those whose functions are related solely and exclusively to 
transactions in municipal securities, transactions in commodities, 
or transactions in security futures (provided they are registered 
with a registered futures association). See, e.g., NASD Rule 
1060(a). For purposes of FINRA Rule 8210, unregistered persons 
associated with a member may also include direct owners and 
executive officers listed in Schedule A of Form BD of a member whose 
job functions do not otherwise require them to register with FINRA. 
See FINRA By-Laws, Article I(rr) (definition of ``person associated 
with a member'').
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    With respect to unregistered persons currently associated with a 
member, the proposed rule change would provide that notice shall be 
deemed received by mailing or otherwise transmitting the notice to the 
last known business address of the member as reflected in CRD. In 
addition, the proposed rule change would retain the provision that if 
FINRA staff responsible for transmitting the notice has actual 
knowledge that the member's address provided through CRD is out of date 
or inaccurate, then a copy of the notice must be transmitted to both 
the address provided through CRD, as well as any more current address 
known to FINRA staff.
    With respect to unregistered persons formerly associated with a 
member, the proposed rule change would provide that notice shall be 
deemed received upon personal service, which is defined as set forth in 
FINRA Rule 9134(a)(1).\15\ FINRA Rule 9134(a)(1) is based on 
traditional concepts for serving a summons under Rule 4 of the Federal 
Rules of Civil Procedure.
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    \15\ FINRA Rule 9134(a)(1) provides as follows: ``Personal 
service may be accomplished by handing a copy of the papers to the 
person required to be served; leaving a copy at the person's office 
with an employee or other person in charge thereof; or leaving a 
copy at the person's dwelling or usual place of abode with a person 
of suitable age and discretion then residing therein[.]''

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[[Page 74255]]

Notice to Members and Persons Represented By Counsel
    The proposed rule change would amend FINRA Rule 8210(d) to 
explicitly address issues of service on members or persons that are 
known to be represented by counsel. Currently, the rule does not 
explicitly permit FINRA staff to serve notice on a member's or person's 
counsel in situations in which FINRA staff knows that the member or 
person is represented by counsel regarding the matter in question. The 
proposed rule change would allow FINRA staff to recognize that counsel 
can act as an authorized agent on behalf of a member or person. It 
would provide that, if FINRA staff knows that a member or person is 
represented by counsel regarding the matter in question, then notice 
shall be provided to counsel rather than to the member or person. The 
proposed rule change would harmonize FINRA's rule in this regard with 
Codes of Professional Conduct in many states regarding service on 
counsel.\16\
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    \16\ See, e.g., American Bar Association model Rule of 
Professional Conduct 4.2 (``ABA Rule 4.2''). ABA Rule 4.2 provides 
as follows: ``In representing a client, a lawyer shall not 
communicate about the subject of the representation with a person 
the lawyer knows to be represented by another lawyer in the matter, 
unless the lawyer has the consent of the other lawyer or is 
authorized to do so by law or a court order.'' Many states have 
rules regarding communication with a person represented by counsel 
that are based on ABA Rule 4.2.
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Effective Date
    In its filing with the Commission, FINRA stated that it would 
announce the effective date of the proposed rule change in a Regulatory 
Notice to be published no later than 60 days following Commission 
approval. The effective date would be 30 days following publication of 
the Regulatory Notice announcing Commission approval.

III. Summary of Comments, FINRA's Response, and Amendment Nos. 1 and 2

    As stated above, the Commission received seven comment letters in 
response to the proposed rule change.\17\ Three commenters supported 
the amendments as proposed \18\ and four commenters expressed various 
concerns with different aspects of the proposal.\19\ On December 22, 
2009, FINRA filed a letter with the Commission responding to these 
comments,\20\ and on December 21, 2011, FINRA filed Amendment No. 1 
with the Commission to further respond to the comments and to propose 
amendments in response thereto.\21\ On December 5, 2012, FINRA filed 
Amendment No. 2 with the Commission to modify a phrase that was 
included in Amendment No. 1.\22\
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    \17\ See supra note 4.
    \18\ See FSI Letter; NPB Letter; and Woodforest Letter.
    \19\ See BTUD Letter; Schwab Letter; SIFMA Letter; and Wells 
Fargo Letter.
    \20\ See Response to Comments, supra note 5.
    \21\ See Amendment No. 1, supra note 6.
    \22\ See Amendment No. 2, supra note 7.
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A. Summary of, and FINRA's Responses to, Comment Letters

1. Information in a Member's or Person's Possession, Custody or Control
    Four commenters addressed FINRA's proposal to amend FINRA Rule 
8210(a)(2).\23\ FINRA Rule 8210(a)(2) currently provides that FINRA 
staff shall have the right to inspect and copy the books, records and 
accounts of all applicable members and persons ``with respect to any 
matter involved in the investigation, complaint, examination or 
proceeding.'' The proposed rule change would clarify that the 
information subject to FINRA inspection and copying must be in the 
member's or person's ``possession, custody or control.''
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    \23\ See BTUD Letter; Schwab Letter; SIFMA Letter; and Wells 
Fargo Letter.
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    Three commenters expressed concern that FINRA's intent to clarify 
the scope of its authority regarding requests pursuant to FINRA Rule 
8210 represented an expansion of the current rule without a meaningful 
discussion or consideration of the possible legal and practical 
implications and consequences for member firms, associated persons, and 
persons over whom FINRA has jurisdiction.\24\ These commenters were 
particularly concerned that FINRA would be able to compel its members 
and persons over whom it has jurisdiction to provide FINRA with 
information within the member's or person's ``control.'' In its filing 
of the proposed rule change, FINRA stated that it intended for the word 
``control,'' in addition to possession and custody, to require members 
or persons covered by the rule to provide, for example, records that 
they have the legal right, authority, or ability to obtain upon 
demand.\25\ In support of their comments, two commenters cited to the 
Commission's Jay Alan Ochanpaugh decision, in which the Commission 
considered the authority of the NASD (now FINRA) under Rule 8210 in a 
litigation context and stated that a ``fuller exploration'' of the 
scope of Rule 8210 would be required by the NASD to support its view in 
the case that the rule authorized it to obtain information within a 
member's or person's possession or control.\26\
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    \24\ See Schwab Letter; SIFMA Letter; and Wells Fargo Letter.
    \25\ See Notice, supra note 3.
    \26\ See Schwab Letter and SIFMA Letter.
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    In its Response to Comments, FINRA stated that commenters were 
incorrect in their analysis of the Jay Alan Ochanpaugh litigation.\27\ 
FINRA noted that although the Commission's decision in that case 
addressed both the legal argument that Rule 8210 did not include the 
concept of ``possession and control'' and the factual argument that the 
NASD failed to prove that the applicant had possession and control of 
the documents, the Commission's decision to set aside FINRA's action in 
the case was based on factual grounds.\28\ FINRA also noted that the 
Exchange Act, not the decision in Jay Alan Ochanpaugh, provides the 
standard the Commission uses when analyzing a self-regulatory 
organization's proposed rule change.\29\ FINRA further argued that the 
purpose of proposed FINRA Rule 8210 is to facilitate investigations and 
that the consequences or burdens of any particular request are 
factually specific to that investigation.\30\
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    \27\ See Response to Comments, supra note 5.
    \28\ Id.
    \29\ Id. See also Section 19(b)(2)(C) of the Exchange Act, which 
states that the Commission shall approve a proposed rule change of a 
self-regulatory organization ``if it finds that such proposed rule 
change is consistent with the requirements of this title and the 
rules and regulations issued under this title that are applicable to 
such organization.''
    \30\ See Response to Comments, supra note 5.
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2. Issues Regarding Access to Third-Party Documents and Procedural 
Protections

    Three commenters raised concerns that the proposed rule change 
could permit FINRA to compel members or associated persons to produce 
documents that belong to a third party.\31\ For example, two commenters 
expressed concern that FINRA would not be required to maintain 
confidentiality of third party documents it receives pursuant to a Rule 
8210 request, which could be made public when attached to pleadings in 
court filings, when sought by another party pursuant to a subpoena, and 
when disclosed pursuant to Freedom of Information Act requests.\32\ One 
of these commenters expressed further concern that public disclosure of 
confidential or proprietary third party documents as a result of the 
proposed rule change may result in the owner of the documents suffering 
material harm, which, in turn, could prompt the owner of the records

[[Page 74256]]

to seek damages or other recourse from FINRA and the member firm for 
publicly disclosing the information.\33\
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    \31\ See Schwab Letter; SIFMA Letter; and Wells Fargo Letter.
    \32\ See Schwab Letter and SIFMA Letter.
    \33\ See Schwab Letter.
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    To address these concerns, one commenter recommended that FINRA's 
right to demand possession, custody, or control of third party records 
should be limited to when an associated person is acting in its 
capacity as an associated person.\34\ This commenter also stated that 
FINRA should access documents of third parties through subpoenas to 
provide third parties with a means of addressing their issues against 
the production of their documents and to help protect member firms 
against claims of improper disclosure.\35\
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    \34\ See Wells Fargo Letter.
    \35\ Id.
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    One commenter stated that FINRA's proposal does not address issues 
relating to the ownership of records where FINRA is seeking records of 
a third party not within FINRA's jurisdiction.\36\ For example, 
according to this commenter, an unrelated third party may own and have 
absolute control over the material requested, while the person or 
entity over whom FINRA has jurisdiction may have limited access to the 
documents or only the right to request the documents from the third 
party for a specific purpose consistent with their role in the 
organization or relationship with the third party.\37\ The commenter 
believes that this may result in the member firm breaching contractual 
obligations owed to the third party and potentially result in a 
violation of Rule 8210.\38\ Another commenter expressed concern that 
under the proposed rule change, regulators could rely on the subject of 
an investigation to supply information related to third parties as 
opposed to independently obtaining those records from the third 
party.\39\
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    \36\ See Schwab Letter.
    \37\ Id.
    \38\ Id.
    \39\ See Wells Fargo Letter.
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    Two commenters expressed concern about the procedural protections 
of which FINRA members may avail themselves when in receipt of a Rule 
8210 request for information.\40\ These commenters stated that, 
although the rule seeks to adopt the same standard found in the Federal 
Rules of Civil Procedure, FINRA members may not receive the same 
procedural protections as those found in federal court, such as the 
right to object to the production of requested documents.\41\ These 
commenters also stated that if a FINRA member cannot comply with a 
request under Rule 8210, and the firm is found to have violated the 
rule, the procedural process to appeal to the SEC and federal courts is 
long and arduous.\42\
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    \40\ See Schwab Letter and SIFMA Letter.
    \41\ Id.
    \42\ Id.
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    FINRA believes that the concerns described above relating to issues 
regarding access to third party documents and procedural protections 
incorrectly assume that FINRA's investigations into the conduct of its 
members and associated persons are strictly limited in scope to the 
FINRA members and associated persons under investigation.\43\ FINRA 
stated that although it has jurisdiction to file an action against its 
members and associated persons (and those otherwise subject to its 
jurisdiction), its investigations can involve non-FINRA members, 
including customers, issuers, or foreign businesses.\44\ Consequently, 
FINRA contends that third party documents within the ``possession, 
custody or control'' of the FINRA member or associated person that 
relate to the investigation should be produced pursuant to proposed 
FINRA Rule 8210 and concerns solely based on their status as third 
party documents should not prevent the Commission from approving the 
proposed rule change.\45\
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    \43\ See Response to Comments, supra note 5.
    \44\ Id.
    \45\ Id.
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    FINRA agrees in part that its authority to request documents is 
contractual. However, FINRA notes that its authority is also based on 
its rules applying to all members and their associated persons.\46\ 
FINRA states that, in light of these relationships, its investigations 
are based on a model of implied cooperation as opposed to the 
adversarial system that is governed by the Federal Rules of Civil 
Procedure.\47\ Specifically, FINRA's members and persons subject to its 
jurisdiction have already agreed, either explicitly or implicitly, to 
supply FINRA with information during its investigations.\48\ FINRA 
notes that once an investigation has matured into the filing of a 
complaint, the FINRA Code of Procedure affords a respondent several 
procedural rights and that its investigatory process should not be 
fundamentally altered as a result of the proposed rule change.\49\ 
FINRA also notes that the current rule provides FINRA staff with the 
right to inspect and copy books, records, and accounts of members, 
associated persons and others subject to FINRA's jurisdiction ``with 
respect to any matter involved in the investigation, complaint, 
examination or proceeding,'' and because the rule is purposefully 
designed to cover a broad range of activities, concerns about limiting 
the scope of the rule are misplaced.\50\
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    \46\ Id.
    \47\ Id.
    \48\ Id.
    \49\ Id.
    \50\ Id.
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3. Participation in Charitable, Non-Profit, and Board Service
    Three commenters indicated that FINRA Rule 8210(a)(2), as proposed 
to be amended, may inhibit or discourage individuals in the securities 
industry from participating in charitable, non-profit, and board 
service due to the potential for third party organizations to have to 
provide private or confidential documents owned by the organization to 
FINRA.\51\ FINRA responded that it did not find merit in the suggestion 
by these commenters that adopting the ``possession, custody or 
control'' language in FINRA Rule 8210(a)(2) would chill the likelihood 
of associated persons participating in non-profit entities due to fear 
by those entities that their documents would be disclosed during FINRA 
investigations.\52\ FINRA stated further that in as much as board 
members of non-profit organizations often are employed in a for-profit 
industry, FINRA found no greater likelihood that a non-profit 
corporation's confidential information would be disclosed because they 
have associated persons as board members than if their board members 
were not associated with the securities industry.\53\
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    \51\ See Schwab Letter; SIFMA Letter; and Wells Fargo Letter.
    \52\ See Response to Comments, supra note 5.
    \53\ Id.
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4. Additional Analysis and Consideration of the Proposed Rule Change
    Two commenters recommended that FINRA engage in additional analysis 
and consideration with respect to the proposed rule change and the 
process and protections afforded to members, associated persons, and 
others over whom FINRA has jurisdiction.\54\ FINRA did not directly 
respond to these recommendations; however, FINRA's Response to Comments 
and its filing of Amendment Nos. 1 and 2, which, as discussed below, 
limit the scope of the proposed rule change, reflect FINRA's efforts to 
engage in such additional analysis and consideration of the proposed 
rule change.
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    \54\ See Schwab Letter and SIFMA Letter.

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[[Page 74257]]

5. Notice to Unregistered Persons and Members and Persons Represented 
by Counsel
    FINRA did not receive any specific comments on its proposals under 
Rule 8210(d) to specify the method of service for certain unregistered 
persons and to authorize service on members or persons that are known 
to be represented by counsel.
6. Comment Outside the Scope of the Proposed Rule Change
    One commenter expressed concern regarding a witness's ability to 
access a written transcript of on-the-record testimony in a FINRA 
proceeding.\55\ FINRA responded that this comment is outside the scope 
of the proposed rule change.\56\
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    \55\ See BTUD Letter.
    \56\ See Response to Comments, supra note 5.
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B. Description of Amendment Nos. 1 and 2

    After further consideration and analysis of the proposed rule 
change and the comments thereon, on December 21, 2011, FINRA filed 
Amendment No. 1, in which it proposed to add Supplementary Material 
limiting the scope of its proposal.\57\ On December 5, 2012, FINRA 
filed Amendment No. 2 to modify a phrase in the proposed Supplementary 
Material.\58\
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    \57\ See Amendment No. 1, supra note 6.
    \58\ See Amendment No. 2, supra note 7.
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    First, the proposed Supplementary Material would provide that 
books, records and accounts of a broker-dealer, associated person or 
person subject to FINRA's jurisdiction (as referenced in Rule 8210(a)), 
would include those books, records and accounts that the broker-dealer 
or its associated persons would make or keep relating to its operation 
as a broker-dealer or relating to the person's association with the 
member.\59\ This would include, but not be limited to, investigations 
of outside business activities, private securities transactions, or 
possible violations of just and equitable principles of trade, as well 
as other FINRA rules, MSRB rules, and the federal securities laws.\60\
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    \59\ Id.
    \60\ Id.
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    The proposed Supplementary Material also would clarify that books, 
records and accounts of a broker-dealer, associated person or person 
subject to FINRA's jurisdiction would not ordinarily include books and 
records that are in the possession, custody or control of a member or 
associated person, but whose bona fide ownership is held by an 
independent third party and the records are unrelated to the business 
of the member.\61\
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    \61\ Id.
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    Finally, the proposed Supplementary Material would provide that a 
FINRA member, associated person, or person subject to FINRA's 
jurisdiction must make available its books, records or accounts when 
these books, records or accounts are in the possession of another 
person or entity, such as an attorney, accountant, or other 
professional service provider, but the FINRA member, associated person, 
or person subject to FINRA's jurisdiction controls or has a right to 
demand them.\62\
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    \62\ Id. Amendment No. 1 also makes a technical change to the 
text of Rule 8210 to reflect the addition of paragraph (g) to the 
Rule, which was added through a separate and unrelated intervening 
proposed rule change that was submitted and became effective 
subsequent to the filing of this proposal. See Exchange Act Release 
No. 63016 (Sep. 29, 2010), 75 FR 61793 (Oct. 6, 2010) (Order 
Approving Proposed Rule Change; File No. SR-FINRA-2010-021). This 
change has no effect on the text of Rule 8210(g), which requires the 
encryption of certain information provided via portable media 
device. Id.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change, 
as modified by Amendment Nos. 1 and 2, the comment letters received, 
and FINRA's response and finds that the proposed rule change, as 
modified by Amendment Nos. 1 and 2, is consistent with the requirements 
of the Exchange Act and the rules and regulations thereunder that are 
applicable to a national securities association.\63\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with Section 15A(b)(6) of the 
Exchange Act, which requires, among other things, that the rules of a 
national securities association be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, remove impediments to and perfect the mechanism of 
a free and open market and a national market system, and, in general, 
protect investors and the public interest.\64\ The Commission believes 
that FINRA, in its Response to Comments and Amendment Nos. 1 and 2, 
adequately addressed the comments raised in response to the Notice.
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    \63\ 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).
    \64\ 15 U.S.C. 78o-3(b)(6).
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    Current FINRA Rule 8210 confers on FINRA staff authority to compel 
a member, person associated with a member, or other person subject to 
FINRA's jurisdiction, to produce documents, provide testimony, or 
supply written responses or electronic data in connection with an 
investigation, complaint, examination or adjudicatory proceeding. 
Additionally, the current rule provides FINRA with the authority to 
inspect and copy the books, records, and accounts of all applicable 
members and persons with respect to any matter involved in the 
investigation, complaint, examination, or proceeding. FINRA's proposed 
rule, as modified by Amendment Nos. 1 and 2, clarifies that information 
subject to a FINRA Rule 8210 request must be in the member's or 
person's ``possession, custody or control'' and explicitly provides the 
methods by which certain types of notice must be made. These changes 
will help eliminate existing confusion with respect to the scope of 
FINRA Rule 8210. The proposed rule change, as modified by Amendment 
Nos. 1 and 2, also will further the purposes of the Exchange Act by, 
among other things, clarifying and streamlining the requirements 
surrounding providing information and testimony and inspecting and 
copying books and records. The clarifying nature of the proposed rule, 
as modified by Amendment Nos. 1 and 2, will be helpful to FINRA members 
in understanding the scope of, and notice requirements under, Rule 
8210, and will assist FINRA in facilitating investigations and 
fulfilling its responsibilities as a self-regulatory organization under 
the Exchange Act.

V. Accelerated Approval

    The Commission finds goods cause, pursuant to Section 19(b)(2) of 
the Act,\65\ for approving the proposed rule change, as modified by 
Amendment Nos. 1 and 2, prior to the 30th day after publication of 
Amendment Nos. 1 and 2 in the Federal Register. The changes proposed in 
Amendment Nos. 1 and 2 respond to specific concerns raised by 
commenters and do not raise novel regulatory concerns. In particular, 
Amendment Nos. 1 and 2 clarify the scope of FINRA Rule 8210 and FINRA's 
authority to inspect and copy the books, records and accounts of 
members and persons with respect to any matter involved in an 
investigation, complaint, examination, or proceeding. The proposed 
rule, as modified by Amendment Nos. 1 and 2, also furthers FINRA's 
investor protection mandate.
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    \65\ 15 U.S.C. 78s(b)(2).
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    Accordingly, the Commission finds that good cause exists to approve 
the

[[Page 74258]]

proposal, as modified by Amendment Nos. 1 and 2, on an accelerated 
basis.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether Amendment Nos. 1 
and 2 to the proposed rule change are consistent with the Exchange 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-060 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-2009-060. This 
file number should be included on the subject line if email 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 Web site viewing and 
printing 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-2009-060 and should be 
submitted on or before January 3, 2013.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\66\ that the proposed rule change (SR-FINRA-2009-060), as modified 
by Amendment Nos. 1 and 2, be, and hereby is, approved on an 
accelerated basis.
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    \66\ 15 U.S.C. 78(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\67\
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    \67\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30049 Filed 12-12-12; 8:45 am]
BILLING CODE 8011-01-P