Document ID: SEC-2009-0750-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-06-08T04:00Z

[Federal Register: June 8, 2009 (Volume 74, Number 108)]
[Notices]               
[Page 27214-27215]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jn09-114]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60012; File No. SR-FINRA-2008-062]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 1, To Adopt FINRA Rule 2267 (Investor Education and 
Protection) in the Consolidated FINRA Rulebook

May 29, 2009.

I. Introduction

    On December 11, 2008, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a the National Association of Securities Dealers, 
Inc. (``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 require member firms, with certain exceptions, 
to provide customers with FINRA's Web site address and information 
regarding FINRA's BrokerCheck program at least once every calendar 
year. The proposed rule change was published for comment in the Federal 
Register on January 2, 2009.\3\ The Commission received two comment 
letters regarding the proposal.\4\ On April 28, 2009, FINRA responded 
to comments,\5\ and on April 29, 2009, FINRA filed Amendment No. 1 to 
the proposal. This order provides notice of the proposed rule change as 
modified by Amendment No. 1 and approves the proposed rule change, as 
amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59160 (December 23, 
2008), 74 FR 152 (``Notice'').
    \4\ See letter to the Commission from Richard Sacks, Investors 
Recovery Service, dated January 6, 2009 (``IRS Letter''), and letter 
to Florence E. Harmon, Acting Secretary, Commission, from John S. 
Watts, Senior Vice President & Chief Counsel, PFS Investments Inc., 
dated January 26, 2009 (``PFS Letter'').
    \5\ See letter to Elizabeth M. Murphy, Secretary, Commission, 
from Erika L. Lazar, Senior Attorney, FINRA, Office of General 
Counsel, dated April 28, 2009 (``Response to Comments'').
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II. Description of the Proposal

    FINRA proposed to adopt a rule based on NASD Rule 2280 (Investor 
Education and Protection), which requires member firms, with certain 
exceptions, to provide customers with FINRA's Web site address and 
information regarding FINRA's BrokerCheck program at least once every 
calendar year.
    NASD Rule 2280 currently applies to member firms that carry 
customer accounts and hold customer funds or securities and requires 
each member firm to provide its customers with the following 
information in writing not less than once every calendar year: (1) The 
``Public Disclosure Program'' hotline number; (2) the NASD Regulation 
Web site address; and (3) a statement regarding the availability of an 
investor brochure that includes information describing the ``Public 
Disclosure Program.''
    As initially proposed, FINRA Rule 2267 would have applied to all 
member firms, with two general exceptions: a firm that does not have 
customers, and an introducing firm that is party to a carrying 
agreement where the carrying member firm complies with the rule. FINRA 
stated that FINRA Rule 2267 would be broader in scope than NASD Rule 
2280 and would apply to member firms that conduct a limited business 
with customers, such as mutual fund distributors and member firms that 
deal solely with direct participation programs (``DPPs'').\6\ In 
Amendment No. 1, FINRA modified its proposal in response to the 
comments to permit a member whose contact with customers is limited to 
introducing customer accounts that will be held at an entity other than 
a FINRA member, and thereafter does not carry customer accounts or hold 
customer funds or securities,\7\ to furnish a customer with the 
information required by the rule at or before the time of the 
customer's initial purchase, in lieu of once every calendar year.\8\
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    \6\ These member firms would be required to comply with the rule 
and provide the disclosures at least once every calendar year. To 
the extent such firms are parties to a carrying agreement and the 
member firm that carries the accounts complies on their behalf, 
these firms would be excepted from the requirements of the proposed 
rule.
    \7\ E.g., does not provide account statements or trade 
confirmations.
    \8\ In addition, the proposed rule would include references to 
``BrokerCheck'' rather than the ``Public Disclosure Program;'' 
reference the FINRA Web site address rather than the NASD Regulation 
Web site address; and clarify that the information required under 
the rule may be provided electronically to customers.
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    FINRA stated in the Notice that it would announce the 
implementation date of the proposed rule change in a Regulatory Notice 
to be published no later than ninety days following Commission 
approval.

III. Summary of Comments and Amendment No. 1

    The Commission received two comment letters on the proposed rule 
change.\9\ One commenter expressed concern that, without the inclusion 
of additional disclosure noting that information in BrokerCheck may 
have been dismissed or expunged, customers may be mislead into 
believing a broker or other financial professional has not been 
involved in customer complaints.\10\ FINRA responded that it believed 
this comment was outside the scope of the proposal, and also noted that 
its Web site describes the contents of a BrokerCheck report and the 
type of information that is not disclosed through BrokerCheck.\11\
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    \9\ See supra, note 4.
    \10\ See IRS Letter.
    \11\ See Response to Comments at 2.
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    Another commenter stated that the proposed FINRA rule would place a 
significant burden on member firms, such as itself, that conduct a 
limited business where customer accounts are introduced to a non-FINRA 
member product issuer and have no direct contact with the customers 
after the initial transaction.\12\ The commenter stated that these 
firms do not carry customer accounts or hold customer funds or 
securities after the initial transaction. The commenter argued that 
because these firms do not send statements or trade confirmations, they 
do not have an easy method to provide information to customers, and a 
special annual mailing for the purposes of complying with the rule as 
initially proposed could be burdensome and substantial.\13\
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    \12\ See PFS Letter, supra, note 4.
    \13\ Id.
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    FINRA responded that it would amend the proposal to clarify the 
application of Rule 2267.\14\ Specifically, FINRA stated it would 
codify the interpretive guidance regarding current NASD Rule 2280, 
which requires these firms to provide the requisite disclosures to 
customers only at the time of the initial transaction.\15\
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    \14\ See Response to Comments at 2.
    \15\ See Response to Comments at 2, citing the NASD Regulation, 
Inc. Regulatory and Compliance Alert (Summer 1999) at 24. See 
Amendment No. 1 which also made non-substantive changes to the rule.

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[[Page 27215]]

IV. Discussion and Commission Findings

    After careful review of the proposed rule change, the comment 
letters, and FINRA's response to comments, 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.\16\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\17\ which 
requires, among other things, that FINRA rules 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.
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    \16\ 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).
    \17\ 15 U.S.C. 78o-3(b)(6).
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    Requiring broker-dealers that carry customer accounts to provide 
customers at least once each calendar year, or, for certain broker-
dealers that are introducing firms as described in the proposed rule, 
once at the time of initial purchase, with written information 
regarding the BrokerCheck hotline number, FINRA's Web site address, and 
a statement regarding the availability of an investor brochure 
describing BrokerCheck, publicizes the availability of information that 
helps investors determine whether to conduct, or to continue to 
conduct, business with a FINRA member or associated person of the 
member. In addition, the Commission has found NASD Rule 2280, on which 
the proposed rule is based, to be consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities association.\18\
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    \18\ See Securities Exchange Act Release No. 39043 (September 
10, 1997), 62 FR 48689 (September 16, 1997)(Order Approving Proposed 
Rule Change and Notice of Filing and Order Granting Accelerated 
Approval of Amendment No. 1 to the Proposed Rule Change by the 
National Association of Securities Dealers, Inc. Relating to the 
Distribution of Information Concerning the Availability of the 
NASD's Public Disclosure Program).
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    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\19\ for approving the proposal, as modified by Amendment No. 
1, prior to the thirtieth day after the date of publication of notice 
of filing of Amendment No. 1 in the Federal Register.\20\ Amendment No. 
1 responded to the comments by tailoring the requirement for firms 
whose contact with customers is limited to introducing customer 
accounts to be held directly at an entity other than a FINRA member and 
thereafter do not carry customer accounts or hold customer funds but 
that the customer, at the outset, still receives the information. In 
addition, the firms afforded the exception proposed in Amendment No. 1 
do not have any obligation under current NASD Rule 2280, so customers 
will still be receiving more information than they do presently. 
Therefore, the Commission believes that it is in the public interest to 
approve the proposal, as modified by Amendment No. 1, on an expedited 
basis.
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    \19\ 15 U.S.C. 78s(b)(2).
    \20\ Pursuant to Section 19(b)(2) of the Act, 15 U.S.C. 
78s(b)(2), the Commission may not approve any proposed rule change, 
or amendment thereto, prior to the thirtieth day after the date of 
publication of the notice thereof, unless the Commission finds good 
cause for so doing.
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal, as 
modified by Amendment No. 1, 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 No. SR-FINRA-2008-062 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-2008-062. 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-2008-062 and should be 
submitted on or before June 29, 2009.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-FINRA-2008-062), as modified 
by Amendment No. 1, be, and hereby is, approved on an accelerated 
basis.
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13253 Filed 6-5-09; 8:45 am]

BILLING CODE 8010-01-P