Document ID: SEC-2010-0012-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-01-05T05:00Z

[Federal Register: January 5, 2010 (Volume 75, Number 2)]
[Notices]               
[Page 475-477]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ja10-147]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61253; File No. SR-FINRA-2009-081]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 2261 (Disclosure of Financial Condition) in the Consolidated 
FINRA Rulebook

December 29, 2009.
    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 November 18, 2009, 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 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 2270 (Disclosure of Financial 
Condition to Customers) and NASD Rule 2910 (Disclosure of Financial 
Condition to Other Members) as a FINRA rule in the consolidated FINRA 
rulebook. The proposed rule change would combine NASD Rule 2270 and 
NASD Rule 2910, subject to certain amendments, into FINRA Rule 2261 
(Disclosure of Financial Condition) 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.

[[Page 476]]

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 2270 (Disclosure of Financial Condition to Customers) and NASD 
Rule 2910 (Disclosure of Financial Condition to Other Members), subject 
to certain amendments, as FINRA Rule 2261 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 2270 requires members to make available for inspection, 
upon the request of any bona fide regular customer,\4\ the information 
relative to such member's financial condition as disclosed in its most 
recent balance sheet prepared either in accordance with such member's 
usual practice or as required by any state or federal securities laws, 
or any rule or regulation thereunder.
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    \4\ For purposes of the rule, ``customer'' means any person who, 
in the regular course of such member's business, has cash or 
securities in the possession of such member.
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    FINRA is proposing to amend the requirements of NASD Rule 2270 to 
provide an alternative means of satisfying the requirement that members 
make balance sheet information available to bona fide regular 
customers. Currently, the rule requires that members ``make available 
to inspection by any bona fide regular customer, upon request, the 
information relative to such member's financial condition as disclosed 
in its most recent balance sheet . * * *'' FINRA is proposing to 
provide members with the option of delivering their balance sheet, in 
paper or electronic form, to customers who request it. With respect to 
electronic delivery, the requesting customer must consent to receive 
the balance sheet in electronic form to ensure that such information is 
accessible to the customer. FINRA is not proposing to require members 
to deliver their balance sheet to all customers (instead of making them 
available to inspection or delivering them upon request) because SEA 
Rule 17a-5(c) generally requires a broker-dealer that carries customer 
accounts to send its full balance sheet and certain other financial 
information to each of its customers twice a year.\5\ NASD Rule 2270 
provides customers with additional access to their broker's balance 
sheet information by requiring that members permit customers to inspect 
or obtain a copy of a member's most recent balance sheet at any time 
upon request.
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    \5\ SEC Rule 17a-5(c)(5) contains a conditional exemption from 
the requirement that broker-dealers semi-annually send customers a 
full balance sheet. Under the exemption, a broker-dealer can semi-
annually send its customers summary information regarding its net 
capital, as long as it also provides customers with a toll-free 
number to call for a free copy of its full balance sheet, makes its 
full balance sheet available to customers on its website, and meets 
other specified requirements. See Securities Exchange Act Release 
No. 48272 (August 1, 2003), 68 FR 46446 (August 6, 2003).
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    NASD Rule 2910 requires any member that is a party to an open 
transaction or who has on deposit cash or securities of another member 
to furnish, upon the written request of the other member, a statement 
of its financial condition as disclosed in its most recently prepared 
balance sheet. FINRA is proposing to amend the provisions of NASD Rule 
2910 to require, consistent with NASD Rule 2270, that members provide 
to other members the balance sheet that was ``prepared either in 
accordance with such member's usual practice or as required by any 
state or federal securities laws, or any rule or regulation 
thereunder.'' In addition, FINRA is proposing that members be permitted 
to provide their balance sheet to other members in paper or electronic 
form. However, unlike the proposed amendments to NASD Rule 2270, FINRA 
is not proposing to require members to obtain the consent of other 
members to electronically deliver the balance sheet. FINRA believes 
that other members, unlike all customers, will be equipped to receive 
electronic delivery.
    FINRA believes that the requirements of NASD Rule 2270 and NASD 
Rule 2910 continue to provide access to important information by 
allowing customers and other members to have access to a copy of a 
member's most recent balance sheet at any time upon request and should 
be transferred, as amended, to the Consolidated FINRA Rulebook as FINRA 
Rule 2261.
    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.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ 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 adopting the proposed rules as 
part of the Consolidated FINRA Rulebook will continue to serve 
important objectives by ensuring that basic, current information 
regarding the financial condition of members with which customers and 
other members conduct business is available upon request.
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    \6\ 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 reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:

[[Page 477]]

    (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-2009-081 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-2009-081. 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-2009-081 and should be 
submitted on or before January 26, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-31333 Filed 1-4-10; 8:45 am]

BILLING CODE 8011-01-P