Document ID: SEC-2019-0477-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2019-04-16T04:00Z

[Federal Register Volume 84, Number 73 (Tuesday, April 16, 2019)]
[Notices]
[Pages 15646-15652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07504]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85589; File No. SR-FINRA-2019-009]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Adopt Remaining Legacy NASD and Incorporated 
NYSE Rules as FINRA Rules

April 10, 2019.
    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 April 8, 2019, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and

[[Page 15647]]

II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of the filing by the 
Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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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 the following NASD Rules as FINRA Rules 
in the consolidated FINRA rulebook without any substantive changes: (1) 
The NASD Rule 1010 Series (Membership Proceedings) into the FINRA Rule 
1000 Series; (2) NASD Rule 1090 (Foreign Members) as FINRA Rule 1021; 
(3) NASD Rule 2340 (Customer Account Statements) as FINRA Rule 2231; 
(4) NASD Rule 2510 (Discretionary Accounts) as FINRA Rule 3260; (5) 
NASD Rule 3140 (Approval of Change in Exempt Status Under SEA Rule 
15c3-3) as FINRA Rule 1020; (6) NASD Rule 3150 (Reporting Requirements 
for Clearing Firms) as FINRA Rule 4540; and (7) NASD Rule IM-3150 
(Exemptive Relief) as Supplementary Material to FINRA Rule 4540. In 
addition, the proposed rule change would adopt the remaining 
Incorporated NYSE Rules and Interpretations in the consolidated FINRA 
rulebook without any substantive changes as a separate Temporary Dual 
FINRA-NYSE Member Rule Series. FINRA also proposes to delete four 
Incorporated NYSE Rule definitions (Incorporated NYSE Rules--Rule 4 
(``Stock''), Rule 5 (``Bond''), Rule 9 (``Branch Office Manager''), and 
Rule 12 (``Business Day'')) that are not used in the FINRA rule set as 
well as Incorporated NYSE Rule 375 and related Interpretation. Finally, 
the proposed rule change would update cross-references and make other 
non-substantive changes within FINRA rules, due in part to the adoption 
of new consolidated FINRA rules.
    The text of the proposed rule change is available on FINRA's 
website 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 completing a consolidated rulebook 
(``Consolidated FINRA Rulebook''),\4\ FINRA is proposing to adopt the 
following NASD Rules as FINRA Rules in the Consolidated FINRA Rulebook 
without any substantive changes: (1) The NASD Rule 1010 Series 
(Membership Proceedings) into the FINRA Rule 1000 Series; \5\ (2) NASD 
Rule 1090 (Foreign Members) as FINRA Rule 1021; (3) NASD Rule 2340 
(Customer Account Statements) as FINRA Rule 2231; (4) NASD Rule 2510 
(Discretionary Accounts) as FINRA Rule 3260; (5) NASD Rule 3140 
(Approval of Change in Exempt Status Under SEA Rule 15c3-3) as FINRA 
Rule 1020; (6) NASD Rule 3150 (Reporting Requirements for Clearing 
Firms) as FINRA Rule 4540; and (7) NASD Rule IM-3150 (Exemptive Relief) 
as Supplementary Material to FINRA Rule 4540. In addition, FINRA 
proposes to adopt the remaining Incorporated NYSE Rules and 
Interpretations in the Consolidated FINRA Rulebook without any 
substantive changes as a separate Temporary Dual FINRA-NYSE Member Rule 
Series. The Temporary Dual FINRA-NYSE Member Rule Series in the 
Consolidated FINRA Rulebook as the name suggests would apply solely to 
Dual Members.\6\ Finally, FINRA proposes to update cross-references and 
make other non-substantive changes within FINRA rules.
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    \4\ The current FINRA rulebook consists of: (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from New York Stock Exchange 
LLC (``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).
    \5\ The FINRA Rule 1000 Series exists in the FINRA rulebook and 
consists of FINRA Rule 1010. The proposed rule change amends FINRA 
Rule 1010 to update the rule cross reference by deleting the 
reference to NASD and updating the cross references to reflect the 
adoption of the consolidated FINRA registration rules. See also 
infra note 30.
    \6\ See supra note 4.
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    FINRA is proposing to transfer these remaining NASD Rules and 
Incorporated NYSE rules and Interpretations into the FINRA Consolidated 
Rulebook without any substantive changes at this time to eliminate the 
Transitional Rulebook and provide greater clarity and regulatory 
efficiency to FINRA members.\7\ FINRA will continue to review the 
substance of the rules addressed in this proposed rule change and 
expects to propose substantive changes to some or all of the rules as 
part of future rulemakings.
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    \7\ Exhibit 4 presents the text of the proposed rule change with 
the changes marked against the existing NASD and Incorporated NYSE 
Rules and Interpretations to show the updated cross-references, 
deletions of references to NASD and similar changes. Exhibit 5 shows 
the text of the proposed rule change marked against the current rule 
text with the NASD rules show as deleted and the FINRA rules shown 
as new text.
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Membership Rules
    The proposed rule change would adopt the NASD Rule 1010 Series 
(Membership Proceedings) (collectively, the ``MAP rules'') into the 
FINRA Rule 1000 Series without any substantive changes.\8\ The NASD 
Rule 1010 Series (Membership Proceedings) governs FINRA's membership 
application process. Exchange Act Section 15A(b)(8) requires that FINRA 
establish rules providing a fair procedure for the denial of 
membership.\9\ FINRA's MAP rules provide a means for FINRA, through its 
Membership Application Program (``MAP''), to assess the proposed 
business activities of its potential and current member firms. FINRA 
evaluates

[[Page 15648]]

an applicant's financial, operational, supervisory and compliance 
systems to ensure that each applicant meets the standards set forth in 
NASD Rule 1014.
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    \8\ FINRA previously solicited comment on a proposal to adopt 
the consolidated FINRA Rule 1000 Series that would have transferred 
the NASD Rule 1010 Series and Incorporated NYSE Rules 311, 312, 313, 
321, 416 and related supplementary material and rule 
interpretations, and Incorporated NYSE Rule 401/03 Interpretations 
to FINRA rules with significant changes. See Regulatory Notices 10-
01 (January 2010), 13-29 (September 2013) and 18-23 (July 2018). 
C:\Users\adeolam\AppData\Local\Microsoft\Windows\INetCache\Content.Ou
tlook\RMPEEONQ\FINRA [sic] FINRA is separately developing changes to 
the MAP rules in connection with the retrospective review of this 
rule set. See Regulatory Notice 18-23 (July 26, 2018) (requesting 
comment on a proposal regarding the MAP rules).
     In addition, the proposed rule change corrects rule cross-
references in the MAP rules.
    \9\ 15 U.S.C. 78o-3(b)(8).
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    NASD Rule 1011 (Definitions), proposed to be adopted as FINRA Rule 
1011, sets forth the defined terms applicable to the membership 
application process. NASD Rule 1012 (General Provisions), proposed to 
be adopted as FINRA Rule 1012, sets forth the requirements for 
submitting membership applications and supporting documentation. The 
MAP rules require the filing of two distinct types of applications. One 
category is a new member application (``NMA'') filed by an applicant 
seeking membership in FINRA, which is filed pursuant to NASD Rule 1013 
(New Member Application and Interview), proposed to be adopted as FINRA 
Rule 1013. The other category is a continuing membership application 
(``CMA''), which is filed pursuant to NASD Rule 1017 (Application for 
Approval of Change in Ownership, Control or Business Operations), 
proposed to be adopted as FINRA Rule 1017. NASD IM-1011-1 (Safe Harbor 
for Business Expansions), proposed to be adopted as FINRA IM-1011-1, 
specifies the parameters for increases a member may make in the number 
of its associated persons involved in sales, offices or markets made 
that is measured on a rolling 12-month period. The incremental changes 
a member may make in these three categories are presumed not to be a 
``material change in business operations'' (as defined in Rule 1011) 
and thus do not require the filing of a CMA.
    NASD IM-1013-1 (Membership Waive-In Process for Certain New York 
Stock Exchange Member Organizations) and NASD IM-1013-2 (Membership 
Waive-In Process for Certain NYSE Alternext US LLC Member 
Organizations)--proposed to be adopted as FINRA IM-1013-1 and FINRA IM-
1013-2, respectively--set forth a streamlined application and review 
process for FINRA membership that applied to certain NYSE and NYSE 
American (formerly known as NYSE Alternext US) (``waived-in firms'').
    To maintain the status quo for the waived-in firms, the proposed 
rule change would clarify that such firms would be subject to FINRA 
rules, other than FINRA Rules 1011 through 1016, 1019 through 1021, 
2231, 3260 and 4540. With the exception of proposed FINRA Rule 1017, 
the proposed rule change would not require the waived-in firms to 
comply with the FINRA Rule 1000 Series, or FINRA Rules 2231, 3260 and 
4540, because these FINRA rules will continue to have a corresponding 
Temporary Dual FINRA-NYSE Member rule to which the waived-in firms will 
be subject (namely Incorporated NYSE Rules 311, 312, 313, 408, 409, 416 
and 416A and related interpretations). As the Temporary Dual FINRA-NYSE 
Member Rules are eliminated, these waived-in firms will become subject 
to the corresponding FINRA rule. In addition, as is the case today, if 
at any time a waived-in firm seeks to expand its business beyond the 
permitted floor activities, the firm must apply for and receive 
approval to engage in any such activity under proposed FINRA Rule 1017. 
Once approved, the firm must immediately comply with all FINRA rules.
    All applications are evaluated to determine whether the applicant 
meets the 14 standards or criteria (e.g., completeness and accuracy of 
the application and supporting documentation, the acquisition of all 
requisite licenses and registrations, a sufficient level of net 
capital, the establishment of necessary contractual agreements and 
business relationships, an adequate supervisory system) set forth in 
NASD Rule 1014 (Department Decision), proposed to be adopted as FINRA 
Rule 1014.
    FINRA may grant in whole, in part (subject to restrictions), or 
deny an NMA or CMA. NASD Rule 1015 (Review by National Adjudicatory 
Council), proposed to be adopted as FINRA Rule 1015, permits an 
applicant to submit a request for a review by the National Adjudicatory 
Council of an adverse decision rendered on an NMA or CMA. NASD Rule 
1016 (Discretionary Review by FINRA Board), proposed to be adopted as 
FINRA Rule 1016, also permits a Governor of the FINRA Board to call for 
a discretionary review of a membership proceeding. Finally, a person 
aggrieved by a final action of FINRA under the NASD Rule 1010 Series 
may apply for review by the SEC pursuant to NASD Rule 1019 (Application 
to Commission for Review), proposed to be adopted as FINRA Rule 1019.
Foreign Members
    FINRA proposes to adopt NASD Rule 1090 (Foreign Members) as FINRA 
Rule 1021 without any substantive changes. NASD Rule 1090 provides that 
a member that does not maintain an office in the United States 
responsible for preparing and maintaining financial and other reports 
required to be filed with the SEC and FINRA must agree to a set of 
requirements that are necessary to effectively regulate foreign 
members' compliance with applicable securities laws and regulations, 
and with applicable FINRA rules. Such requirements include, among 
others, preparing all reports and maintaining a general ledger chart of 
account in English and U.S. dollars and having an individual fluent in 
English and knowledgeable in securities and financial matters to assist 
representatives of FINRA during examinations.
Customer Account Statements
    FINRA proposes to adopt NASD Rule 2340 (Customer Account 
Statements) as FINRA Rule 2231 without any substantive changes.\10\ 
NASD Rule 2340 generally requires each general securities member to 
send account statements to customers at least once each calendar 
quarter containing a description of any securities positions, money 
balances or account activity in the accounts since the prior account 
statements were sent, except if carried on a Delivery versus Payment/
Receive versus Payment basis. The rule also sets forth requirements for 
disclosure of values for unlisted or illiquid direct participation 
programs and real estate investment trusts.
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    \10\ FINRA previously filed a proposal with the SEC to adopt 
consolidated FINRA Rule 2231 that would have transferred NASD Rule 
2340 and Incorporated NYSE Rule 409 (and its related 
interpretations) with significant changes, but such filing was 
subsequently withdrawn. See Securities Exchange Act Release No. 
67588 (August 2, 2012), 77 FR 47470 (August 8, 2012) (Notice of 
Withdrawal of File No. SR-FINRA-2009-028). FINRA solicited comment 
on a revised proposal. See Regulatory Notice 14-35 (September 2014).
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Discretionary Accounts
    FINRA proposes to adopt NASD Rule 2510 (Discretionary Accounts) as 
FINRA Rule 3260 without any substantive changes.\11\ NASD Rule 2510 
addresses the obligations of members and associated persons that have 
discretionary power over a customer's account.\12\ The rule prohibits a 
firm and its agents or employees that have discretionary power over a 
customer's account from effecting any excessive transactions in view of 
the financial resources and character of the account. The rule also 
provides that a member or registered representative may not exercise 
any discretionary power in such account unless the customer has given 
prior written authorization to a stated individual or individuals, and 
the

[[Page 15649]]

account has been accepted in writing by the member or a designated 
partner, officer or manager of the member. In addition, a member or a 
designated partner, officer or manager must approve promptly in writing 
each discretionary order entered and review all discretionary accounts 
at frequent intervals to detect and prevent excessive transactions. The 
rule provides certain exceptions from its requirements.
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    \11\ FINRA previously solicited comment to adopt consolidated 
FINRA Rule 3260 that would have transferred NASD Rule 2510 and 
Incorporated NYSE Rule 408 and Interpretation 408/01 and/02 with 
significant changes. See Regulatory Notices 09-63 (November 2009) 
and 15-22 (June 2015).
    \12\ See also SEA Rule 15c1-7 (Discretionary Accounts).
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Approval of Change in Exempt Status Under SEA Rule 15c3-3
    FINRA proposes to adopt NASD Rule 3140 (Approval of Change in 
Exempt Status Under SEC Rule 15c3-3) as FINRA Rule 1020 without any 
substantive changes. NASD Rule 3140 provides that a member (as defined 
in paragraph (a)) operating pursuant to any exemptive provision in SEA 
Rule 15c3-3(k) shall not change its method of doing business in a 
manner which will change its exemptive status to a fully computing firm 
that is subject to all provisions of SEA Rule 15c3-3; or commence 
operations that will disqualify it for continued exemption under SEA 
Rule 15c3-3 without first having obtained the prior written approval of 
FINRA. The rule sets forth standards that FINRA staff considers in 
approving or denying such an application under the rule.
Reporting Requirement for Clearing Firms
    FINRA proposes to adopt NASD Rule 3150 (Reporting Requirements for 
Clearing Firms) as FINRA Rule 4540 without any substantive changes. 
NASD Rule 3150 states that all clearing firms must report prescribed 
data to FINRA about the member and any member broker-dealers for which 
it clears. The member may report through a third-party but such member 
remains responsible for the compliance with the rule. In addition, the 
proposed rule change would incorporate without substantive change the 
provisions regarding the requirement to distinguish between data 
pertaining to all proprietary and customer accounts of an introducing 
member and of any member for which the introducing member is acting as 
an intermediary.
    FINRA proposes to adopt NASD IM-3150 (Exemptive Relief) as 
Supplementary Material to proposed FINRA Rule 4540 without any 
substantive changes. NASD IM-3150 sets forth the circumstances under 
which FINRA would generally grant an exemption to the clearing firm 
reporting requirement in NASD Rule 3150 (proposed to be adopted as 
FINRA Rule 4540). The provision further requires that a member report 
to FINRA any change in the operation or nature of its business such 
that it no longer qualifies for an exemption previously granted under 
the rule.
Incorporated NYSE Rules and Interpretations
    FINRA incorporated a set of NYSE rules and interpretations as 
Incorporated NYSE Rules and Interpretations when NASD and the NYSE 
consolidated their member regulation operations to form FINRA.\13\ 
Since that time, FINRA has been amending NASD Rules and Incorporated 
NYSE Rules and Interpretations to establish a single set of rules. 
Given that FINRA would like to proceed with the rulebook consolidation 
process expeditiously to eliminate the Transitional Rulebook and 
provide greater clarity and regulatory efficiency to FINRA members, 
FINRA is proposing to adopt the remaining Incorporated NYSE Rules and 
Interpretations, as listed below, as FINRA Rules, without any 
substantive changes. The proposed rule change would retain the current 
numbering convention and add a ``T'' after the number to denote its 
placement in the Temporary Dual FINRA-NYSE Member Rule Series of the 
Consolidated FINRA Rulebook. FINRA also proposes to delete four 
Incorporated NYSE Rule definitions that are not used in the FINRA rule 
set as well as Incorporated NYSE Rule 375 and related Interpretation as 
discussed below. The Temporary Dual FINRA-NYSE Member Rule Series in 
the Consolidated FINRA Rulebook as the name suggests would apply solely 
to Dual Members. The proposed rule change would not impose any new 
requirements on any member firms.
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    \13\ See Securities Exchange Act Release No. 56147 (July 26, 
2007), 72 FR 42166 (August 1, 2007) (Order Approving File No. SR-
NASD-2007-054).
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     Incorporated NYSE Rule 1 (``The Exchange'') that defines 
the term ``the Exchange'' generally to mean the ``New York Stock 
Exchange LLC'' would be adopted as FINRA Rule 1T;
     Incorporated NYSE Rule 2 (``Member,'' ``Membership,'' 
``Member Firm,'' etc.) that defines these terms to mean a person who 
has been approved by the Exchange and, among others, includes a 
definition for ``control'' to mean a person who can direct or cause the 
direction of the management or policies of a person and sets thresholds 
for a presumption of control, would be adopted as FINRA Rule 2T;
     Incorporated NYSE Rule 3 (``Security'') that defines the 
term ``security'' the same as used in the Exchange Act would be adopted 
as FINRA Rule 3T;
     Incorporated Rule 6 (``Floor'') that defines the term 
``Floor'' to mean the trading floor at the applicable addresses listed 
therein would be adopted as FINRA Rule 6T;
     Incorporated NYSE Rule 8 (``Delivery'') that defines the 
term ``Delivery'' to mean the delivery of securities on Exchange 
contracts would be adopted as FINRA Rule 8T;
     Incorporated NYSE Rule 11 (Effect of Definitions) that 
provides that the terms defined in Exchange Rules shall have the 
meaning specified therein would be adopted as FINRA Rule 11T;
     Incorporated NYSE Rule 311 (Formation and Approval of 
Membership Organization) that details the requirements to be approved 
as a member organization would be adopted as FINRA Rule 311T.\14\
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    \14\ See supra note 8.
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     Incorporated NYSE Rule 312 (Changes Within Member 
Organizations) that requires member organizations to give notice to the 
Exchange in certain circumstances, including, without limitation, when 
there is a change of stockholdings of the member or a change in 
directors or officers would be adopted as FINRA Rule 312T.\15\
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    \15\ See supra note 8.
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     Incorporated NYSE Rule 313 (Submission of Partnership 
Articles--Submission of Corporate Documents) that requires the 
submission of certain corporate and partnership documents to the 
Exchange would be adopted as FINRA Rule 313T.\16\
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    \16\ See supra note 8.
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     Incorporated NYSE Rule 321 (Formation or Acquisition of 
Subsidiaries) that requires approval for a member to form a subsidiary 
would be adopted as FINRA Rule 321T.\17\
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    \17\ See supra note 8.
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     Incorporated NYSE Rule 408 (Discretionary Power in 
Customers' Accounts) that addresses the obligations of members that 
have discretionary power over customers' accounts would be adopted as 
FINRA Rule 408T; \18\
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    \18\ See supra note 11.
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     Incorporated NYSE Rule 409 (Statements of Accounts to 
Customers) that requires a member to send customers statements of 
account would be adopted as FINRA Rule 409T; \19\
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    \19\ See supra note 8.
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     Incorporated NYSE Rule 416 (Questionnaires and Reports) 
that requires members to submit reports as requested by the Exchange 
would be adopted as FINRA Rule 416T;

[[Page 15650]]

     Incorporated NYSE Rule 416A (Members and Member 
Organizations Profile Information Updates and Quarterly Certifications 
Via The Electronic Filing Platform) that requires that members supply 
to the Exchange's electronic filing platform certain profile 
information and certify to the Exchange quarterly, would be adopted as 
FINRA Rule 416AT;
     Incorporated NYSE Rule 435 (Miscellaneous Provisions) that 
provides that no member shall circulate rumors of a sensational 
character which might reasonably be expected to affect market 
conditions on the Exchange would be adopted as FINRA Rule 435T.\20\
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    \20\ FINRA previously solicited comment on a proposal to adopt 
consolidated FINRA Rule 2030 that would have transferred 
Incorporated NYSE Rule 435 and Rule Interpretation 435(5)/01 with 
significant changes. See Regulatory Notices 08-68 (November 2008) 
and 09-29 (June 2009).
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     Incorporated NYSE Rule Interpretation 311(b), (f) and (g) 
that provides guidance on whether officers may be part time, criteria 
for the principal place of business of the member, and use of titles 
and division identification would be adopted as FINRA Rule 311T(b), (f) 
and (g).\21\
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    \21\ See supra note 8.
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     Incorporated NYSE Rule Interpretation 401/01 through/04 
that requires members notify the Exchange prior to certain events, 
including among others, changes in business activities, liquidity 
problems or capital problems would be adopted as FINRA Rule 401T/01 
through/04.\22\
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    \22\ See supra note 8.
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     Incorporated NYSE Rule Interpretation 408/01 and/02 that 
requires identification of discretionary orders and provides guidance 
for establishing automatic money market fund redemptions would be 
adopted as FINRA Rule 408T/01 and/02.\23\
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    \23\ See supra note 11.
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     Incorporated NYSE Rule Interpretation 409/(a) and/(b) that 
dictates the disclosures that must be made in a customer account 
statement, including for externally held assets, and requirements for 
use of third party agents, logos, summary statements and holding 
foreign customer mail would be adopted as FINRA Rule 409T/(a) and/
(b).\24\
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    \24\ See supra note 10.
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     Incorporated NYSE Interpretation 435(5)/01 that states 
that the responsibility to prohibit the circulation of rumors extends 
to all member personnel would be adopted as FINRA Rule 435(5)T/01.\25\
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    \25\ See supra note 20.
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    FINRA proposes to delete the following Incorporated NYSE Rules--
Rule 4 (``Stock''), Rule 5 (``Bond''), Rule 9 (``Branch Office 
Manager''), and Rule 12 (``Business Day'') as such definitions are not 
used in the Consolidated FINRA Rulebook or the remaining proposed 
Temporary Dual FINRA-NYSE Member Rule Series.
    FINRA also proposes to delete Incorporated NYSE Rule 375 (Missing 
the Market) and Interpretation 375/01. Incorporated NYSE Rule 375 
provides that a member or member organization that has accepted an 
order for execution and that, because of neglect to execute the order 
or otherwise, takes or supplies the securities that are the subject of 
the order for its own account, is not acting as a broker and shall not 
charge a commission, without the knowledge and consent of the customer. 
The purpose of this rule is to ensure that when a member misses the 
market and fails to execute a customer's order timely or as agent, the 
customer is notified and does not pay a commission unless the customer 
affirmatively consents.
    Incorporated NYSE Rule Interpretation 375/01 provides that, when a 
member or member organization has ``missed the market'' on a customer 
order, the customer should be contacted, informed of the circumstances, 
and given the choice of either having the order filled at the price 
that prevailed ``as of'' the time the market was missed, or executed at 
the present market price. If the customer elects to have the order 
filled at the ``as of'' price, the member may effect the transaction 
for the customer's account on the floor of the NYSE \26\ and make a 
cash price adjustment, or fill the customer's order from the firm's 
error account.\27\ In both instances, the customer's confirmation shall 
carry the ``as of'' legend. In contrast to Incorporated NYSE Rule 375, 
which is focused on commissions, Rule Interpretation 375/01 is focused 
on the execution price of orders where a member has missed the market.
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    \26\ See NYSE Rule 6 for the definition of the NYSE floor.
    \27\ When the transaction is effected through a firm error 
account, the firm no longer acts as agent, as it is trading from a 
firm account as principal.
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    FINRA proposes to eliminate Incorporated NYSE Rule 375 and 
Incorporated NYSE Rule Interpretation 375/01 because they address a 
narrow range of conduct, which occurs in the context of an exchange and 
specify the remedial steps that must be taken to fill customer orders 
under such circumstances. In general, this NYSE Rule and Interpretation 
were primarily aimed at addressing the limited context of a specialist 
taking orders for transactions on the exchange on an agency basis. 
FINRA believes, this rule and interpretation are not necessary in light 
of the existing FINRA rules discussed below that cover a broader range 
of activities even though the FINRA rules do not specify remedial 
steps. FINRA believes FINRA's rules that establish a fairness standard 
both with respect to commission and execution prices provide adequate 
remedies.
    Specifically, FINRA Rule 2121 (Fair Prices and Commissions) 
requires that members assess customers prices, service charges and 
commissions that are fair, whether acting as principal or agent. FINRA 
Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) also 
prohibits a member from trading for its own proprietary account ahead 
of its customer order unless it immediately executes the customer order 
at the same or better price at which it traded for its own account 
[sic]. Additionally, Rule 5310 (Best Execution and Interpositioning) 
requires that a member exercise reasonable diligence to buy or sell so 
that the resultant price to the customer is as favorable as possible 
under prevailing market conditions.\28\ Further, Supplementary Material 
.01 of Rule 5310 states that members must make every effort to execute 
a marketable customer order that it receives [sic] fully and promptly. 
As such, FINRA believes that the conduct encompassed by Incorporated 
NYSE Rule 375 and its accompanying interpretation is and will continue 
to be fully addressed by other FINRA rules, and the deletion of the 
Rule and its accompanying rule interpretation will increase regulatory 
efficiency by removing unnecessary provisions from the rules.\29\
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    \28\ FINRA also believes that Incorporated NYSE Rule 375 and 
Incorporated NYSE Rule Interpretation 375/01 are functionally 
obsolete, because, to FINRA's knowledge, neither NYSE nor FINRA has 
ever charged a violation of either the rule or its interpretation.
    \29\ FINRA previously solicited comment on a proposal to adopt 
consolidated FINRA Rule 2121 that would have transferred NASD Rule 
2440, NASD IM 2440-1, NASD IM-2440-2, Incorporated NYSE Rule 375 and 
related Interpretation to the FINRA rulebook with significant 
changes. See Regulatory Notices 11-08 (February 2011) and 13-07 
(January 2013). FINRA transferred NASD Rule 2440 and its 
Interpretative Materials into the Consolidated FINRA Rulebook as 
FINRA Rule 2121 without material change. See Securities Exchange Act 
Release No. 72208 (May 21, 2014), 79 FR 30675 (May 28, 2014) (Notice 
of filing and Immediate Effectiveness of File No. SR-FINRA-2014-
023).
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Cross-Reference and Technical Updates
    The proposed rule change would update cross-references and make 
other non-substantive changes within FINRA

[[Page 15651]]

rules, due in part to the adoption of new consolidated FINRA rules.
    The proposed rule change would update rule cross-references to 
reflect the adoption of the consolidated FINRA registration rules. The 
SEC approved the new rules on July 7, 2017. As part of that rule 
filing, FINRA adopted with amendments the NASD and Incorporated NYSE 
rules relating to qualification and registration requirements as FINRA 
rules in the Consolidated FINRA Rulebook. FINRA also deleted in their 
entirety the NASD Rule 1000 Series relating to registration of 
Principals and Representatives, Incorporated NYSE Rules 10, 344, 345, 
472, and Incorporated NYSE Rule Interpretations 10, 344 and 345.\30\ 
The consolidated FINRA registration rules were implemented on October 
1, 2018.\31\ As such, the proposed rule change would update references 
to the new rule numbers in Section 4 (Fees) and Section 12 (Application 
and Annual Fees for Statutorily Disqualified Member Firms, Statutorily 
Disqualified Applicants for Membership and Member Firms Seeking to 
Associate with Statutorily Disqualified Individuals) of Schedule A to 
the By-Laws of the Corporation; and FINRA Rules 1010 (Electronic Filing 
Requirements for Uniform Forms), 2210 (Communications with the Public), 
2241 (Research Analysts and Research Reports), 2370 (Securities 
Futures), 3170 (Tape Recording of Registered Persons by Certain Firms), 
9217 (Violations Appropriate for Disposition Under Plan Pursuant to SEA 
Rule 19d-1(c)(2)), 9610 (Application), 9620 (Decision), and 9630 
(Appeal).
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    \30\ See Securities Exchange Act Release No. 81098 (July 7, 
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
    \31\ See Regulatory Notice 17-30 (October 2017).
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    In addition, the proposed rule change would replace all references 
to NASD Rule 2340 in FINRA Rules 0150 (Application of Rules to Exempted 
Securities Except Municipal Securities), 2310 (Direct Participation 
Programs), and 9610 (Application) with references to proposed FINRA 
Rule 2231. The proposed rule change would also replace the references 
to NASD Rule 3150 in FINRA Rule 9610 with a reference to proposed FINRA 
Rule 4540. The proposed rule change would replace the references to 
NASD Rule 2510 in FINRA Rules 0150 (Application of Rules to Exempted 
Securities Except Municipal Securities), 2360 (Options), 2370 
(Securities Futures), 4512 (Customer Account Information), 4515 
(Approval and Documentation of Changes in Account Name or Designation) 
and 5121 (Public Offerings of Securities With Conflicts of Interest) 
with references to proposed FINRA Rule 3260. The proposed rule change 
would replace all references to NASD Rule 3140 in FINRA Rule 0150 and 
FINRA Rule 6630 (Applicability of FINRA Rules to Securities Previously 
Designated as PORTAL Securities) to a reference to proposed FINRA Rule 
1020. The proposed rule change would replace all references to the NASD 
Rule 1010 Series in Rules 7410 (Definitions), 8313 (Release of 
Disciplinary Complaints, Decisions and Other Information), 9521 
(Purpose and Definitions), 9522 (Initiation of Eligibility Proceeding; 
Member Regulation Consideration), and the Capital Acquisition Broker 
Rule 100 Series (Member Application and Associated Person Registration) 
to references to the proposed FINRA Rule 1000 Series. The proposed rule 
change would replace a reference to NASD Rule 1090 in Capital 
Acquisition Broker Rule 119 to a reference to proposed FINRA Rule 1021. 
The proposed rule change would also update the references to the 
Incorporated NYSE Rules in FINRA Rule 9217 (Violations Appropriate for 
Disposition Under Plan Pursuant to SEA Rule 19b-1(c)(2)) with the 
proposed FINRA Temporary Dual FINRA-NYSE Member Rule Series numbers. 
The proposed rule change would update the cross-references in FINRA 
Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) to 
reflect the renumbering of Rule 7440(b)(19) as 7440(b)(20).\32\
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    \32\ See Securities Exchange Act Release No. 77523 (April 5, 
2016), 81 FR 21427 (April 11, 2016) (Order Approving File No. SR-
FINRA-2016-006).
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    The proposed rule change would correct a typographical error in 
FINRA Rule 7620A (FINRA/Nasdaq Trade Reporting Facility Reporting 
Fees). When Rule 7620A was amended pursuant to SR-FINRA-2018-042, 
Example 1 under Section II.4.B. inadvertently stated ``As to Tape B, 
the Retail Participant would pay the uncapped discounted monthly 
charges applicable to Tier 1 its activity. . .'' (emphasis added).\33\ 
The proposed rule change would delete ``its'' before the word 
``activity.''
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    \33\ See Securities Exchange Act Release No. 84901 (December 20, 
2018), 83 FR 67408 (December 28, 2018) (Notice of Filing and 
Immediate Effectiveness of File No. SR-FINRA-2018-042).
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    The proposed rule change also would make technical changes to FINRA 
Rule 7640A (Data Products Offered By NASDAQ). Pursuant to SR-NASDAQ-
2018-098, Nasdaq relocated its Rule 7000 Series (Equities Pricing) to 
the Equity 7 Pricing Schedule of the Nasdaq rulebook's shell 
structure.\34\ As part of that proposed rule change, the Nasdaq rules 
referred to in paragraph (c) of FINRA Rule 7640A were renumbered. 
Specifically, Nasdaq Rule 7037 was renumbered as Equity 7 Pricing 
Schedule, Section 137; Nasdaq Rule 7039 was renumbered as Equity 7 
Pricing Schedule, Section 139; and Nasdaq Rule 7047 was renumbered as 
Equity 7 Pricing Schedule, Section 147. The proposed rule change would 
make conforming changes to Rule 7640A(c) to update these references. 
The proposed rule change would also change ``NASDAQ'' to ``Nasdaq'' in 
the Rule's title to conform to the rest of the Rule.
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    \34\ See Securities Exchange Act Release No. 84684 (November 29, 
2018), 83 FR 62936 (December 6, 2018) (Notice of Filing and 
Immediate Effectiveness of File No. SR-NASDAQ-2018-098).
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    Finally, the proposed rule change would add a reference to FINRA 
Rule 2030 (Engaging in Distribution and Solicitation Activities with 
Government Entities) to FINRA Rule 9610 (Application). FINRA Rule 2030 
authorizes FINRA to exempt a covered member from Rule 2030(a) and, 
therefore, should be included in the list of rules in FINRA Rule 
9610.\35\
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    \35\ See Securities Exchange Act Release No. 78683 (August 25, 
2016), 81 FR 60051 (August 31, 2016) (Order Approving File No. SR-
FINRA-2015-056).
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date will be 30 days after the date 
of the filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\36\ 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, which 
does not substantively change the rules, is consistent with the Act 
because it is being undertaken pursuant to the rulebook consolidation 
process, which is designed to provide additional clarity and regulatory 
efficiency to FINRA members by consolidating the applicable NASD Rules, 
Incorporated NYSE Rules and Interpretations, and FINRA rules into one 
rule set.
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    \36\ 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

[[Page 15652]]

of the purposes of the Act. As noted above, the proposed rule change 
will not substantively change either the text or application of the 
rules. FINRA would like to proceed with the rulebook consolidation 
process expeditiously, which will provide additional clarity and 
regulatory efficiency to members.

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 with respect 
to the proposed rule change to transfer the above listed NASD Rules, 
Incorporated NYSE Rules and Interpretations into the Consolidated FINRA 
Rulebook without any substantive changes.\37\
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    \37\ But see supra notes 8, 10, 11, 20 and 29.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \38\ and Rule 19b-
4(f)(6) thereunder.\39\
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    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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 email to [email protected]. Please include 
File Number SR-FINRA-2019-009 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2019-009. This 
file number should be included on the subject line if email 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 website (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 website 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 10:00 a.m. and 
3:00 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-FINRA-2019-009 and should be submitted 
on or before May 7, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07504 Filed 4-15-19; 8:45 am]
BILLING CODE 8011-01-P