Document ID: SEC-2009-0578-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rules 1010 (Electronic Filing Requirements for Uniform Forms) and 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4) in the Consolidated FINRA Rulebook
Posted Date: 2009-04-24T04:00Z

[Federal Register: April 24, 2009 (Volume 74, Number 78)]
[Notices]               
[Page 18779-18782]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24ap09-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59784; File No. SR-FINRA-2009-019]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rules 1010 (Electronic Filing Requirements for Uniform Forms) and 
2263 (Arbitration Disclosure to Associated Persons Signing or 
Acknowledging Form U4) in the Consolidated FINRA Rulebook

April 17, 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 April 7, 2009, 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, 
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, subject to certain amendments, NASD 
Rules 1140 (Electronic Filing Rules) and 3080 (Disclosure to Associated 
Persons When Signing Form U-4) as FINRA rules in the consolidated FINRA 
rulebook. The proposed rule change would renumber NASD Rule 1140 as 
FINRA Rule 1010 (Electronic Filing Requirements for Uniform Forms) and 
NASD Rule 3080 as FINRA Rule 2263 (Arbitration Disclosure to Associated 
Persons Signing or Acknowledging Form U4) in the consolidated FINRA 
rulebook.

[[Page 18780]]

    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, 
subject to certain amendments, NASD Rule 1140 (Electronic Filing Rules) 
as new FINRA Rule 1010 (Electronic Filing Requirements for Uniform 
Forms) and NASD Rule 3080 (Disclosure to Associated Persons When 
Signing Form U-4) as new FINRA Rule 2263 (Arbitration Disclosure to 
Associated Persons Signing or Acknowledging Form U4). The details of 
the proposed rule change are described below.
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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 FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
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Proposed FINRA Rule 1010
    Web CRD is an interactive, web-based registration system that 
maintains the qualification, employment and disclosure information, 
fingerprint requirements, registration fees and renewal fees for more 
than half a million registered persons.\4\ NASD Rule 1140 supports the 
information reported to Web CRD by requiring each member to file its 
Forms U4, U5, BR, BDW, and BD amendments (referred to collectively as 
``Uniform Forms'') \5\ via electronic process or such other process as 
FINRA may prescribe to Web CRD.\6\ NASD Rule 1140 also requires that 
the member retain and provide upon regulatory request every original, 
signed initial and transfer Form U4 that form the basis of the member's 
electronically filed Forms U4 and every record of the member's 
electronically filed initial and amended Forms U5.\7\
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    \4\ The Central Registration Depository (CRD[reg]), which was 
developed jointly by FINRA and the North American Securities 
Administrators Association (NASAA), was first launched in 1981 to 
centralize the registration process for the securities industry. 
Over the past two decades, the system has been expanded and modified 
extensively to meet the evolving needs of FINRA's constituencies. 
CRD became an interactive, web-based registration system (Web CRD) 
on August 16, 1999. See NASD Notice to Members 99-63 (August 1999) 
(SEC Approves and Adopts Revised Forms and Electronic Filing 
Requirement; New Member Applicants Should Continue to File Paper 
Forms).
    \5\ The initial Form BD is also a Uniform Form. However, it is 
filed with the new membership application, pursuant to NASD Rule 
1013 (New Member Application and Interview).
    \6\ See NASD Rule 1140(a) (requiring all forms required to be 
filed by Article IV, Sections 1 (Application for Membership), 7 
(Transfer and Termination of Membership), and 8 (Registration of 
Branch Office) and Article V, Sections 2 (Application for 
Registration) and 3 (Notification by Member to the Corporation and 
Associated Person of Termination; Amendments to Notification) to be 
filed via electronic process or such other process as FINRA may 
prescribe); see also Securities Exchange Act Release No. 41575 (June 
29, 1999), 64 FR 36728 (July 7, 1999) (Order Approving File No. SR-
NASD-99-28); NASD Notice to Members 99-63 (August 1999) (informing 
members of revised Forms U4, U5, BD, and BDW and requirement that 
such forms and their amendments must be filed electronically 
pursuant to NASD Rule 1140).
    \7\ NASD Rule 1140 also addresses the continued submission of 
paper fingerprint cards in the Web CRD electronic filing environment 
by requiring a member, upon electronically filing a Form U4, to 
promptly submit the fingerprint information for the person named in 
the Form U4. Pursuant to NASD Rule 1140, FINRA may make a 
registration effective pending receipt of the fingerprint card and 
also place a person in an inactive status if FINRA does not receive 
the fingerprint card within 30 days of the filing of a Form U4.
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    Additionally, NASD Rule 1140 requires each member to identify a 
registered principal(s) or corporate officer(s) who has a position of 
authority over registration functions to be responsible for supervising 
the firm's electronic filings. Also, the registered principal(s) or 
corporate officer(s) who has the responsibility to review and approve 
the electronically filed forms must acknowledge, electronically, that 
he is filing the information on behalf of the member and the member's 
associated persons. Finally, the rule permits a member to use third-
party providers to submit electronic filings; however, the member 
remains ultimately responsible for the timeliness and content of the 
filings.\8\
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    \8\ See Securities Exchange Act Release No. 41575 (June 29, 
1999), 64 FR 36728, 36729 (July 7, 1999) (Order Approving File No. 
SR-NASD-99-28) (specifically noting that members may use service 
bureaus to submit their electronic filings required by NASD Rule 
1140 but noting that the members remain ultimately responsible for 
the timeliness and content of the filings).
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    The proposed rule change amends these rule requirements in several 
respects. First, the proposed rule change codifies FINRA's position 
that every initial and transfer electronic Form U4 must be based on an 
original, manually signed Form U4 provided to the member by the person 
on whose behalf the Form U4 is being filed.\9\ While the current rule 
specifies that an electronic initial and transfer Form U4 must be based 
on a signed Form U4, it does not expressly state that such signatures 
be manual. FINRA believes it is important to have clear evidence of the 
associated person's execution of the initial and transfer Form U4s, 
including his or her agreement to the attestations set forth in the 
form.
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    \9\ Under the CRD system, the member submits the form on behalf 
of the associated person by typing the person's name into the 
signature box on the electronic form.
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    Second, the proposed rule change modifies the signature requirement 
with respect to amendments to disclosure information in the Form U4. 
Currently, amendments to Form U4 that provide disclosure information 
must be signed by the associated person on whose behalf the filing is 
made. However, the new FINRA rule would permit a firm to file 
amendments to the Form U4 disclosure information without obtaining the 
registered person's manual signature if the firm uses reasonable 
efforts to (1) provide the registered person with a copy of the amended 
disclosure information prior to filing and (2) obtain the registered 
person's written acknowledgment (which may be electronic) prior to 
filing that the information has been received and reviewed. The 
proposed rule change also requires a member, as part of its 
recordkeeping requirements, to retain the written acknowledgment in 
accordance with SEA Rule 17a-4(e)(1) and make it available promptly 
upon regulatory request.\10\
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    \10\ In February 2008, at FINRA's request, the SEC staff issued 
a no-action letter regarding the ability of FINRA members to rely on 
Web CRD to satisfy their record retention requirements under SEA 
Rule 17a-4 with respect to certain Forms U4, U5 and BR filed in Web 
CRD. See Letter from Thomas K. McGowan, Assistant Director, Division 
of Trading and Markets, SEC, to Richard E. Pullano, Associate Vice 
President and Chief Counsel, Registration and Disclosure, FINRA, 
dated February 19, 2008. In short, such relief extends to, among 
other things, Form U4 amendments that do not require the registered 
person's signature. Because FINRA's request for no-action relief 
excluded Form U4 amendments that provide or update disclosure 
information (on the basis that such amendments required the 
registered person's signature), FINRA sought clarification from SEC 
staff on the extent of the relief in light of the proposed rule 
change. The SEC staff has affirmed in a conversation with FINRA 
staff that, if the proposed rule change is approved, the no-action 
relief provided in the February 19, 2008 letter will extend to Form 
U4 amendments that provide or update disclosure information that are 
submitted pursuant to the proposed rule change without obtaining the 
registered person's manual signature. Telephone conversation between 
Thomas K. McGowan, Assistant Director, Division of Trading and 
Markets, SEC, and Patrice Gliniecki, Senior Vice President & Deputy 
General Counsel and Richard E. Pullano, Associate Vice President & 
Chief Counsel, Registration and Disclosure, FINRA, dated March 5, 
2009.

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[[Page 18781]]

    Third, the proposed rule change clarifies that a member must submit 
disclosure information to [sic] which it has knowledge in those cases 
where the member is not able to obtain an associated person's manual 
signature or written acknowledgment of the amendment. FINRA believes it 
is important to codify the firm's obligation to submit such disclosure 
information, consistent with the obligation under Article V, Section 2 
of the FINRA By-Laws that every Form U4 be kept current. Proposed 
supplementary material sets forth examples of reasons why a member may 
not be able to obtain the associated person's manual signature or 
written acknowledgment. They include, but are not limited to, the 
associated person refusing to acknowledge the information in writing, 
being on active military duty, or otherwise being unavailable during 
the period provided for filing the amendment. In such instances, the 
proposed supplementary material instructs a member to enter 
``Representative Refused to Sign/Acknowledge'' or ``Representative Not 
Available'' or a substantially similar entry in the signature box to 
the electronic form. This instruction is generally consistent with 
current practice in instances where an associated person is unable or 
unavailable to sign a disclosure information amendment.\11\
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    \11\ FINRA will consider future enhancements to the CRD system 
that may include incorporating a ``drop down'' menu, or some 
substantially similar method for recording the reason the registered 
person has not acknowledged the filing, to assist firms in 
completing the signature section in these circumstances.
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    Fourth, the proposed rule change incorporates Web CRD's current 
practice of permitting Form U4 administrative information to be amended 
without obtaining the associated person's signature (manual or 
otherwise).\12\ Proposed supplementary material explains that such 
administrative information includes items such as the addition of state 
or self-regulatory organization registrations, exam scheduling, and 
updates to residential, business, and personal history.
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    \12\ See Securities Exchange Act Release No. 41575 (June 29, 
1999), 64 FR 36728, 36729 n.7 (July 7, 1999) (Order Approving File 
No. SR-NASD-99-28); see also Securities Exchange Act Release No. 
37439 (July 15, 1996), 61 FR 37950 (July 22, 1996) (Order Approving 
File No. SR-NASD-96-21).
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    Fifth, the proposed rule change proposes supplementary material 
expressly permitting the registered principal(s) or corporate 
officer(s) who is responsible for supervising a firm's electronic 
filings to delegate to another associated person (who need not be 
registered) the electronic filing of the member's forms via Web CRD. 
The delegatee may also acknowledge, electronically, that he is making 
the filing on behalf of the member and the member's associated person. 
The proposed supplementary material makes clear, however, that the 
principal(s) or corporate officer(s) may not delegate any of his or her 
supervision, review and approval responsibilities and must take 
reasonable and appropriate action to ensure that all delegated 
electronic filing functions are properly executed and supervised.
    Sixth, the staff proposes to retain, but relocate to supplementary 
material, the provision allowing firms to enter into third-party 
agreements for the electronic filing of the required forms. The 
supplementary material makes clear that the firm remains responsible 
for complying with the requirements of the rule.
    Finally, the staff proposes to make other technical changes, such 
as making clarifying rule cross-references, replacing the reference to 
fingerprint ``cards'' with fingerprint ``information,'' \13\ and noting 
the applicable retention periods for the forms under SEA Rule 17a-
4.\14\
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    \13\ This proposed change recognizes that recent technological 
improvements to FINRA's fingerprinting plan permit members to submit 
fingerprints and identifying information to FINRA using either paper 
fingerprint cards or by electronically sending a digitized image of 
the fingerprints. See Securities Exchange Act Release No. 53751 (May 
2, 2006), 71 FR 27299 (May 10, 2006) (Order Approving [sic] NASD 
Fingerprint Plan). The document is entitled, ``Declaration of 
Effectiveness of the Fingerprint Plan of the National Association of 
Securities Dealers, Inc.''
    \14\ The proposed rule clarifies that initial and amendments to 
Forms U4 (and related acknowledgments) must be retained until at 
least three years after the registered person's employment and any 
other connection with the member has terminated. See SEA Rule 17a-
4(e)(1). In addition, initial and amendments to Forms U5 must be 
retained for at least three years, the first two years in an easily 
accessible place. See SEA Rule 17a-4.
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Proposed FINRA Rule 2263
    NASD Rule 3080 (Disclosure to Associated Persons When Signing Form 
U4) requires members to provide each associated person, whenever the 
associated person is asked to sign a new or amended Form U4, with 
certain written disclosures regarding the nature and process of 
arbitration proceedings. The associated person agrees to be bound by 
this process upon signing a Form U4. The disclosures required by NASD 
Rule 3080 may be given by the same member firm to the same associated 
person on more than one occasion during that person's employment, if 
the associated person has reason to re-sign the Form U4. NASD Rule 3080 
does not address any private arbitration agreements that the associated 
person might enter into with the member firm.
    The disclosure language in NASD Rule 3080 explains that the Form U4 
contains a predispute arbitration clause, indicates in which Item of 
the Form U4 the clause is located \15\ and advises the associated 
person to read the predispute arbitration clause. Rule 3080 was modeled 
on the disclosure given to customers when signing predispute 
arbitration agreements with member firms, as contained in NASD Rule 
3110(f).\16\
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    \15\ The member is responsible for updating this item number on 
new disclosure statements if it changes in later versions of the 
Form U4. See Securities Exchange Act Release No. 42061 (October 27, 
1999), 64 FR 59815, 59817 n.11 (November 3, 1999) (Order Approving 
File No. SR-NASD-99-08).
    \16\ FINRA is proposing to renumber NASD Rule 3110(f) as FINRA 
Rule 2268 (Requirements When Using Predispute Arbitration Agreements 
for Customer Accounts), a stand-alone rule in the disclosure section 
of the Consolidated FINRA Rulebook. See FINRA Regulatory Notice 08-
25 (May 2008) (Proposed Consolidated FINRA Rules Governing Books and 
Records Requirements).
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    Specifically, NASD Rule 3080 provides that, before signing a Form 
U4, an associated person should understand the following (1) the 
associated person is giving up the right to sue a member, customer or 
another associated person in court, except as provided by the rules of 
the arbitration forum in which a claim is to be filed; (2) there is an 
exception to the arbitration requirement for claims of statutory 
employment discrimination \17\ (such a claim may be arbitrated at FINRA 
only if the parties have agreed to arbitrate it); (3) arbitration 
awards are generally final and binding; (4) discovery is generally more 
limited in arbitration than in court; (5) arbitrators do not have to 
explain the reasons for their awards; (6) the panel of arbitrators may 
include either public or industry arbitrators; and

[[Page 18782]]

(7) the rules of some arbitration forums may impose time limits for 
bringing a claim in arbitration; in some cases, a claim that is 
ineligible for arbitration may be brought in court.
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    \17\ See FINRA Rule 13201.
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    The proposed rule change transfers NASD Rule 3080 into the 
Consolidated FINRA Rulebook as FINRA Rule 2263 with several minor 
changes. First, the proposed rule change amends the current title 
``Disclosure to Associated Person When Signing Form U-4'' to clarify 
that the rule relates to arbitration disclosures. Accordingly, the new 
proposed title is ``Arbitration Disclosure to Associated Persons 
Signing or Acknowledging Form U4.''
    Second, proposed FINRA Rule 2263 clarifies that a member must 
provide the required arbitration disclosures whenever a member asks an 
associated person, pursuant to proposed FINRA Rule 1010 (as described 
above), to manually sign an initial or amended Form U4, or to otherwise 
provide written (which may be electronic) acknowledgement of an 
amendment to the Form.
    Lastly, the proposed rule change updates the rule language to 
reflect recent amendments to FINRA's Code of Arbitration Procedure 
requiring arbitrators to provide an explained decision to the parties 
in eligible cases if there is a joint request by all parties at least 
20 days before the first scheduled hearing date.\18\
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    \18\ See Securities Exchange Act Release No. 59358 (Feb. 4, 
2009), 74 FR 6928 (Feb. 11, 2009) (Order Approving File No. SR-
FINRA-2008-051).
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    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,\19\ 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 changes to NASD Rule 
1140 will clarify and streamline the Form U4 electronic filing and 
amendment requirements for both members and members' associated 
persons, consistent with the goals of investor protection. FINRA also 
believes that the proposed changes to NASD Rule 3080 will clarify the 
required arbitration disclosures and when members must provide those 
disclosures to their associated persons.
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    \19\ 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-2009-019 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-2009-019. 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-2009-019 and should be 
submitted on or before May 15, 2009

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9372 Filed 4-23-09; 8:45 am]

BILLING CODE 8010-01-P