Document ID: SEC-2009-1794-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-12-22T05:00Z

[Federal Register: December 22, 2009 (Volume 74, Number 244)]
[Notices]               
[Page 68081-68082]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22de09-72]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61171; File No. SR-FINRA-2009-086]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 5160 (Disclosure of Price and Concessions in Selling 
Agreements) in the Consolidated FINRA Rulebook

December 15, 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 December 2, 2009, 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, 
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 2770 (Disclosure of Price in 
Selling Agreements) as FINRA Rule 5160 in the consolidated FINRA 
rulebook without material change.
    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.

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 2770 (Disclosure of Price in Selling Agreements), without material 
change, as FINRA Rule 5160.
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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 2770 requires certain disclosures in selling 
agreements.\4\ Specifically, the rule requires that selling syndicate 
agreements or selling group agreements \5\ (1) set forth the price at 
which securities are to be sold to the public or the formula by which 
such price can be ascertained and (2) state clearly to whom and under 
what circumstances concessions, if any, may be allowed.\6\
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    \4\ Rule 2770, formerly designated as Section 7 in Article III 
of the Rules of Fair Practice, was adopted in 1939 as part of 
FINRA's original rulebook. See Certificate of Incorporation and 
Bylaws, Rules of Fair Practice and Code of Procedure for Handling 
Trade Practice Complaints of National Association of Securities 
Dealers, Inc. (August 8, 1939). The precursor to NASD Rule 2770 was 
originally drafted by the Investment Bankers Code Committee in 1934. 
See Code of Fair Competition for Investment Bankers With a 
Descriptive Analysis of Its Fair Practice Provisions and a History 
of Its Preparation (1934).
    \5\ The terms ``selling group'' and ``selling syndicate'' are 
defined in NASD Rules 0120(p) and (q), respectively. (Other than to 
reflect the new conventions of the Consolidated FINRA Rulebook, 
FINRA does not propose to alter these two definitions, which will be 
addressed later in the rulebook consolidation process.)
    \6\ Pursuant to FINRA Rule 0150, NASD Rule 2770 is applicable to 
transactions in, and business activities relating to, exempted 
securities, except municipal securities, conducted by members and 
associated persons.
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    It is customary industry practice that both of these items are 
contained in selling agreements. FINRA believes that these disclosures 
are important in ensuring the integrity of the public offering process. 
Specifically, the requirement to set forth the price at which the 
securities are to be sold to the public creates a contractual 
obligation among the selling group participants to offer the security 
to investors at the same price. The second requirement to set forth to 
whom and under what circumstances concessions, if any, are allowed 
gives the selling syndicate or selling group control over who may be 
compensated for participating in the offering.
    NASD Rule 2770 has not been substantively amended since it was 
adopted in 1939. FINRA believes that Rule 2770's application and scope 
are clear and that the rule is achieving its intended purpose as part 
of FINRA's regulatory scheme governing member activity in securities 
offerings. FINRA proposes to transfer NASD Rule 2770 into the 
Consolidated FINRA Rulebook without material change as new FINRA Rule 
5160. However, FINRA proposes one minor change to the title of the rule 
to clarify that in addition to disclosing the price of a security in an 
offering, selling agreements must also disclose

[[Page 68082]]

concessions. The proposed title of FINRA Rule 5160 would be 
``Disclosure of Price and Concessions in Selling Agreements.''
    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,\7\ 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 disclosures required by the 
proposed rule are important in ensuring the integrity of the public 
offering process. In addition, the rule being adopted as part of the 
Consolidated FINRA Rulebook previously has been found to meet the 
statutory requirements, and FINRA believes this rule has since proven 
effective in achieving the statutory mandates.
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    \7\ 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:
    (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-2009-086 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-2009-086. 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\8\, 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 .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 the 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 that may be 
withheld from the public in accordance with the provisions of 5 U.S you 
wish to make available publicly. All submissions should refer to File 
Number SR-FINRA-2009-086 and should be submitted on or before January 
12, 2010.
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    \8\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30335 Filed 12-21-09; 8:45 am]

BILLING CODE 8011-01-P