Document ID: SEC-2008-1556-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-11-19T05:00Z

[Federal Register: November 19, 2008 (Volume 73, Number 224)]
[Notices]               
[Page 69699-69700]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19no08-124]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58937; File No. SR-FINRA-2008-056]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to Information Sharing Agreements With 
Domestic Federal Agencies, or Subdivisions Thereof, and Foreign 
Regulators

November 13, 2008.
    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 November 6, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
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 this 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 amend FINRA Rule 8210 to expressly permit 
FINRA to enter into information-sharing agreements with domestic 
federal agencies, or subdivisions thereof, and foreign regulators.\4\
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    \4\ On September 25, 2008, the SEC approved proposed rule change 
SR-FINRA-2008-021, in which FINRA proposed, among other things, to 
adopt the NASD 8000 Series as the FINRA Rule 8000 Series 
(Investigations and Sanctions) in the Consolidated FINRA Rulebook. 
See Securities Exchange Act Release No. 58643 (September 25, 2008), 
73 FR 57174 (October 1, 2008) (Order Approving SR-FINRA-2008-021; 
SR-FINRA-2008-022; SR-FINRA-2008-026; SR-FINRA-2008-028 and SR-
FINRA-2008-029). As part of that proposed rule change, FINRA adopted 
the provisions of NASD Rule 8210 as new FINRA Rule 8210 with certain 
non-material changes. FINRA has set December 15, 2008 as the 
implementation date of SR-FINRA-2008-021, see FINRA Regulatory 
Notice 08-57 (October 16, 2008) (FINRA Announces SEC Approval and 
Effective Date for New Consolidated FINRA Rules).
    Because FINRA Rule 8210 has not yet been implemented and the 
corresponding NASD Rule 8210 remains operative until December 15, 
2008, the proposed rule change would amend both NASD Rule 8210 and 
FINRA Rule 8210. On December 15, 2008, NASD Rule 8210, as amended 
pursuant to this proposed rule change, will be deleted in accordance 
with SR-FINRA-2008-021, without a further filing.
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    The text of the proposed rule change is available at FINRA's Web 
site at 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
    FINRA Rule 8210 confers on FINRA staff the authority to compel a 
member and persons associated with a member to provide documents and 
testimony, or allow inspection and copying of a member's books and 
records, in connection with an investigation, complaint, examination or 
adjudicatory proceeding. The rule additionally permits FINRA staff to 
exercise such authority in furtherance of an investigation, complaint, 
examination or proceeding conducted by another domestic or foreign 
regulator with which FINRA has entered into an agreement providing for 
the exchange of information and other forms of material assistance for 
regulatory purposes.
    FINRA's Restated Certificate of Incorporation allows it to do all 
acts permissible under Delaware state law.\5\ Delaware Corporation Law 
allows FINRA to contract generally.\6\ FINRA considers the exchanging 
of information with certain other regulators, pursuant to agreements, 
to be an important part of its regulatory program.
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    \5\ See Article III of the Restated Certificate of Incorporation 
of National Association of Securities Dealers, Inc., available at 
http://finra.complinet.com.
    \6\ See generally, Del. Code Ann. tit. 8, Sec. Sec.  122, 
122(13) (2008).
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    The proposed rule change would make explicit the authority to enter 
into agreements with domestic federal agencies, or subdivisions 
thereof, and foreign regulators and to share information with them, 
irrespective of whether the information was obtained in furtherance of 
an existing investigation or other regulatory action by another 
regulator. Instead, the proposal would expressly allow FINRA to share 
any information in its possession for any regulatory purpose set forth 
in the agreement.
    The proposal would require that any such agreements entered into by 
FINRA include a provision obligating the other regulator, in accordance 
with the terms of the agreement, to treat any shared information 
confidentially and to assert such confidentiality and other applicable 
privileges in response to any requests for such information from third 
parties. In addition, the proposal would impose two further conditions 
on agreements with a foreign regulator. First, an agreement could only 
be consummated with a foreign regulator that has jurisdiction over 
common regulatory matters; i.e., those involving investor protection or 
market integrity. Second, the agreement would require reciprocity from 
the other regulator to share information of regulatory interest and 
concern to FINRA. FINRA believes it important to expressly evidence in 
the rule and related filing its intent that the disclosure of non-
public information pursuant to a memorandum of understanding not be 
viewed in any manner as a waiver of FINRA's right to protect the 
information, as appropriate, from further disclosure. The proposed rule 
change would not impose the additional conditions on information 
sharing agreements with domestic federal agencies or subdivisions 
thereof.\7\
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    \7\ FINRA notes that it is obligated under the Act to provide 
the Commission records upon request. 15 U.S.C. 78q(a)(1).

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[[Page 69700]]

    FINRA believes that such agreements will become increasingly 
necessary as the financial markets continue to globalize and require 
cross-market regulation. Furthermore, FINRA believes information 
sharing may become a more critical component to domestic regulation of 
the securities industry. Accordingly, FINRA believes it would be 
beneficial to expressly state in the rule FINRA's authority to enter 
into such agreements and set forth certain minimum prerequisites to 
ensure mutual benefits and confidentiality protections. The proposed 
rule change further would serve as notice to the membership of FINRA's 
intention to reach memoranda of understanding with other regulators to 
share confidential information.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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 will 
further the public interest by evidencing FINRA's authority and intent 
to share important regulatory information with other regulators 
responsible for investor protection and market oversight.
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    \8\ 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

    Because the foregoing proposed rule change does not: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\9\ and Rule 19b-4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to provide the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. FINRA 
fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. FINRA has 
requested that the Commission waive the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay \11\ is 
consistent with the protection of investors and the public interest. 
The Commission notes that the proposed rule change merely makes 
explicit and codifies FINRA's authority to enter into information 
sharing agreements that may advance investor protection.
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    \11\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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.

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-2008-056 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2008-056. 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 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 such 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 you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2008-056 and should be 
submitted on or before December 10, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27427 Filed 11-18-08; 8:45 am]

BILLING CODE 8011-01-P