Document ID: SEC-2010-0603-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ OMX BX
Posted Date: 2010-04-22T04:00Z

[Federal Register: April 22, 2010 (Volume 75, Number 77)]
[Notices]               
[Page 21083-21085]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap10-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61934; File No. SR-BX-2010-028]

 
Self-Regulatory Organizations; NASDAQ OMX BX; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Certain 
Rules To Reflect Changes to Corresponding FINRA Rules

April 16, 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 April 5, 2010, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'') 
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 prepared by the Exchange. The Exchange has designated 
the proposed rule change as constituting a non-controversial rule 
change under Rule 19b-4(f)(6) under the Act,\3\ which renders the 
proposal effective upon filing with 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

    The Exchange is filing this proposed rule change to delete Rule 
3130 and IM-3130, to adopt a new Rule 4000A series, and to amend Rules 
9552, 9554, 9557 and 9559 to conform BX's rules to recent changes to 
the rules of the Financial Industry Regulatory Authority (``FINRA''). 
The Exchange will implement the proposed rule change thirty days after 
the date of the filing. The text of the proposed rule change is 
available at http://nasdaqomxbx.cchwallstreet.com, at the Exchange'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, the Exchange 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. The Exchange 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
    BX proposes certain conforming changes to the rules concerning 
members' financial responsibilities and the rules concerning expedited 
hearings in light of changes made to the analogous rules of FINRA. BX 
based much of its rules on those of The NASDAQ Stock Market LLC 
(``NASDAQ''). Similarly, many of NASDAQ's rules are based on rules of 
FINRA (formerly the National Association of Securities Dealers 
(``NASD'')). During 2008, FINRA embarked on an extended process of 
moving rules formerly designated as ``NASD Rules'' into a consolidated 
FINRA rulebook. In most cases, FINRA has renumbered these rules, and in 
some cases has substantively amended them. Accordingly, BX also has 
initiated a process of modifying its rulebook to ensure that BX rules 
corresponding to FINRA/NASD rules continue to mirror them as closely as 
practicable. In some cases, it is not possible for the rule numbers of 
BX rules to mirror corresponding FINRA rules, because existing or 
planned BX rules make use of those numbers. However, wherever possible, 
BX plans to update its rules to reflect changes to corresponding FINRA 
rules.
    As part of this rule consolidation process, FINRA recently made 
several changes to its financial responsibility rules, which are 
largely incorporated by reference in BX's rules.\4\ In addition, FINRA 
also recently amended certain rules under its Rule 9000 Series 
concerning expedited proceedings, which are closely mirrored in BX's 
Rule 9000 Series.\5\ Accordingly, BX is proposing to amend its 
analogous rules consistent with the changes made by FINRA, as discussed 
below.
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    \4\ Securities Exchange Act Release No. 60933 (November 4, 
2009), 74 FR 58334 (November 12, 2009) (SR-FINRA-2008-067).
    \5\ Securities Exchange Act Release No. 61242 (December 28, 
2009), 75 FR 167 (January 4, 2010) (SR-FINRA-2009-076).
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    Financial Responsibility Rules:
    FINRA's new consolidated financial responsibility rules establish 
criteria that promote the permanency of member's capital, requiring the 
review and approval of material financial transactions and establishing 
criteria intended to identify member firms approaching financial 
difficulty and to monitor their financial and operational condition. 
FINRA's new financial responsibility rules incorporate many of the 
provisions of the prior NASD and NYSE rules, but streamlined and 
reorganized the provisions. FINRA also tiered many provisions to apply 
only to those firms that clear or carry customer accounts.
    Currently, BX Rule 3130 and IM-3130 incorporate by reference old 
NASD Rule 3130 and IM-3130. These rules concerned FINRA's authority to 
regulate the activities of members experiencing financial or 
operational difficulties. In adopting the new financial responsibility 
rules, FINRA eliminated NASD Rule 3130 and IM-3130, and replaced them 
with several rules that represented a consolidation of the old NASD and 
NYSE rules concerning financial responsibility. As a consequence, BX is 
also deleting Rule 3130 and IM-3130, and replacing them with new rules 
found under a new Rule 4000A series.\6\ These new BX rules incorporate 
by reference the analogous newly-adopted financial responsibility rules 
of FINRA found in FINRA Rules 4110, 4120, 4140 and 4521. Consistent 
with current BX Rule 3130(b), BX is proposing to make clear in proposed 
Rules 4110A, 4120A and 4140A that references to Rule 9557 are to BX's 
Rule 9557.
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    \6\ FINRA also eliminated NASD Rule 3131 and adopted FINRA Rule 
4130 in its place. NASD Rule 3131 concerned the regulation of 
members registered with the SEC pursuant to Section 15C of the 
Exchange Act. BX does not have such a class of membership, and as 
such, did not adopt NASD Rule 3131 and is not proposing to adopt, or 
incorporate by reference, FINRA Rule 4130.
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    FINRA also revised FINRA Rule 9557 (Procedures for Regulating 
Activities Under FINRA Rules 4110, 4120 and 4130 Regarding a Member 
Experiencing Financial or Operational Difficulties) and FINRA Rule 9559 
(Hearing Procedures for Expedited Proceedings Under the Rule 9550 
Series). FINRA Rules 9557 and 9559 address service of notice to member 
firms that are experiencing financial or operational

[[Page 21084]]

difficulties and the related hearing procedures. FINRA made a number of 
conforming revisions to Rules 9557 and 9559 in light of several of the 
new financial responsibility rules. BX Rules 9557 and 9559 mirror the 
analogous rules of FINRA in substance, with only minor technical 
differences.\7\ As such, BX is proposing to make the same changes Rules 
9557 and 9559 as FINRA made to its Rules 9557 and 9559, with minor 
technical differences.
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    \7\ For example, FINRA Rule 9557(c)(5) references ``FINRA 
staff'' whereas proposed BX Rule 9557(c)(5) references instead 
``Exchange Regulation staff.''
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    Expedited Proceedings Rules:
    FINRA recently made certain changes to its Rule 9000 series 
concerning expedited proceedings. The expedited proceedings rules of 
FINRA, and in turn BX, address certain types of misconduct more quickly 
than would be possible under the ordinary disciplinary process, while 
also affording members numerous procedural protections. In its rule 
change, FINRA modified various time requirements regarding expedited 
proceedings, added an expedited proceeding for failure to pay 
restitution, and harmonized a remedy in an expedited procedure with a 
remedy in the FINRA By-Laws. With respect to modifying time 
requirements, FINRA amended Rule 9552 to shorten the period before a 
suspension automatically turns into an expulsion or bar from six to 
three months. In addition, FINRA amended Rule 9559 to shorten the 
timeframe within which a hearing must be held from 60 days after a 
hearing request to 30 days after the request. As a consequence of 
shortening the timeframe for hearings, FINRA also shortened the 
timeframes under Rule 9559(h) concerning the pre-hearing exchange of 
documents between the parties to the expedited proceeding. FINRA 
amended Rule 9554, which contains expedited procedures for failure to 
pay FINRA arbitration awards, to also permit FINRA to take expedited 
action for failure to comply with a FINRA order of restitution or a 
FINRA settlement providing for restitution. FINRA noted that it did not 
have explicit authority to take expedited action against firms or 
associated persons who fail to pay restitution to a third party 
(usually investors who have been harmed), and that its only recourse 
was to initiate an ordinary disciplinary action, which can take several 
months to conclude. In adding the new expedited procedure, FINRA stated 
it believed that firms and associated persons should not be permitted 
to continue doing business for prolonged periods when they have failed 
to pay restitution to third parties.
    FINRA also eliminated from Rule 9554 the remedy of barring an 
individual for failure to pay an arbitration award. FINRA noted that it 
had no such authority under its by-laws, and as such that it was 
harmonizing the remedy for this misconduct with the remedy provided in 
its by-laws. BX is proposing to incorporate all the changes made by 
FINRA to its expedited proceedings rules into the analogous BX Rules 
9552, 9554, and 9559.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\8\ in general, and with 
Sections 6(b)(5) of the Act,\9\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. The proposed 
changes will conform BX rules to recent changes made to corresponding 
FINRA rules, to promote application of consistent regulatory standards.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder in 
that it effects a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    In its guidance on the proposed rules of Self-Regulatory 
Organizations (``SROs''),\12\ the Commission concluded that filings 
based on the rules of another SRO already approved by the Commission 
are eligible for immediate effectiveness under Rule 19b-4(f)(6). The 
Commission noted that ``a proposed rule change appropriately may be 
filed as an immediately effective rule so long as it is based on and 
similar to another SRO's rule and each policy issue raised by the 
proposed rule (i) has been considered previously by the Commission when 
the Commission approved another exchange's rule (that was subject to 
notice and comment), and (ii) the rule change resolves such policy 
issue in a manner consistent with such prior approval.'' \13\ The 
Exchange notes that the changes are virtually identical to changes made 
by FINRA approved by the Commission. BX proposes to adopt every change 
adopted by FINRA, with only minor changes or omissions based on the 
nature of BX or its members.
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    \12\ Securities Exchange Act Release No. 58092 (July 3, 2008), 
73 FR 40144 (July 11, 2008).
    \13\ Id. at 40149.
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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, as amended, 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-BX-2010-028 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-BX-2010-028. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your

[[Page 21085]]

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 office of the Exchange. 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-BX-2010-028 
and should be submitted on or before May 13, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9284 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P