Document ID: SEC-2007-1251-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc
Posted Date: 2007-09-07T04:00Z

[Federal Register: September 7, 2007 (Volume 72, Number 173)]
[Notices]               
[Page 51483-51485]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07se07-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56347; File No. SR-NASD-2007-056]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Establish a Membership Waive-In Process for Certain NYSE Member 
Organizations

August 31, 2007.
    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 25, 2007, the National Association of Securities Dealers, Inc. 
(``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc.) 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 NASD.\3\ On August 16, 
2007, FINRA filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 1 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD's Certificate of Incorporation to 
reflect its name change to the Financial Industry Regulatory 
Authority, Inc., or FINRA, in connection with the consolidation of 
the member firm regulatory functions of NASD and NYSE Regulation, 
Inc. See Securities Exchange Act Release No. 56146 (July 26, 2007), 
72 FR 42190 (August 1, 2007).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to adopt Interpretive Material 1013-1 (``IM-1013-
1''), a membership waive-in process for certain New York Stock Exchange 
(``NYSE'') member organizations, and Interpretive Material Section 4(e) 
to Schedule A of the By-Laws, a membership application fee waiver for 
those NYSE member organizations that apply for membership pursuant to 
IM-1013-1. The proposed rule change is submitted in furtherance of the 
consolidation of the member firm regulatory functions of NASD and NYSE 
Regulation, Inc. (``NYSE Regulation'') (``Transaction'').\4\ The text 
of the proposed rule change, including the FINRA Waive-In Membership 
Application Form and Membership Agreement, is available at FINRA, the 
Commission's Public Reference Room, and http://www.finra.org.

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    \4\ See Securities Exchange Act Release No. 56145 (July 26, 
2007), 72 FR 42169 (August 1, 2007) (File No. SR-NASD-2007-023).
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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, NASD 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. NASD 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
    On November 28, 2006, NASD and the NYSE Group announced a plan to 
consolidate their member regulation operations into a combined 
organization intended to be the sole U.S. private-sector provider of 
member firm regulation for securities firms that do business with the 
public. Upon closing of the Transaction, NASD adopted the new corporate 
name, FINRA.\5\ The consolidation is intended to streamline the broker-
dealer regulatory system, combine technologies, permit the 
establishment of a single set of rules and group examiners with 
complementary areas of expertise in a single organization--all of which 
will serve to enhance oversight of U.S. securities firms and help 
ensure investor protection. Moreover, the new organization will be 
committed to reducing regulatory costs and burdens for firms of all 
sizes through greater regulatory efficiency.
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    \5\ See supra note 3. The Commission notes that the Transaction 
closed on July 30, 2007. See telephone conference between Nancy 
Burke-Sanow, Assistant Director, Commission, and Patrice Gliniecki, 
Senior Vice President and Deputy General Counsel, FINRA, on July 31, 
2007.
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    On July 24, 2007, NYSE filed a proposed rule change requiring its 
member organizations to become members of FINRA to achieve the 
Transaction's goal to eliminate duplicative member firm regulation 
(``Mandatory FINRA Membership filing'').\6\ Currently, there are 
approximately 95 NYSE member organizations that were not also NASD

[[Page 51484]]

members that will be required to become FINRA members. In furtherance 
of the consolidation, the proposed rule change would establish a waive-
in process for these firms to become members of FINRA. The proposed 
rule change would apply to firms that, as of July 25, 2007: (1) Are 
approved NYSE member organizations or (2) have submitted an application 
to become an NYSE member organization and are subsequently approved for 
NYSE membership (together ``NYSE-only member organizations''), provided 
that such firms were not also NASD members as of the closing of the 
Transaction (i.e., as of July 30, 2007).
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    \6\ See Securities Exchange Act Release No. 56173 (July 31, 
2007), 72 FR 44205 (August 7, 2007) (SR-NYSE-2007-67).
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    NASD recognizes that NYSE has a comprehensive membership 
application and review process based on similar principles and 
standards to that of NASD. As such, those NYSE-only member 
organizations that will become FINRA members already have been 
subjected to an extensive screening process. Therefore, the proposed 
rule change would establish IM-1013-1, a process that would make such 
firms eligible to automatically become a FINRA member and to 
automatically register all associated persons whose registrations are 
approved with NYSE in registration categories recognized by FINRA upon 
submission to FINRA's Member Regulation Department (``Department'') of 
a signed waive-in membership application (``Waive-In Application'').
    FINRA does not intend to recognize any new registration categories 
upon the closing of the Transaction. Thus, associated persons of the 
NYSE-only member organizations will be automatically registered with 
FINRA only for those registration categories that are recognized 
jointly by NASD and NYSE--e.g., a General Securities Representative 
(Series 7); provided, however, that the firm must, upon approval of 
FINRA membership, submit an amended Form U4 for each such associated 
person, denoting the corresponding NASD registration category(ies) for 
such person.\7\ A list of those registration categories is included as 
part of the Waive-In Application. (Please note that both NASD and NYSE 
recognize the Series 9/10, but for NASD, persons who have passed the 
Series 9/10 may function only as a General Securities Sales Supervisor 
(see NASD Rule 1022(g).) For those associated persons registered in a 
category recognized only by NYSE, FINRA will acknowledge such 
registrations to permit such persons to continue to function in the 
capacity for which they are registered.
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    \7\ FINRA intends to file a separate rule change to the Forms U4 
and U5 to reflect NASD's change in corporate name to FINRA.
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    The Waive-In Application would require the following information:
    (1) General company information, including Central Registration 
Depository (CRD[supreg]) Number and contact person.
    (2) An attestation that all information on the applicant's CRD 
form, as of the date of submission of the Waive-In Application is 
accurate and complete and fully reflects all aspects of the applicant's 
current business, including, but not limited to, ownership structure, 
management, product lines and disclosures.
    (3) The identity of the firm's Executive Representative.
    (4) Completed and signed Entitlement Forms.
    (5) A signed FINRA Membership Agreement.
    (6) Representations that the applicant's Uniform Application for 
Broker-Dealer Registration (Form BD) will be amended as needed to keep 
current and accurate; that all individual and entity registrations with 
FINRA will be kept current; and that all information and statements 
contained in the Waive-In Application are current, true and complete.
    The proposed rule change would require the Department to review the 
Waive-In Application within three (3) business days of receipt and, if 
complete, issue a letter notifying the applicant that it has been 
approved for membership. The Membership Agreement would become 
effective on the date of such notification letter.\8\
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    \8\ NASD understands that the Mandatory FINRA Membership filing 
would extend the NYSE-only member organizations a 60-day grace 
period within which they must apply for and be approved for FINRA 
membership. This grace period would run from the later of the date 
of Commission approval of either the instant proposed rule change or 
the Mandatory FINRA Membership filing.
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    As set forth in proposed IM-1013-1, the NYSE-only member 
organizations admitted pursuant to proposed IM-1013-1 would be subject 
to the NYSE rules incorporated by FINRA, FINRA's By-Laws and Schedules 
to By-Laws, including Schedule A (Assessments and Fees), and NASD Rule 
8000 (Investigations and Sanctions) and Rule 9000 (Code of Procedure) 
Series, provided that their securities business is limited to floor 
brokerage on the NYSE, or routing away to other markets orders that are 
ancillary to their core floor business under NYSE Rule 70.40 
(``permitted floor activities'').\9\ If an NYSE-only member 
organization admitted pursuant to proposed IM-1013-1 seeks to expand 
its business operations to include any activities other than the 
permitted floor activities, such firm must apply for and receive 
approval to engage in such business activity pursuant to NASD Rule 
1017. Upon approval of such business expansion, the firm would become 
subject to all NASD rules, in addition to those NYSE rules incorporated 
by FINRA.
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    \9\ For purposes of this filing, activities that are ancillary 
to a Floor broker's core business include: (i) Routing orders in 
NYSE-traded securities to an away market for any reason relating to 
their ongoing Floor activity, including regulatory compliance or 
meeting best-execution obligations; or (ii) provided that the 
majority of transactions effected by the firm are effected on the 
NYSE, sending to other markets orders in NYSE-traded or non-NYSE-
traded securities and/or futures if such orders relate to hedging 
positions in NYSE-traded securities, or are part of arbitrage or 
program trade strategies that include NYSE-traded securities.
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    Associated persons of an NYSE-only member organization admitted to 
FINRA pursuant to proposed IM-1013-1 would be subject to the same set 
of rules as the firm with which they are associated, namely the NYSE 
rules incorporated by FINRA, FINRA's By-Laws and Schedules to By-Laws, 
and the NASD Rule 8000 and 9000 Series. Inasmuch as these associated 
persons would not be subject to NASD Rules 1021 or 1031, they would not 
be required to register in a registration category recognized by FINRA. 
To the extent that such persons continue to be associated solely with a 
firm whose business complies with the limitations imposed on those 
firms admitted to FINRA pursuant to proposed IM-1013-1, FINRA is not 
imposing any registration requirements beyond those required by the 
NYSE, provided their business is confined in scope as contemplated in 
proposed IM-1013-1.\10\
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    \10\ The licensing and other requirements applicable to the 
NYSE-only member organizations and their associated persons are 
subject to change as part of the process of establishing a 
consolidated rulebook applicable to all FINRA members.
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    Finally, the proposed rule change would create Interpretive 
Material Section 4(b)(1) and 4(e) of Schedule A of the NASD By-Laws, 
which would exempt the applicants from the assessment of a FINRA 
membership application fee and from fees for each initial Form U4 filed 
by the applicant with FINRA for the registration of a representative or 
principal associated with the firm at the time it submits its 
application for FINRA membership pursuant to proposed IM-1013-1. NASD 
believes the exemption is appropriate, since NYSE is mandating FINRA 
membership in furtherance of the Transaction and because the waive-in 
application process will not require

[[Page 51485]]

the same resources by the Department as when a new applicant that is 
not already a member of NYSE seeks membership.
    The effective date of the proposed rule change will be the date of 
Commission approval of the proposed rule change.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A of the Act, including Section 15A(b)(6) of 
the Act,\11\ in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade and, in general, to protect investors and the public interest. 
The proposed rule change will facilitate the consolidation of member 
regulation functions under a single self-regulatory organization, 
resulting in more effective and efficient regulation of brokers and 
dealers, thereby enhancing investor protection, while also ensuring 
that those NYSE-only member organizations eligible for the waive-in 
process meet suitable standards for admission into FINRA.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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 NASD 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-NASD-2007-056 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASD-2007-056. 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-NASD-2007-056 and should be 
submitted on or before September 28, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-17699 Filed 9-6-07; 8:45 am]

BILLING CODE 8010-01-P