Document ID: SEC-2011-1683-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-11-02T04:00Z

[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Notices]
[Pages 67787-67790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-28348]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65645; File No. SR-FINRA-2011-059]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 3230 (Telemarketing) in the FINRA Consolidated Rulebook

October 27, 2011.
    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 October 13, 2011, 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 substantially 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 2212 (Telemarketing) as FINRA 
Rule 3230 (Telemarketing) in the consolidated FINRA rulebook, subject 
to certain amendments. The proposed rule change would delete 
Incorporated NYSE Rule 440A (Telephone Solicitation) and Incorporated 
NYSE Rule Interpretation 440A/01. Additionally, the proposed rule 
change would adopt provisions that are substantially similar to the 
telemarketing rules of the Federal Trade Commission (``FTC'').
    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 2212 (Telemarketing) as FINRA Rule 3230 (Telemarketing) with 
changes discussed below. The proposed rule change would delete 
Incorporated NYSE Rule 440A \4\ (Telephone Solicitation) and 
Incorporated NYSE Rule Interpretation 440A/01 as they are, in main 
part, duplicative of NASD Rule 2212. However, as further described 
below, the proposed rule change would incorporate certain provisions of 
NYSE Rule 440A and its Interpretation into new FINRA Rule 3230. 
Further, the proposed rule change adds provisions that are 
substantially similar to FTC rules that prohibit deceptive and other 
abusive telemarketing acts or practices as 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 Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ For convenience, the proposed rule change refers to 
Incorporated NYSE Rules as NYSE Rules.
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    NASD Rule 2212 and NYSE Rule 440A are similar rules that require 
members to maintain do-not-call lists, limit the hours of telephone 
solicitations, and prohibit members from using deceptive and abusive 
acts and practices in connection with telemarketing. The Commission 
directed FINRA and NYSE to enact these telemarketing rules in 
accordance with the Telemarketing Consumer Fraud and Abuse Prevention 
Act of 1994 (``Prevention Act'').\5\ The Prevention Act requires the 
Commission to promulgate or direct any national securities exchange or 
registered securities association to promulgate, rules substantially 
similar to the FTC rules to prohibit deceptive and other abusive 
telemarketing acts or practices.\6\
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    \5\ 15 U.S.C. 6101-6108.
    \6\ 15 U.S.C. 6102.
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    In 2003, the FTC and the Federal Communications Commission 
(``FCC'') established requirements for sellers and telemarketers to 
participate in the national do-not-call registry.\7\ Pursuant to the 
Prevention Act, the Commission requested that FINRA and NYSE amend 
their telemarketing rules to include a requirement that their members 
participate in the national do-not-call registry. In 2004, the 
Commission approved amendments to NASD Rule 2212 requiring member firms 
to participate in the national do-not-call registry.\8\ The following 
year, the Commission approved amendments to NYSE Rule 440A, which were 
similar to the NASD rule amendments, but included additional provisions 
regarding the use of caller identification information, pre-recorded 
messages, telephone facsimiles, and computer advertisements.\9\
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    \7\ See 68 FR 4580 (January 29, 2003); 68 FR 44144 (July 25, 
2003); CG Docket No. 02-278, FCC 03-153, (adopted June 26, 2003; 
released July 3, 2003).
    \8\ See Securities Exchange Act Release No. 49055 (January 12, 
2004), 69 FR 2801 (January 20, 2004) (approval order).
    \9\ See Securities Exchange Act Release No. 52579 (October 7, 
2005), 70 FR 60119 (October 14, 2005) (approval order).
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    As mentioned above, the Prevention Act requires the Commission to 
promulgate, or direct any national securities exchange or registered 
securities association to promulgate, rules substantially similar to 
the FTC rules to prohibit deceptive and other abusive telemarketing 
acts or practices.\10\ Earlier this year, Commission staff directed 
FINRA to conduct a review of its telemarketing rule and propose rule 
amendments that provide protections that are at least as strong as 
those provided by the FTC's

[[Page 67788]]

telemarketing rules.\11\ Commission staff had concerns ``that the SRO 
[self-regulatory organization] rules overall have not kept pace with 
the FTC's rules, and thus may no longer meet the standards of the 
Prevention Act.'' \12\
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    \10\ See supra note 6.
    \11\ See Letter from Robert W. Cook, Director, Division of 
Trading and Markets, SEC, to Richard G. Ketchum, Chairman and Chief 
Executive Officer, FINRA, dated May 10, 2011.
    \12\ Id.
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Proposed FINRA Rule 3230
    The proposed rule change would adopt NASD Rule 2212 into the 
Consolidated FINRA Rulebook as FINRA Rule 3230 (Telemarketing) in the 
consolidated FINRA rulebook, subject to certain amendments. The 
proposed rule change would incorporate certain unique aspects of NYSE 
Rule 440A and its Interpretation. Additionally, the proposed rule 
change would make amendments and adopt provisions that are 
substantially similar to rules promulgated by the FTC pursuant to the 
Prevention Act.
    First, the proposed rule change would adopt into new FINRA Rule 
3230 similar caller identification information provisions contained in 
NYSE Rule 440A(h). These provisions provide that members engaging in 
telemarketing must transmit caller identification information and are 
explicitly prohibited from blocking caller identification information. 
The telephone number provided must permit any person to make a do-not-
call request during normal business hours. Inclusion of these caller 
identification information provisions in the proposed rule will not 
create any new obligations on broker-dealers as they are already 
subject to identical provisions under FCC regulations.\13\
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    \13\ See 47 CFR 64.1601.
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    The proposed rule change would not incorporate the additional 
provisions in NYSE Rule 440A regarding pre-recorded messages and the 
use of telephone facsimile or computer advertisements.\14\ Similar 
provisions were never adopted by the FTC under the Prevention Act and 
thus are not required to be part of SEC or SRO rules. Moreover, these 
provisions in the NYSE rule are duplicative of similar FCC regulations 
that are applicable to broker-dealers.\15\
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    \14\ See NYSE Rule 440A(e), (g), (j)(3), (6), (8).
    \15\ See 47 CFR 64.1200.
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    Second, the proposed rule change would adopt a provision that is 
similar to NYSE Rule Interpretation 440A/01 as Supplementary Material. 
The provision reminds firms that the rule does not affect the 
obligation of any member or person associated with a member that 
engages in telemarketing to comply with relevant state and federal laws 
and rules, including the rules of the FCC relating to telemarketing 
practices and the rights of telephone consumers. The proposed rule 
change would not incorporate the remainder of NYSE Rule Interpretation 
440A/01 because the requirement for a member to make and maintain a 
list of persons who do not want to receive telephone solicitations is 
duplicative of an existing provision in the NASD rule.\16\
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    \16\ See NASD Rule 2212(d)(6).
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    Third, the proposed rule change, as directed by the Commission 
staff, would make amendments and adopt provisions that are 
substantially similar to FTC rules that prohibit deceptive and other 
abusive telemarketing acts or practices as described below.
Maintenance of Do-Not-Call Lists
    Proposed FINRA Rule 3230(d)(6) would maintain the requirement in 
NASD Rule 2212(d)(6) that a member making an outbound telephone call 
must maintain a record of a caller's request not to receive further 
calls. However, the proposed rule change would delete the requirement 
that a member honor a firm-specific do-not-call request for five years 
from the time the request is made. Commission staff directed FINRA to 
delete this provision because the time for which the firm-specific opt-
out must be honored under the FTC's Telemarketing Sales Rule \17\ is 
indefinite, rather than five years as currently provided in the 
rule.\18\
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    \17\ See 16 CFR 310.
    \18\ See supra note 11.
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Wireless Communications
    NASD Rule 2212(e) states that the provisions set forth in the rule 
are applicable to members telemarketing or making telephone 
solicitations calls to wireless telephone numbers. Proposed FINRA Rule 
3230(e) would clarify that the application of the rule also applies to 
persons associated with a member making outbound telephone calls to 
wireless telephone numbers.
Outsourcing Telemarketing
    NASD Rule 2212(f) states that if a member uses another entity to 
perform telemarketing services on its behalf, the member remains 
responsible for ensuring compliance with all provisions contained in 
the rule. Proposed FINRA Rule 3230(f) would clarify that members must 
consider whether the entity or person that a member uses for 
outsourcing, must be appropriately registered or licensed, where 
required.
Unencrypted Consumer Account Numbers
    Proposed FINRA Rule 3230(h) would prohibit a member or person 
associated with a member from disclosing or receiving, for 
consideration, unencrypted consumer account numbers for use in 
telemarketing. The proposed rule change is substantially similar to the 
FTC's provision regarding unencrypted consumer account numbers.\19\ The 
FTC provided a discussion of the provision when it was adopted pursuant 
to the Prevention Act.\20\ Additionally, the proposed rule change would 
define ``unencrypted'' as not only complete, visible account numbers, 
whether provided in lists or singly, but also encrypted information 
with a key to its decryption. The proposed definition is substantially 
similar to the view taken by the FTC.\21\
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    \19\ See 16 CFR 310.4(a)(6).
    \20\ See FTC, Telemarketing Sales Rule, 68 FR 4580 (January 29, 
2003) at 4615.
    \21\ See id. at 4616.
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Submission of Billing Information
    Proposed FINRA Rule 3230(i) would require, for any telemarketing 
transaction, a member or person associated with a member to obtain the 
express informed consent of the person to be charged, and to be charged 
using the identified account. If the telemarketing transaction involves 
preacquired account information and a free-to-pay conversion feature, 
the member or person associated with a member would have to: (1) Obtain 
from the customer, at a minimum, the last four digits of the account 
number to be charged; (2) obtain from the customer an express agreement 
to be charged and to be charged using the identified account number; 
and (3) make and maintain an audio recording of the entire 
telemarketing transaction. For any other telemarketing transaction 
involving preacquired account information, the member or person 
associated with a member would have to: (1) Identify the account to be 
charged with sufficient specificity for the customer to understand what 
account will be charged; and (2) obtain from the customer an express 
agreement to be charged and to be charged using the identified account 
number. The proposed rule change is substantially similar to the FTC's 
provision regarding the submission of billing information.\22\ The FTC 
provided a discussion of the provision when it was adopted pursuant to 
the Prevention Act.\23\
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    \22\ See 16 CFR 310.4(a)(7).
    \23\ See FTC, supra note 20, at 4615.

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[[Page 67789]]

Abandoned Calls
    Proposed FINRA Rule 3230(j) would prohibit a member or person 
associated with a member from abandoning any outbound telemarketing 
call. The abandoned calls prohibition would be subject to a ``safe 
harbor'' under proposed subparagraph (j)(2) that requires: (1) The 
member or person associated with a member to employ technology that 
ensures abandonment of no more than three percent of all calls answered 
by a person, measured over the duration of a single calling campaign, 
if less than 30 days, or separately over each successive 30-day period 
or portion thereof that the campaign continues; (2) the member or 
person associated with a member, for each telemarketing call placed, 
allows the telephone to ring for at least 15 seconds or four rings 
before disconnecting an unanswered call; (3) whenever a person 
associated with a member is not available to speak with the person 
answering the telemarketing call within two seconds after the person's 
completed greeting, the member or person associated with a member 
promptly plays a recorded message stating the name and telephone number 
of the member or person associated with a member on whose behalf the 
call was placed; and (4) the member to maintain records documenting 
compliance with the ``safe harbor.'' The proposed rule change is 
substantially similar to the FTC's provisions regarding abandoned 
calls.\24\ The FTC provided a discussion of the provisions when they 
were adopted pursuant to the Prevention Act.\25\
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    \24\ See 16 CFR 310.4(b)(1)(iv); see also 16 CFR 310.4(b)(4).
    \25\ See FTC, supra note 20, at 4641.
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Prerecorded Messages
    Proposed FINRA Rule 3230(k) would prohibit a member or person 
associated with a member from initiating any outbound telemarketing 
call that delivers a prerecorded message without a person's express 
written agreement to receive such calls. The proposed rule change also 
would require that all prerecorded telemarketing calls provide 
specified opt-out mechanisms so that a person can opt out of future 
calls. The prohibition would not apply to a prerecorded message 
permitted for compliance with the ``safe harbor'' for abandoned calls 
under proposed subparagraph (j)(2). The proposed rule change is 
substantially similar to the FTC's provisions regarding prerecorded 
messages.\26\ The FTC provided a discussion of the provisions when they 
were adopted pursuant to the Prevention Act.\27\
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    \26\ See 16 CFR 310.4(b)(1)(v).
    \27\ See Federal Trade Commission, Telemarketing Sales Rule, 73 
FR 51164 (August 29, 2008).
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Credit Card Laundering
    Proposed FINRA Rule 3230(l) would prohibit credit card laundering, 
the practice of depositing into the credit card system a sales draft 
that is not the result of a credit card transaction between the 
cardholder and the member. Except as expressly permitted, the proposed 
rule change would prohibit a member or person associated with a member 
from: (1) Presenting to or depositing into, the credit card system for 
payment, a credit card sales draft generated by a telemarketing 
transaction that is not the result of a telemarketing credit card 
transaction between the cardholder and the member; (2) employing, 
soliciting, or otherwise causing a merchant, or an employee, 
representative or agent of the merchant, to present to or to deposit 
into the credit card system for payment, a credit card sales draft 
generated by a telemarketing transaction that is not the result of a 
telemarketing credit card transaction between the cardholder and the 
merchant; or (3) obtaining access to the credit card system through the 
use of a business relationship or an affiliation with a merchant, when 
such access is not authorized by the merchant agreement or the 
applicable credit card system. The proposed rule change is 
substantially similar to the FTC's provisions regarding credit card 
laundering.\28\ The FTC provided a discussion of the provisions when 
they were adopted pursuant to the Prevention Act.\29\
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    \28\ See 16 CFR 310.2.
    \29\ See Federal Trade Commission, Telemarketing Sales Rule, 60 
FR 43842 (August 23, 1995) at 43852.
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Definitions
    Proposed FINRA Rule 3230(m) would adopt definitions that are 
substantially similar to the FTC's definitions.\30\ The proposed rule 
change would adopt substantially similar definitions of ``acquirer,'' 
\31\ ``billing information,'' \32\ ``caller identification service,'' 
\33\ ``cardholder,'' \34\ ``charitable contribution,'' \35\ ``credit,'' 
\36\ ``credit card,'' \37\ ``credit card sales draft,'' \38\ ``credit 
card system,'' \39\ ``customer,'' \40\ ``donor,'' \41\ ``free-to-pay 
conversion,'' \42\ ``merchant,'' \43\ ``merchant agreement,'' \44\ 
``outbound telephone call,'' \45\ ``person'' \46\ and ``preacquired 
account information.'' \47\ Additionally, the proposed rule change 
amends the definition of ``telemarketing'' to track the FTC definition 
and deletes the reference to ``telephone solicitation.'' The FTC 
provided a discussion of each definition when they were adopted 
pursuant to the Prevention Act.\48\
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    \30\ See 16 CFR 310.2.
    \31\ See 16 CFR 310.2(a).
    \32\ See 16 CFR 310.2(c).
    \33\ See 16 CFR 310.2(d).
    \34\ See 16 CFR 310.2(e).
    \35\ See 16 CFR 310.2(f).
    \36\ See 16 CFR 310.2(h).
    \37\ See 16 CFR 310.2(i).
    \38\ See 16 CFR 310.2(j).
    \39\ See 16 CFR 310.2(k).
    \40\ See 16 CFR 310.2(l).
    \41\ See 16 CFR 310.2(n).
    \42\ See 16 CFR 310.2(p).
    \43\ See 16 CFR 310.2(s).
    \44\ See 16 CFR 310.2(t).
    \45\ See 16 CFR 310.2(v).
    \46\ See 16 CFR 310.2(w).
    \47\ See 16 CFR 310.2(x).
    \48\ See FTC, supra note 29, at 43843; see also FTC, supra note 
20, at 4587.
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Technical and Conforming Changes
    The proposed rule change also would make a number of minor 
technical and conforming changes. First, proposed FINRA Rule 3230(m) 
would renumber and make minor technical changes to the terms ``account 
activity,'' ``broker-dealer of record'' and ``established business 
relationship.'' Second, proposed FINRA Rule 3230 would amend paragraphs 
(a), (b) and (c) by replacing the term ``telephone solicitation'' with 
the term ``outbound telephone call.'' Third, proposed FINRA Rule 
3230(d) would replace the term ``telemarketing call'' with the term 
``outbound telephone call.'' Fourth, the proposed rule change would 
update a reference to an ``established business relationship'' in 
subparagraph (a)(1)(A). Finally, the proposed rule change would amend 
paragraph (b) to clarify that a signed, written agreement may be 
obtained electronically under the E-Sign Act.
    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. The implementation date will be no later 
than 180 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,\49\ 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

[[Page 67790]]

general, to protect investors and the public interest. FINRA believes 
that the proposed rule change will protect investors and the public 
interest by continuing to prohibit deceptive and other abusive 
telemarketing acts or practices.
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    \49\ 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 45 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 or disapprove 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-059 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-2011-059. This 
file number should be included on the subject line if email 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 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-2011-059 and should be 
submitted on or before November 23, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\50\
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    \50\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-28348 Filed 11-1-11; 8:45 am]
BILLING CODE 8011-01-P