Document ID: SEC-2012-0195-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-02-03T05:00Z

[Federal Register Volume 77, Number 23 (Friday, February 3, 2012)]
[Notices]
[Pages 5611-5613]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2396]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66279; File No. SR-FINRA-2011-059]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Adopt FINRA 
Rule 3230 (Telemarketing) in the FINRA Consolidated Rulebook

January 30, 2012.

I. Introduction

    On October 13, 2011, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and 
Rule 19b-4 thereunder,\2\ a proposed rule change to adopt FINRA Rule 
3230 (Telemarketing) in the FINRA Consolidated Rulebook. The proposed 
rule change was published for comment in the Federal Register on 
November 2, 2011.\3\ The Commission received one comment letter, from 
the Cornell Securities Law Clinic (the ``Clinic''), in response to the 
proposal,\4\ and a response from FINRA to the Clinic's comments.\5\ The 
text of the proposed rule change and FINRA's Response Letter are 
available on FINRA's Web site at http://www.finra.org, at the principal 
office of FINRA, on the Commission's Web site at http://www.sec.gov, 
and at the Commission's Public Reference Room.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 65645 (November 2, 2011), 76 FR 
67787 (November 4, 2011) (``Notice'').
    \4\ See comment letter submitted by William A. Jacobson, 
Associate Clinical Professor and Director, Cornell Securities Law 
Clinic, and Tamara Gavrilova, Cornell Law School, Class of 2013, to 
Elizabeth M. Murphy, Secretary, SEC, dated November 21, 2011 
(``Cornell Letter'').
    \5\ See letter from Matthew E. Vitek, Counsel, FINRA, to 
Elizabeth Murphy, Secretary, SEC, dated December 15, 2011 
(``Response Letter'').
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    This order approves the proposed rule change.

II. Description of the Proposal

    As described in more detail in the Notice,\6\ FINRA proposed to 
adopt FINRA Rule 3230 (Telemarketing) based largely on NASD Rule 2212. 
FINRA also proposed to delete NYSE Rule 440A and its Interpretation,\7\ 
but to include certain of their provisions in Rule 3230. These include 
caller identification rules based on Rule 440A(h) requiring members 
engaging in telemarketing to transmit caller identification information 
to persons they call and not to block the transmission of such 
information. In addition, FINRA proposed to include provisions 
substantially similar to those contained in rules of the Federal Trade 
Commission (``FTC'') that prohibit deceptive and other abusive 
telemarketing acts or practices. These include a provision requiring 
members making outbound telephone calls to maintain a record of a 
person's request not to receive such calls indefinitely rather than for 
only five years.
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    \6\ See Notice, supra note 3.
    \7\ For convenience, the Notice referred to Incorporated NYSE 
Rules as NYSE Rules, and this order follows that convention.
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    FINRA explained that NASD Rule 2212 and NYSE Rule 440A are similar 
rules that require members to maintain do-not-call lists, limit the 
hours of telephone solicitations and prohibit members from using 
deceptive and abusive acts and practices in connection with 
telemarketing. The Commission directed FINRA and NYSE to enact these 
telemarketing rules in accordance with the Telemarketing Consumer Fraud 
and Abuse Prevention Act of 1994 (``Prevention Act'').\8\ The 
Prevention Act requires the Commission to promulgate or direct any 
national securities exchange or registered securities association to 
promulgate rules substantially similar to the FTC rules to prohibit 
deceptive and other abusive telemarketing acts or practices.\9\
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    \8\ 15 U.S.C. 6101-6108.
    \9\ 15 U.S.C. 6102.
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    In 2003, the FTC and the Federal Communications Commission 
(``FCC'') established a national do-not-call registry, and, pursuant to 
the Prevention

[[Page 5612]]

Act, the Commission requested that FINRA and NYSE amend their 
telemarketing rules to require that their members participate. In 2004, 
the Commission approved amendments to NASD Rule 2212 requiring member 
firms to participate in the national do-not-call registry.\10\ The 
following year, the Commission approved amendments to NYSE Rule 440A, 
which were similar to the NASD rule amendments, but included additional 
provisions regarding the use of caller identification information, pre-
recorded messages, telephone facsimiles and computer 
advertisements.\11\
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    \10\ See Exchange Act Release No. 49055 (January 12, 2004), 69 
FR 2801 (January 20, 2004).
    \11\ See Exchange Act Release No. 52579 (October 7, 2005), 70 FR 
60119 (October 14, 2005).
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    Earlier this year, Commission staff directed FINRA to conduct a 
review of its telemarketing rule and propose rule amendments that 
provide protections at least as strong as those provided by the FTC's 
telemarketing rules.\12\ Commission staff had expressed concerns to 
FINRA and the other SROs that, overall, their telemarketing rules may 
not have kept pace with the FTC's rules, for example by not requiring a 
firm-specific opt out to be honored indefinitely as under the FTC's 
rules, and thus may no longer meet the standards of the Prevention 
Act.\13\ FINRA filed the proposed rule change in response to these 
concerns.\14\
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    \12\ See letter from Robert W. Cook, Director, Division of 
Trading and Markets, SEC, to Richard G. Ketchum, Chairman and Chief 
Executive Officer, FINRA, dated May 10, 2011.
    \13\ Id.
    \14\ See Notice, supra note 3.
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    FINRA advised that it would announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following Commission approval, and that the implementation 
date would be no later than 180 days following Commission approval.\15\
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    \15\ Id.
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III. Summary of Comments

    In its comment letter,\16\ the Clinic generally supported the 
proposed rule on the basis that it would comply with the Prevention Act 
and expressed the belief that it would be ``an important step in 
preventing members from using deceptive and abusive practices when 
telemarketing.'' The Clinic did, however, make some proposed 
recommendations.
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    \16\ See Cornell Letter, supra note 4.
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    The Clinic recommended that the proposed rule should incorporate 
additional provisions in NYSE Rule 440A regarding prerecorded messages 
and the use of telephone facsimile or computer advertisements. The 
Clinic also recommended that FINRA revise its proposal to eliminate the 
exception from proposed Rule 3230(k), which would permit prerecorded 
messages the meet the conditions of the proposed ``safe harbor'' for 
abandoned calls under proposed subparagraph (j)(2). In addition, the 
Clinic opined that its proposed amendments to the proposed rule would 
provide customers with additional protection against invasive and 
abusive telemarketing techniques.
    In its Response Letter,\17\ FINRA stated that it did not believe it 
should amend the proposed rule change to adopt the Clinic's proposed 
amendments. FINRA stated that at the time the NYSE adopted Rule 440A's 
provisions regarding prerecorded messages and the use of telephone 
facsimile or computer advertisements, the NYSE stated that broker-
dealers were subject to the FCC's telemarketing rules, and, 
accordingly, the NYSE modeled NYSE Rule 440A based on applicable FCC 
telemarketing rules.\18\ Because broker-dealers remain subject to 
substantially similar FCC provisions regarding prerecorded messages and 
the use of telephone facsimile or computer advertisements, FINRA 
believes that adding the additional provisions of Rule 440A to the 
proposed rule is unnecessary.\19\ Moreover, the proposed rule, at 
Supplementary Material .01, includes a reminder to member firms 
regarding their obligation to comply with relevant federal and state 
laws and rules, including FCC rules.
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    \17\ See Response Letter, supra note 5.
    \18\ Id. (citing Exchange Act Release No. 52308 (August 19, 
2005), 70 FR 49961, 49964 (August 25, 2005)).
    \19\ Id. (citing 47 CFR 64.1200 and 47 CFR 68.318).
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    FINRA also stated that it did not believe it should eliminate the 
exception from proposed Rule 3230(k), which would permit prerecorded 
messages the meet the conditions of the proposed ``safe harbor'' for 
abandoned calls under proposed subparagraph (j)(2). FINRA stated that 
this exception would be substantially similar to FCC and FTC exemptions 
for prerecorded messages complying with a ``safe harbor'' for abandoned 
calls.\20\ In addition, FINRA's Response Letter cited to the FTC's 
rationale that ``a total ban on abandoned calls would amount to a ban 
on predictive dialers, and would not strike the proper balance between 
addressing an abusive practice and allowing for a technology that 
reduces costs for telemarketers.'' \21\ Further, FINRA restated the 
FTC's and FCC's recognition that ``a prerecorded message that provides 
identification information not only mitigates consumers' fears, but 
also makes it easier for consumers to make a do-not-call request of a 
company by calling the number provided in the message.'' \22\
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    \20\ Id. (citing 16 CFR 310.4(b)(1)(v)).
    \21\ Id. (citing FTC, Telemarketing Sales Rule, 68 FR 4580, 4642 
(January 29, 2003)).
    \22\ Id. (citing 68 FR 4580, supra note 23, at 4644, and FCC, 
Rules and Regulations Implementing the Telephone Consumer Protection 
Act, 68 FR 44144, 44164 (July 25, 2003).
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IV. Discussion and Commission's Findings

    After careful review of the proposed rule change, the Cornell 
Letter, and FINRA's Response Letter, 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.\23\ In particular, the Commission 
finds that the proposed rule change is consistent with Section 
15A(b)(6) of the Act and the rules and regulations thereunder.\24\ 
Section 15A(b)(6) of the Act requires, among other things, that FINRA 
rules 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. The proposed 
rule change is designed to prevent fraudulent and manipulative acts and 
practices, protect investors and the public interest, and promote just 
and equitable principles of trade by strengthening protections against 
deceptive and other abusive telemarketing acts or practices in the 
securities industry. Accordingly, the Commission finds that good cause 
exists to approve the proposed rule change.
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    \23\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f). Commenters did not raise concerns 
about the proposed rule's impact on efficiency, competition and 
capital formation.
    \24\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-FINRA-2011-059) be, and 
hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).
    \26\ 17 CFR 200.30-3(a)(12).

[[Page 5613]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2396 Filed 2-2-12; 8:45 am]
BILLING CODE 8011-01-P