Document ID: SEC-2010-0512-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-04-06T04:00Z

[Federal Register: April 6, 2010 (Volume 75, Number 65)]
[Notices]               
[Page 17456-17457]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap10-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61808; File No. SR-FINRA-2010-005]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Repeal 
Incorporated NYSE Rule 405(4) (Common Sales Accounts)

March 31, 2010.
    On January 21, 2010, 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. The proposed rule change was 
published for comment in the Federal Register on February 25, 2010.\3\ 
The Commission received no comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 61543 (February 18, 2010); 75 
FR 8770 (February 25, 2010).
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I. Description of the Proposal

    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\4\ FINRA proposed to repeal NYSE 
Rule 405(4) (Common Sales Accounts).\5\
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    \4\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from the New York Stock 
Exchange (``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\ For convenience, the Incorporated NYSE Rules are referred to 
as the ``NYSE Rules.''
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    NYSE Rule 405(4) (Common Sales Accounts) required proper 
supervision of registered representatives handling common sales 
accounts. The rule provided that a member might facilitate the isolated 
liquidation of securities valued at $1,000 or less registered in the 
name of an individual who does not have an account, and which are not 
part of any distribution, through a common sales account set up for the 
specific purpose of handling such sales. The rule further provided that 
such sales might be effected on behalf of the customer without 
requiring the member to send a periodic customer account statement to 
the individual as otherwise generally required, provided the following 
conditions were satisfied: (1) The customer was identified as the 
individual in whose name the securities are registered; (2) the 
securities were received by the member, at or prior to the time of the 
entry of the order, in the exact amount to be sold in good delivery 
form; (3) a confirmation was sent to the customer; (4) all proceeds of 
such sales were paid out on or immediately following settlement date; 
and (5) a record was made in the common sales account that includes 
certain customer-specific information.
    FINRA believed that the rule as written might raise potential 
investor protection concerns. The term ``isolated'' was not defined.\6\ 
Further, NYSE Rule 405(4) permitted a member to effect sales of 
securities for customers without expressly requiring prior customer 
consent and without the need to send periodic account statements to the 
customer. For these reasons, FINRA proposed to eliminate NYSE Rule 
405(4) and not adopt its content into the Consolidated FINRA 
Rulebook.\7\
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    \6\ NYSE Rule 405(4) was adopted by the NYSE in the late 1960s. 
In 1977, the NYSE proposed amendments to Rule 405(4) to define the 
term ``isolated'' to mean ``not exceeding five $2,000 transactions 
during any twelve-month period unless otherwise approved by the 
NYSE,'' and to allow unsolicited purchases as well as sales of 
securities. In late 1977, the SEC instituted proceedings to 
determine whether to disapprove the proposed rule change and 
identified the potential grounds for disapproval. See Securities 
Exchange Act Release No. 14143 (November 7, 1977) (Order Instituting 
Proceedings to Determine Whether Proposed Changes to Rule 405 Should 
be Disapproved; File No. SR-NYSE-76-34). The SEC expressed concern 
that ``execution of such transactions, and in particular of 
purchases [as proposed], in the common purchase and sale account may 
permit opportunities for fraudulent and manipulative acts or 
practices[.]'' In February 1978, the NYSE withdrew the filing. See 
Securities Exchange Act Release No. 14630 (April 3, 1978) (Order 
Approving Withdrawal of NYSE's Proposed Changes to Rule 405; File 
No. SR-NYSE-76-34).
    \7\ FINRA notes that in the event a member may seek permission 
not to send customer account statements under certain limited 
circumstances, proposed FINRA Rule 2231, which relates to customer 
account statements, would authorize FINRA to exempt members from the 
provisions of such rule, including the requirement to deliver 
periodic account statements, pursuant to the Rule 9600 Series. See 
Securities Exchange Act Release No. 59921 (May 14, 2009); 74 FR 
23912 (May 21, 2009) (Notice of Filing; File No. SR-FINRA-2009-028).

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[[Page 17457]]

II. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\8\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act, \9\ 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 by eliminating a 
rule that contains terms that are not clearly defined and raises 
potential investor protection concerns.
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    \8\ In approving the proposed rule change, the Commission has 
considered the rule change's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
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III. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-FINRA-2010-010) be and 
hereby is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7695 Filed 4-5-10; 8:45 am]
BILLING CODE 8011-01-P