Document ID: SEC-2010-0822-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-06-04T04:00Z

[Federal Register: June 4, 2010 (Volume 75, Number 107)]
[Notices]               
[Page 31825-31826]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04jn10-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62199; File No. SR-FINRA-2010-026]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 5121 (Public Offerings of Securities With Conflicts of 
Interest) in the Consolidated FINRA Rulebook

June 1, 2010.
    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 May 20, 2010, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 
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 2720 (Public Offerings of 
Securities With Conflicts of Interest) as a FINRA rule in the 
consolidated FINRA rulebook without material change. The proposed rule 
change would renumber NASD Rule 2720 as FINRA Rule 5121 in the 
consolidated FINRA rulebook.
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

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 a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt NASD 
Rule 2720 (Public Offerings of Securities With Conflicts of Interest) 
without material change as FINRA Rule 5121 in the Consolidated FINRA 
Rulebook.
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    \3\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
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    NASD Rule 2720 governs public offerings of securities in which a 
member with a conflict of interest participates. The rule generally 
prohibits a member with a ``conflict of interest,'' as defined in the 
rule,\4\ from participating in a public offering, unless certain other 
requirements are met.\5\ There is no comparable Incorporated NYSE Rule.
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    \4\ As defined in NASD Rule 2720(f)(5), a conflict of interest 
exists, if at the time of a member's participation in an entity's 
public offering, any of the following four conditions applies: (1) 
The securities are to be issued by the member; (2) the issuer 
controls, is controlled by or is under common control with the 
member or the member's associated persons; (3) at least five percent 
of the net offering proceeds, not including underwriting 
compensation, are intended to be (i) used to reduce or retire the 
balance of a loan or credit facility extended by the member, its 
affiliates and its associated persons, in the aggregate; or (ii) 
otherwise directed to the member, its affiliates and associated 
persons, in the aggregate; or (4) if, as a result of the public 
offering and any transactions contemplated at the time of the public 
offering (i) the member will be an affiliate of the issuer; (ii) the 
member will become publicly owned; or (iii) the issuer will become a 
member or form a broker-dealer subsidiary. NASD Rule 2720 defines 
several terms for purposes of the rule, including ``entity,'' 
``control,'' and ``common control.''
    \5\ The rule requires prominent disclosure of the nature of the 
conflict, and in certain circumstances, the participation of a 
qualified independent underwriter. Members also must comply with 
certain net capital, discretionary accounts and filing requirements, 
as applicable.
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    On June 15, 2009, the SEC approved a proposed rule change to 
modernize NASD Rule 2720 (the ``2009 Rule Change'').\6\ The 2009 Rule 
Change became effective on September 14, 2009.\7\
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    \6\ See Securities Exchange Act Release No. 60113 (June 15, 
2009), 74 FR 29255 (June 19, 2009) (Order Approving Proposed Rule 
Change; File No. SR-FINRA-2007-009).
    \7\ See Regulatory Notice 09-49 (SEC Approves Amendments to 
Modernize and Simplify NASD Rule 2720 Relating to Public Offerings 
in Which a Member Firm With a Conflict of Interest Participates) 
(August 2009).
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    The proposed rule change would adopt NASD Rule 2720 without 
material change as FINRA Rule 5121 in the Consolidated FINRA Rulebook. 
The rule would make minor changes to reflect the new terminology 
conventions of the Consolidated FINRA Rulebook.
    FINRA will announce the implementation date of the proposed rule 
change in a Regulatory Notice to be published no later than 90 days 
following Commission approval. The implementation date will be no later 
than 180 days from 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,\8\ 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 
continue to serve to protect investors in offerings where the member 
has a conflict of interest.
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    \8\ 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.

[[Page 31826]]

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-2010-026 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-2010-026. 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 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-2010-026 
and should be submitted on or before June 25, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13460 Filed 6-3-10; 8:45 am]
BILLING CODE 8010-01-P