Document ID: SEC-2008-1084-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-08-07T04:00Z

[Federal Register: August 7, 2008 (Volume 73, Number 153)]
[Notices]               
[Page 46106-46108]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au08-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58245; File No. SR-FINRA-2008-026]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change and 
Amendment No. 1 Thereto, To Adopt the FINRA Rule 0100 Series (General 
Standards) in the Consolidated FINRA Rulebook

July 29, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on June 16, 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'' or ``SEC'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by FINRA. On July 16, 2008, 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\ 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 proposes to adopt the NASD Rule 0100 Series as FINRA rules in 
the consolidated FINRA rulebook. The proposed rule change would 
renumber the NASD Rule 0100 Series as the FINRA Rule 0100 Series in the 
consolidated FINRA rulebook. The text of the proposed rule change is 
available at FINRA, the Commission's Public Reference Room, and 
www.finra.org.

[[Page 46107]]

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

Background

    As part of the process of developing the new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt the 
NASD Rule 0100 Series (General Provisions) as FINRA rules in the 
Consolidated FINRA Rulebook, with the exception of NASD Rule 0120, 
which will be addressed at a later date in a separate filing. The NASD 
Rule 0100 Series governs the adoption, application and interpretation 
of NASD rules and sets forth certain definitions not contained in the 
FINRA By-Laws. Additionally, these rules address FINRA's delegation of 
certain responsibilities to its subsidiaries, and its authority and 
access with respect to its subsidiaries. FINRA is proposing to transfer 
this rule series as the FINRA Rule 0100 Series, renamed as ``General 
Standards,'' to the Consolidated FINRA Rulebook, with only minor 
changes, as described below. The proposed rule change would not impose 
any new requirements on FINRA members, but would clarify and streamline 
these rules for inclusion in the Consolidated FINRA Rulebook. FINRA 
notes that, notwithstanding their transfer to the Consolidated FINRA 
Rulebook, these rules of general applicability would apply equally to 
both the Transitional Rulebook and the Consolidated FINRA Rulebook.\4\
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    \3\ 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 the FINRA Information 
Notice, March 12, 2008 (Rulebook Consolidation Process).
    \4\ See SR-FINRA-2008-021 (Proposed Rule Change Relating to the 
Adoption of NASD Rules 4000 through 10000 Series and the 12000 
through 14000 Series as FINRA Rules in the New Consolidated FINRA 
Rulebook), discussing ``Rules of General Applicability.''
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Proposal

    NASD Rule 0111 (Adoption of Rules) provides that the provisions of 
the rulebook are adopted pursuant to Article VII, Section 1, of the By-
Laws. This section of the By-Laws grants the FINRA Board of Governors 
(``Board'') authority to, among other things, adopt such FINRA rules, 
and changes or additions thereto, as it deems necessary or appropriate, 
provided, however, that the Board may at its option submit to the 
membership any such adoption, change or addition to such rules. FINRA 
is proposing that this rule be transferred into the Consolidated FINRA 
Rulebook with only minor, non-substantive changes (e.g. , replacing 
references to NASD with FINRA and certain renumbering to reflect the 
new organizational structure of the Consolidated FINRA Rulebook).
    NASD Rule 0112 (Effective Date) states that the rules shall become 
effective as provided in Article XI, Section 1, of the By-Laws. This 
section of the By-Laws provides that, if rules, or amendments to such, 
are approved by the Commission, they will become effective as of such 
date as the Board may prescribe. Historically, it has been FINRA's 
general practice to state the effective date for a rule change in a 
Regulatory Notice following approval by the Commission, and FINRA 
intends to continue this practice. Accordingly, FINRA is proposing that 
this rule be transferred into the Consolidated FINRA Rulebook with only 
minor, non-substantive changes.
    NASD Rule 0113 (Interpretation) states that the rules shall be 
interpreted in such manner as will aid in effectuating the purposes and 
business of NASD, and so as to require that all practices in connection 
with the investment banking and securities business shall be just, 
reasonable and not unfairly discriminatory. FINRA proposes to eliminate 
the express reference to ``practices in connection with the investment 
banking and securities business'' in the rule to reflect that certain 
FINRA rules, such as the requirement to adhere to just and equitable 
principles of trade, are not limited in scope to such activities. The 
proposal would further provide that FINRA rules shall be interpreted in 
light of the purposes sought to be achieved by the rules and to further 
FINRA's regulatory programs. FINRA is proposing this rule change to 
better reflect that FINRA will continue to interpret its rules in a 
manner that promotes the purpose of the rules and FINRA's regulatory 
programs.
    NASD Rule 0114 (Effect on Transactions in Municipal Securities) 
provides, in part, that the rules shall not be construed to apply to 
transactions in municipal securities. NASD Rule 0116 (Application of 
Rules of the Association to Exempted Securities) states that the terms 
``exempted securities'' and ``municipal securities'' shall have the 
meanings specified in Exchange Act Sections 3(a)(12) and 3(a)(29), 
respectively, and includes a list of NASD rules applicable to 
transactions and business activities relating to exempted securities, 
except municipal securities. FINRA is proposing to incorporate the 
statement in Rule 0114 that the FINRA rules are not applicable to 
transactions in municipal securities into Rule 0116, and transfer Rule 
0116, as amended, to the Consolidated FINRA Rulebook.
    The remainder of Rule 0114 states that the rules shall not be 
construed to apply to contracts made prior to the effective date of the 
rules. FINRA is proposing to eliminate this provision in Rule 0114 as 
unnecessary because the rules by their own terms determine their 
applicability.
    NASD Rule 0115 (Applicability) provides that the rules shall apply 
to all members and persons associated with a member and that persons 
associated with a member shall have the same duties and obligations as 
a member. Rule 0115 goes on to prescribe the loss of membership and 
registration privileges for members or persons associated with a member 
who have been expelled, suspended, cancelled or revoked from membership 
or registration. FINRA is proposing that this rule be transferred into 
the Consolidated FINRA Rulebook with only minor, non-substantive 
changes.
    NASD Rule 0121 (Definitions in NASD By-Laws) states that, unless 
the context otherwise requires, or unless otherwise defined in these 
rules, terms used in the rules and interpretive material, if defined in 
the By-Laws, shall have the meaning as defined in the By-Laws. FINRA is 
proposing non-substantive changes to Rule 0121 to simplify the rule 
language.
    NASD Rule 0130 (Delegation, Authority and Access) delegates 
authority to certain NASD subsidiaries to act on behalf of NASD as set 
forth in a Plan of Allocation and Delegation adopted by the Board of 
Governors and approved by the SEC. Further, the rule provides that, 
notwithstanding any delegation of authority under the rule, the staff, 
books, records and premises of

[[Page 46108]]

the subsidiaries are that of NASD, subject to oversight pursuant to the 
Exchange Act, and all officers, directors, employees and agents of the 
subsidiaries are that of NASD for purposes of the Exchange Act. FINRA 
is proposing that this rule be transferred into the Consolidated FINRA 
Rulebook with only minor, non-substantive changes.
    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. FINRA believes that the proposed rule change will 
clarify and streamline the General Provisions rules for adoption as 
FINRA rules in the new Consolidated FINRA Rulebook.
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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 reason for so finding or (ii) as to 
which FINRA 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-2008-026 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-2008-026. 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 the 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-2008-026 and should be 
submitted on or before August 28, 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. E8-18152 Filed 8-6-08; 8:45 am]

BILLING CODE 8010-01-P