Document ID: SEC-2009-1013-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Adopt Its Temporary and Permanent Cease and Desist Authority on a Permanent Basis
Posted Date: 2009-07-22T04:00Z

[Federal Register: July 22, 2009 (Volume 74, Number 139)]
[Notices]               
[Page 36292-36293]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jy09-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60306; File No. SR-FINRA-2009-035]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Adopt Its 
Temporary and Permanent Cease and Desist Authority on a Permanent Basis

July 14, 2009.
    On May 18, 2009, 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 adopt its rules regarding the issuance of issue 
temporary and permanent cease and desist orders on a permanent basis. 
The proposal was published for comment in the Federal Register on June 
9, 2009.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60028 (June 2, 
2009), 74 FR 27364 (June 9, 2009) (``Notice'').
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    Since May 2003, pursuant to a pilot program approved by the 
Commission \4\ and subsequent extensions,\5\ FINRA has had the 
authority to issue temporary cease and desist orders (``TCDOs''); \6\ 
impose permanent cease and desist orders as a remedy in disciplinary 
cases; and enforce cease and desist orders. FINRA proposed to make the 
existing pilot program permanent.\7\
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    \4\ See Securities Exchange Act Release No. 47925 (May 23, 
2003), 68 FR 33548 (June 4, 2003) (Order Approving File No. SR-NASD-
98-80).
    \5\ The extensions were filed for immediate effectiveness and 
were therefore not approved by the Commission. See Securities 
Exchange Act Release No. 51860 (June 16, 2005), 70 FR 36427 (June 
23, 2005) (SR-NASD-2005-061); Securities Exchange Act Release No. 
55819 (May 25, 2007), 72 FR 30895 (June 4, 2007) (SR-NASD-2007-033); 
and Securities Exchange Act Release No. 60035 (June 3, 2009), 74 FR 
27360 (June 9, 2009) (SR-FINRA-2009-034).
    \6\ A TCDO is a preliminary order issued in connection with an 
underlying disciplinary proceeding that has been initiated or will 
be initiated immediately.
    \7\ The rule filing does not make any substantive changes to the 
existing pilot program.
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    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to

[[Page 36293]]

a national securities association.\8\ In particular, the Commission 
finds that the proposal is consistent with Section 15A(b)(6) of the 
Act,\9\ which requires, among other things that FINRA's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission also believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(7) of the Act,\10\ 
which provides that FINRA members, or persons associated with its 
members, must be appropriately disciplined for violations of any 
provisions of the Act or FINRA's rules.
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    \8\ 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).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78o-3(b)(7).
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    The Commission believes that making the pilot program permanent 
will provide FINRA with a mechanism to take action in certain 
situations against a member or an associated person that is alleged to 
have engaged, or is engaging, in conduct that violates Commission, 
FINRA, or NASD rules, when such intervention is necessary in order to 
prevent likely significant dissipation or conversion of assets or other 
significant harm to investors before the underlying disciplinary 
proceeding can be completed. At the same time, the Commission believes 
that FINRA's cease and desist provisions contain sufficient procedural 
protections to ensure that respondents have the opportunity for a fair 
hearing and, if applicable, review thereof. When it first sought cease 
and desist authority in 2003, FINRA said that it would use the 
authority sparingly and has, in fact, only used its authority once for 
a TCDO and once for a permanent cease and desist order.\11\ FINRA 
stated in its Notice that if the proposal were adopted on a permanent 
basis, it would continue to use its cease and desist authority 
judiciously. The Commission expects that FINRA will continue to use 
this authority in an appropriate manner. The Commission believes it is 
reasonable and consistent with the Act for FINRA to adopt the cease and 
desist rules permanently to enable it to stop persons from engaging in 
securities transactions or conduct affecting the marketplace, in 
alleged violation of established rules, which is likely to cause harm 
to investors or would adversely affect the public interest if not 
addressed expeditiously.
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    \11\ See Notice for a more detailed description of the matter.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-FINRA-2009-035), be, and 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17349 Filed 7-21-09; 8:45 am]

BILLING CODE 8010-01-P