Document ID: SEC-2010-0431-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2010-03-22T04:00Z

[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Notices]               
[Page 13620-13622]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr10-120]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61703; File No. SR-NASDAQ-2010-023]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend NASDAQ Rule 9520 Series Regarding Eligibility Procedures for 
Persons Subject to Certain Disqualifications

March 12, 2010.
    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 February 19, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by NASDAQ. 
NASDAQ has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Section 19 under 
the Act.\3\ 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 the 
Substance of the Proposed Rule Change

    NASDAQ proposes to amend the NASDAQ Rule 9520 Series regarding 
eligibility procedures for persons subject to certain 
disqualifications. NASDAQ proposes to implement this rule change 
immediately upon filing. The text of the proposed rule change is 
available at http://nasdaqomx.cchwallstreet.com/, at NASDAQ's principal 
office, 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, NASDAQ 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. NASDAQ 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
    The Exchange is proposing to amend the NASDAQ Rule 9520 Series, the 
Exchange's eligibility proceedings section, to conform to recent 
changes in the rules of the Financial Industry Regulatory Authority, 
Inc. (``FINRA'').\4\ The proposal also includes the proposed Statutory 
Disqualification Regulatory Alert (``SD Regulatory Alert'') that 
outlines the applicable eligibility procedures. The amended rules would 
incorporate by reference the procedures in the SD Regulatory Alert. As 
further detailed in the SD Regulatory Alert, the need for a member to 
file an application with NASDAQ for approval, notwithstanding the 
disqualification would depend on: (1) The type of disqualification; (2) 
the date of disqualification; or (3) whether the firm or individual is 
seeking admission, readmission or continuation in the securities 
industry.
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    \4\ See Securities Exchange Act Release No. 59586 (March 17, 
2009), 74 FR 12166 (March 23, 2009) (SR-FINRA-2008-045); Securities 
Exchange Act Release No. 59722 (April 7, 2009), (SR-FINRA-2009-022).
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    FINRA recently revised its definition of disqualification to 
incorporate three additional categories of statutory disqualification, 
including willful violations of the Federal securities or commodities 
laws, grounds for statutory disqualification that were enacted in the 
Sarbanes-Oxley Act, and associations with certain other persons subject 
to a disqualification. Although NASDAQ's definition has always included 
these categories, Commission staff informed NASDAQ at the time of its 
registration as a national securities exchange that, in light of 
NASDAQ's origin as a subsidiary of FINRA's predecessor, the National 
Association of Securities Dealers, Inc., staff would not object if 
NASDAQ applied FINRA's then more-limited definition, pending adoption 
of procedures by FINRA to process disqualifications under these 
additional categories.
    The proposed rule change would amend NASDAQ Rule 9522 to address 
the initiation of eligibility proceedings and the authority of NASDAQ's 
Department of Member Regulation (``NASDAQ Regulation'' or ``Member 
Regulation'') to approve applications relating to a disqualification 
where the disqualification arises from findings or orders specified in 
Section 15(b)(4)(D), (E) or (H) of the Act or that arise under Section 
3(a)(39)(E) of the Act (i.e., the

[[Page 13621]]

added categories of disqualification). Currently, NASDAQ Rule 
9522(a)(1) provides, among other things, that if NASDAQ Regulation 
staff has reason to believe that a disqualification exists, NASDAQ 
Regulation staff will issue a written notice to the member or applicant 
for membership under NASDAQ Rule 1013, specifying the grounds for such 
disqualification. The proposed rule provides that NASDAQ Regulation 
staff will not issue a written notice to members or applicants for 
membership under Rule 1013 with respect to disqualifications arising 
solely from findings or orders specified in Section 15(b)(4)(D), (E), 
or (H) of the Act or arising under Section 3(a)(39)(E) of the Act, 
unless the member is instructed to do so by the SD Regulatory Alert. 
Furthermore, a member will not have to file an application or a written 
request for relief with the Central Registration Depository/Public 
Disclosure, for any disqualifications arising solely from findings or 
orders specified in Section 15(b)(4)(D), (E), or (H) of the Act or 
arising under Section 3(a)(39)(E) of the Act, unless the member is 
instructed to do so by the SD Regulatory Alert.
    Additionally, under the current rules, a member is allowed to 
withdraw its application after the start of a hearing but prior to the 
issuance of a decision by the NASDAQ Review Council (``NRC'') with 
prior written consent of the NRC. The proposed rules provide that 
written consent is no longer required. The member may withdraw its 
application by filing a written notice with the NRC and the Office of 
General Counsel pursuant to Rules 9135, 9136 and 9137.
    In addition, under the current rules, NASDAQ Regulation is 
generally responsible for evaluating applications with 
disqualifications filed by a disqualified member or sponsoring member. 
The proposed amendments to NASDAQ Rule 9522 would specifically 
authorize NASDAQ Regulation to approve applications based on the added 
categories of disqualification that arises from finding or orders 
specified in Section 15(b)(4)(D), (E), or (H) of the Act or arises 
under Section 3(a)(39)(E) of the Act.
    In addition, if NASDAQ Regulation determines that an application 
relating to a disqualification that arises from findings or orders 
specified in Section 15(b)(4)(D), (E), or (H) of the Act or arises 
under Section 3(a)(39)(E) of the Act should be approved, but with 
specific supervisory requirements that have the consent of the 
disqualified member, sponsoring member and/or disqualified person, then 
proposed NASDAQ Rule 9523(b) would authorize NASDAQ Regulation to 
approve a supervisory plan, without submitting a recommendation to the 
Chairman of the Statutory Disqualification Committee, acting on behalf 
of the NRC. Consistent with the current rule regarding the submission 
of supervisory plans, proposed NASDAQ Rule 9523(b)(1) would provide 
that, by submitting an executed letter consenting to a supervisory 
plan, a disqualified member, sponsoring member and/or disqualified 
person waives the following (in summary):
    (a) The right to a hearing and any right of appeal to challenge the 
validity of the supervisory plan;
    (b) The right to claim bias or prejudgment by NASDAQ Regulation or 
the General Counsel regarding the supervisory plan; and
    (c) The right to claim a violation of the ex parte prohibitions or 
the separation of functions provisions of NASDAQ Rules 9143 and 9144, 
respectively, in connection with participation in the supervisory plan.
    If the supervisory plan is rejected, the disqualified member, 
sponsoring member and/or disqualified person would have the right to 
proceed under NASDAQ Rule 9524. Furthermore, the proposed rule change 
would delete all references in NASDAQ Rule 9523 to the ``Office of 
Disciplinary Affairs'' as this step will no longer be utilized in the 
process, consistent with current FINRA rules.
    The proposed rule change also would inlcude several technical 
amendments. For example, the proposed rule change would amend NASDAQ 
Rule 9522(b) to renumber sections 1, 2, and 3 and NASDAQ Rule 9522(c) 
to allow a member that has filed a statutory disqualification 
application to withdraw that application after the start of a hearing 
but prior to the issuance of a decision by the NRC by filing a written 
notice with the NRC and NASDAQ's Office of General Counsel. In 
addition, for purposes of clarity and consistency, the proposed rule 
change would amend NASDAQ Rule 9522(e) to replace references that 
NASDAQ Regulation ``may grant'' or ``may approve'' certain matters with 
``is authorized to approve'' such matters.
b. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provision of Section 19(b)(3)(A) of the Act \5\ and Rule 19b-
4(f)(6) \6\ thereunder, in that the proposal does not significantly 
affect the protection of investors or the public interest and does not 
impose any significant burden on competition. While the current rules 
broadly include the proposed categories of disqualification, the 
proposed rule change merely conforms to FINRA rules by specifically 
incorporating the additional categories of disqualification that were 
not previously specified in FINRA rules. Since these categories were 
already covered in the current rules, this change just delineates the 
specifics for conforming purposes. All other changes are administrative 
to effectuate the conforming changes.
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    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ 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, as amended.

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

    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) \7\ of the Act and Rule 19b-
4(f)(6) thereunder.\8\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate 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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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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:

[[Page 13622]]

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-NASDAQ-2010-023 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-NASDAQ-2010-023. 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 Web site 
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 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal offices of 
NASDAQ. 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-NASDAQ-2010-023, and 
should be submitted on or before April 12, 2010.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6117 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P