Document ID: SEC-2007-1457-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-10-18T04:00Z

[Federal Register: October 18, 2007 (Volume 72, Number 201)]
[Notices]               
[Page 59127-59129]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc07-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56653; File No. SR-NASD-2007-056]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Order Approving Proposed Rule Change To Establish a Membership Waive-In 
Process for Certain NYSE Member Organizations

 October 12, 2007.

I. Introduction

    On July 25, 2007, the National Association of Securities Dealers, 
Inc. (``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc. 
(``FINRA'')) \1\ filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change 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(b)(1) and 4(e) (``IM-Section 4(b)(1) and 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 was published for comment in the 
Federal Register on September 7, 2007.\4\ The Commission received no 
comment letters on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 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. (``NYSE Regulation''). See Securities Exchange Act Release No. 
56146 (July 26, 2007), 72 FR 42190 (August 1, 2007).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 56347 (August 31, 
2007), 72 FR 51483 (``Notice'').

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[[Page 59128]]

II. Description of the Proposed Rule Change

    In connection with the recently approved plan to consolidate the 
member regulation operations of NASD and NYSE Regulation into a single 
organization (``Transaction''),\5\ NASD proposed to establish a waive-
in process to enable approximately 95 NYSE member organizations that 
are not also NASD members to become members of FINRA. The proposed 
waive-in process 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).\6\
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    \5\ On July 26, 2007, the Commission approved amendments to 
NASD's By-Laws to implement governance and related changes to 
accommodate the consolidation of the member firm regulatory 
functions of NASD and NYSE Regulation, Inc. See Securities Exchange 
Act Release No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007). 
The date of closing of the Transaction was July 30, 2007.
    \6\ The NYSE filed a companion proposal to amend NYSE Rule 2(b) 
to require its member organizations to be members of FINRA, which 
the Commission approved today. See Securities Exchange Act Release 
No. 56654 (SR-NYSE-2007-67) (``Release No. 34-56654'').
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    IM-1013-1 would establish a process to allow NYSE-only member 
organizations to become automatically FINRA members and to register 
automatically 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'').\7\ 
The Department would review the Waive-In Application within three 
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\ In addition, the proposed rule change would create IM-
Section 4(b)(1) and 4(e) to Schedule A of the NASD By-Laws, which would 
exempt the applicants from the fee for each initial Form U-4 for the 
registration of any representative or principal associated with the 
firm at the time it submits its application for FINRA membership 
pursuant to IM-1013-1 and from the FINRA membership application fee.
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    \7\ The Waive-In Application would require information such as: 
(1) General company information (including the Central Registration 
Depository (``CRD'') 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; and (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.
    \8\ The Commission notes that, under the amendment to NYSE Rule 
2(b), which was approved today, NYSE-only member organizations are 
provided a 60 day grace period within which they must apply for and 
be approved for FINRA membership. See Release No. 34-56654, supra 
note 6.
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    As set forth in proposed IM-1013-1, the NYSE-only member 
organizations admitted to FINRA membership 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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    In addition, associated persons of an NYSE-only member organization 
admitted to FINRA pursuant to 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.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Exchange Act and the 
rules and regulations thereunder applicable to a national securities 
association.\10\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(2) of the Exchange 
Act,\11\ which requires a national securities association to be so 
organized and have the capacity to carry out the purposes of the 
Exchange Act and to enforce compliance by its members and persons 
associated with its members with the provisions of the Exchange Act. 
Further, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(6) of the Exchange Act,\12\ in that it 
is designed, among other things, 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.
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    \10\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78o-3(b)(2).
    \12\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change is intended 
to facilitate the consolidation of the member firm regulation functions 
of NASD and NYSE Regulation under a single self-regulatory 
organization, thereby encouraging more effective and efficient 
regulation of brokers and dealers and their associated persons. The 
Commission notes that NYSE has a comprehensive membership application 
and review process.\13\ Accordingly, eligible NYSE-only member 
organizations that will become FINRA members pursuant to the waive-in 
process already have been subject to NYSE's extensive screening 
process.
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    \13\ See, e.g., NYSE Rules 301 (Qualifications for Membership) 
and 304A (Member and Allied Member Examination Requirements).
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    The proposed rule change provides eligible NYSE-only member 
organizations (and their associated persons) with an expedited process 
to become FINRA members, provided that they engage in permitted floor 
activities only. Moreover, an eligible NYSE-only member organization 
would not be assessed either FINRA's membership application fee or the 
initial Form U-4 registration fee when it submits its application for 
FINRA membership.

[[Page 59129]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASD-2007-056), be, and it 
hereby is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20523 Filed 10-17-07; 8:45 am]

BILLING CODE 8011-01-P