Document ID: SEC-2007-1073-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-08-07T04:00Z

[Federal Register: August 7, 2007 (Volume 72, Number 151)]
[Notices]               
[Page 44201-44203]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au07-102]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56175; File No. SR-NASD-2007-055]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Notice of Filing of Proposed Rule Change Relating to Interpretative 
Material 9216, Violations Appropriate for Disposition Under Plan 
Pursuant to SEC Rule 19d-1(c)(2)

July 31, 2007.
    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 July 24, 2007, the 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 
NASD.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD's Certificate of Incorporation to 
reflect its name change to the Financial Industry Regulatory 
Authority, Inc., or FINRA, in connection with the consolidation of 
the member firm regulatory functions of NASD and NYSE Regulation, 
Inc. See Securities Exchange Act Release No. 56146 (July 26, 2007).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend Interpretative Material 9216 (Violations 
Appropriate for Disposition Under Plan Pursuant to SEC Rule 19d-
1(c)(2)) (``IM-9216'') to expand the list of violations eligible for 
disposition under NASD's Minor Rule Violation Plan (``MRVP''). The 
proposed rule change also would delete from IM-9216 references to NASD 
rules that have been rescinded. The text of the proposed rule change is 
available at NASD, the Commission's Public Reference Room, and http://www.finra.org
.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    On November 28, 2006, NASD and the NYSE Group, Inc. (``NYSE 
Group'') announced a plan to consolidate their member regulation 
operations into a combined organization (the ``Transaction'') that will 
be the sole U.S. private-sector provider of member firm regulation for 
securities firms that do business with the public.\4\ This 
consolidation will streamline the broker-dealer regulatory system, 
combine technologies, permit the establishment of a single set of rules 
and group examiners with complementary

[[Page 44202]]

areas of expertise in a single organization--all of which will serve to 
enhance oversight of U.S. securities firms and help ensure investor 
protection.
---------------------------------------------------------------------------

    \4\ On July 26, 2007, the Commission approved amendments to 
NASD's By-Laws to implement governance and related changes to 
accommodate the consolidation of the member firm regulatory 
functions of NASD and NYSE Regulation, Inc. See Securities Exchange 
Act Release No. 56145 (July 26, 2007).
---------------------------------------------------------------------------

    The combined organization, FINRA,\5\ will work expeditiously to 
consolidate the rules that apply to its member firms, reducing to one 
the two sets of rules currently applicable to members of both the NASD 
and NYSE (``Dual Members''). During an interim period, however, until 
the adoption of a consolidated rulebook, NASD has proposed to 
incorporate into FINRA's rulebook certain NYSE Rules that pertain to 
the regulation of member firm conduct (the ``Incorporated NYSE 
Rules'').\6\ The Incorporated NYSE Rules will apply solely to Dual 
Members until such time as FINRA adopts, subject to Commission 
approval, consolidated rules applicable to all of its members.
---------------------------------------------------------------------------

    \5\ See supra note 3. The Commission notes that the Transaction 
closed on July 30, 2007.
    See telephone conference between Nancy Burke-Sanow, Assistant 
Director, Commission, and Patrice Gliniecki, Senior Vice President 
and Deputy General Counsel, FINRA, on July 31, 2007.
    \6\ See Securities Exchange Act Release No. 56147 (July 26, 
2007) (SR-NASD-2007-054, Exhibit 5) (incorporating certain NYSE 
Rules relating to member firm conduct into FINRA's rulebook).
---------------------------------------------------------------------------

    As discussed in SR-NASD-2007-054, NASD is not proposing to 
incorporate, among other rules, the NYSE Disciplinary Rules or related 
interpretations, including NYSE's MRVP as set forth in NYSE Rule 476A 
(Imposition of Fines for Minor Violation(s) of Rules).\7\ However, the 
instant proposed rule change would amend NASD's MRVP to include those 
Incorporated NYSE Rules currently enumerated in NYSE's MRVP. This would 
permit FINRA, during the interim period until the adoption of a 
consolidated rulebook, to impose a fine for minor rule violations by a 
Dual Member of the Incorporated NYSE Rules in lieu of commencing 
disciplinary proceedings.
---------------------------------------------------------------------------

    \7\ NASD is not proposing to incorporate NYSE's MRVP (NYSE Rule 
476A), because NYSE Rule 476A contains procedures that would 
conflict with the finding of a minor rule violation by FINRA. For 
example, NYSE Rule 476A permits a person against whom a fine is 
imposed to contest the NYSE's fine determination by, among other 
things, appealing to the NYSE board of directors.
---------------------------------------------------------------------------

    The proposed amendments to IM-9216 also would specify the 
applicability of the rules listed therein to various members of FINRA. 
Specifically, any Dual Member (including any persons affiliated with 
such member) may be subject to a fine under Rule 9216(b) with respect 
to any rule listed in IM-9216 that applies to such member or person; 
provided, however, that any Dual Member that was not also a member of 
NASD as of the date of closing of the Transaction and that does not 
engage in any activities that would have required it to be an NASD 
member (and its affiliated persons that are not otherwise subject to 
NASD rules) would only be subject to a fine under Rule 9216(b) with 
respect to the following rules listed in IM-9216: Any NYSE rule, SEC 
Exchange Act rule, NASD By-Law or Schedule to By-Laws, or the NASD Rule 
8000 Series. In addition, any member of FINRA that is not also a member 
of the NYSE (and its associated persons that are not otherwise subject 
to NYSE rules) may be subject to a fine under Rule 9216(b) with respect 
to any rule listed in IM-9216, with the exception of the NYSE rules.
    NASD is not proposing to adopt the provision in NYSE's MRVP that 
establishes a $5,000 maximum fine that may be imposed under NYSE's MRVP 
for minor violations of NYSE rules. Rather, FINRA would continue to 
apply the $2,500 maximum fine level under NASD's MRVP in determining 
fine levels for minor violations of either an NASD or NYSE rule 
included in NASD's MRVP. Among other things, such an approach helps to 
ensure greater consistency in the administration of the disciplinary 
process for FINRA and its members, as well as in the related reporting 
obligations for minor violations of rules.\8\
---------------------------------------------------------------------------

    \8\ Rule 19d-1(c)(2) under the Act provides that any 
disciplinary action taken by a self-regulatory organization 
(``SRO'') against any person of a rule of the SRO that has been 
designated as a minor rule violation pursuant to a plan is not 
considered ``final'' for purposes of Rule 19d-1(c)(1) if the 
sanction imposed consists of a fine not exceeding $2,500 and the 
sanctioned person has not sought an adjudication, including a 
hearing, or otherwise exhausted his administrative remedies at the 
SRO with respect to the matter. SROs are permitted to report such 
minor rule violations (where the fine does not exceed $2,500) to the 
SEC on a periodic, rather than immediate, basis. In addition, 
members are not required to report ``minor rule violations'' on the 
Forms BD, U4 or U5 (as such term is defined on the forms). These 
forms provide that a rule violation may be designated as ``minor'' 
under a plan approved by the SEC if, among other things, the 
sanction imposed consists of a fine of $2,500 or less. See also 
Securities Exchange Act Release No. 40193 (July 10, 1998), 63 FR 
39338 (July 22, 1998) (Order Granting Approval to Proposed Rule 
Change Relating to Fines for Disruptive Action on the Options Floor) 
(SR-PCX-98-21) (stating in the context of amendments to the Pacific 
Exchange's (now NYSE Arca) MRVP that, as noted in PCX's MRVP, 
pursuant to Securities Exchange Act Release No. 30958, any person or 
organization found in violation of a minor rule under the MRVP is 
not required to report such violation on Form BD, provided that, 
among other things, the sanction imposed consists of a fine not 
exceeding $2,500).
---------------------------------------------------------------------------

    Finally, the proposed rule change would delete from IM-9216 
references to NASD rules that have been rescinded. On June 30, 2006, 
the Commission approved SR-NASD-2005-087, which, among other things, 
deleted NASD Rules 4619, 4642, 4652, 5430, 6720, and 8212 from the NASD 
Manual.\9\ On September 28, 2006, the Commission approved SR-NASD-2006-
091, which, among other things, deleted NASD Rule 6420.\10\
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 54084 (June 30, 2006), 
71 FR 38935 (July 10, 2006) (Order Approving SR-NASD-2005-087).
    \10\ Securities Exchange Act Release No. 54537 (September 28, 
2006), 71 FR 59173 (October 6, 2006) (Order Approving SR-NASD-2006-
091).
---------------------------------------------------------------------------

    The proposed rule change will become effective upon the later of 
the closing of the Transaction or the Commission's approval of the 
proposed rule change.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of section 15A of the Act,\11\ including section 15A(b)(2) 
of the Act,\12\ in that it will permit FINRA to carry out the purposes 
of the Act, to comply with the Act and to enforce compliance by FINRA 
members and persons associated with members with the Act, the rules and 
regulations thereunder and FINRA rules. The proposed rule change also 
is consistent with section 15A(b)(7) of the Act,\13\ in that it will 
provide that FINRA members and their associated persons are 
appropriately disciplined for violations of FINRA rules. The proposed 
rule change also is consistent with section 15A(b)(8) of the Act \14\ 
in that it furthers the statutory goals of providing a fair procedure 
for disciplining members and their associated persons. The addition of 
these violations to NASD's MRVP will provide FINRA staff with the 
ability to impose minor rule violations for the Incorporated NYSE Rules 
that are currently enumerated in NYSE's MRVP.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(2).
    \13\ 15 U.S.C. 78o-3(b)(7).
    \14\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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.

[[Page 44203]]

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 NASD 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-NASD-2007-055 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2007-055. 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-NASD-2007-055 and should be 
submitted on or before August 28, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
[FR Doc. E7-15290 Filed 8-6-07; 8:45 am]

BILLING CODE 8010-01-P