Document ID: SEC-2008-1373-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-10-08T04:00Z

[Federal Register: October 8, 2008 (Volume 73, Number 196)]
[Notices]               
[Page 59001-59002]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08oc08-106]                         

[[Page 59001]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58707; File No. SR-FINRA-2008-043]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of Proposed Rule Change To 
Establish a Membership Waive-in Process and Fee Waiver for Certain NYSE 
Alternext U.S. LLC Member Organizations

October 1, 2008.

I. Introduction

    On July 30, 2008, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish a membership waive-in process and fee 
waiver for certain NYSE Alternext members. The proposed rule change was 
published for comment in the Federal Register on August 11, 2008.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 58291 (August 1, 
2008), 73 FR 46661 (August 11, 2008) (SR-FINRA-2008-043).
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II. Description of the Proposal

    As discussed in a separate proposed rule change,\4\ on January 17, 
2008, the Amex Membership Corporation and NYSE Euronext entered into an 
Agreement and Plan of Merger whereby, through a series of mergers 
(``Mergers''), NYSE Euronext will acquire the American Stock Exchange 
LLC (``Amex''). As a result of these Mergers, Amex will become a 
wholly-owned subsidiary of NYSE Group and renamed NYSE Alternext U.S. 
LLC (``NYSE Alternext'').
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    \4\ See Securities Exchange Act Release No. 58284 (August 1, 
2008), 73 FR 46086 (August 7, 2008) (SR-Amex-2008-62).
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    As described in a separate filing,\5\ the New York Stock Exchange 
LLC (``NYSE'') intends to (1) require mandatory FINRA and NYSE 
membership for NYSE Alternext member organizations (other than those 
that exclusively trade options); (2) adopt a series of member conduct 
rules for NYSE Alternext member organizations that are substantively 
identical to the Incorporated NYSE Rules that are the subject of an 
agreement among FINRA, NYSE, and NYSE Regulation, Inc., pursuant to 
Rule 17d-2 under the Act (``17d-2 Agreement''); and (3) amend the 17d-2 
Agreement to include NYSE Alternext as a party to that agreement so 
that FINRA will assume regulatory responsibility consistent with the 
terms of that agreement for the NYSE Alternext Equities rules that are 
substantively identical to the Incorporated NYSE Rules.
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    \5\ See Securities Exchange Act Release No. 58290 (August 1, 
2008), 73 FR 46676 (August 11, 2008) (SR-NYSE-2008-70).
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    In furtherance of these efforts, FINRA proposes a membership waive-
in process for certain NYSE Alternext member organizations, similar to 
the process for NYSE member organizations.\6\ Proposed IM-1013-2 would 
apply to any NYSE Alternext member organization that holds a valid 86 
Trinity Permit \7\ as of the date such firm transfers its equities 
operations to the NYSE Alternext trading systems at 11 Wall Street \8\ 
and that is not currently a FINRA member.
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    \6\ FINRA previously established a waive-in process to expedite 
the approval of membership applications of NYSE-only member 
organizations that were required to become FINRA members. That 
process is set forth in IM-1013-1 (Membership Waive-In Process for 
Certain New York Stock Exchange Member Organizations). See 
Securities Exchange Act Release No. 56653 (October 12, 2007), 72 FR 
59127 (October 18, 2007) (SR-NASD-2007-056).
    \7\ An ``86 Trinity Permit'' will authorize any owner, lessee, 
or nominee of an Amex Regular Member or Options Principal Member 
(``OPM''); Amex limited trading permit holder; or Amex associate 
members who was authorized to trade on the Amex immediately before 
the Mergers to continue to trade at NYSE Alternext's systems and 
facilities at 86 Trinity Place, New York, New York (``86 Trinity 
Trading Systems'').
    \8\ In connection with the Mergers, NYSE Euronext intends to 
relocate all equities trading previously conducted on the 86 Trinity 
Trading Systems to 11 Wall Street, New York, New York. See 
Securities Exchange Act Release No. 58265 (July 30, 2008), 73 FR 
46075 (August 7, 2008) (SR-Amex-2008-63).
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    FINRA recognizes that the Amex and NYSE have comprehensive 
membership applications and review processes based on similar 
principles and standards to that of FINRA. As such, those NYSE 
Alternext member organizations that will become FINRA members already 
have been subjected to an extensive screening process. The waive-in 
process would make each such firm eligible to automatically become a 
FINRA member and to automatically register all associated persons whose 
registrations are approved with NYSE Alternext in registration 
categories recognized by FINRA upon submission to FINRA's Member 
Regulation Department (``Department'') of a signed waive-in membership 
application (``Waive-In Application'').\9\
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    \9\ NYSE is proposing a 60-day grace period for such NYSE 
Alternext member organizations to apply for and be approved for 
FINRA membership. See Securities Exchange Act Release No. 58290, 
supra note 5. In coordination with this proposal and with respect to 
the requirement in Incorporated NYSE Rule 2, FINRA would permit a 
60-day grace period within which these member organizations must 
apply for and be approved for FINRA membership. Such grace period 
would run from the date that the NYSE Alternext member organization 
transfers its equities operations to NYSE Alternext Trading Systems.
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    Associated persons of the NYSE Alternext member organizations will 
be automatically registered with FINRA only for those registration 
categories that are recognized jointly by FINRA and NYSE Alternext--
e.g. , a General Securities Representative (Series 7); provided, 
however, that the firm must, upon approval of FINRA membership, submit 
an amended Form U4 for each such associated person, denoting the 
corresponding FINRA registration category(ies) for such person. A list 
of those registration categories is included as part of the Waive-In 
Application. For those associated persons registered in a category 
recognized only by NYSE Alternext, FINRA will acknowledge such 
registrations to permit such persons to continue to function in the 
capacity for which they are registered.
    The Waive-In Application would require the following information:
    (1) General company information, including Central Registration 
Depository (``CRD'') Number and contact person;
    (2) An attestation that all information on the applicant's CRD 
form, as of the date of submission of the Waive-In Application, is 
accurate and complete and fully reflects all aspects of the applicant's 
current business, including, but not limited to, ownership structure, 
management, product lines, and disclosures;
    (3) The identity of the firm's Executive Representative;
    (4) Completed and signed Entitlement Forms (unless previously 
submitted);
    (5) A signed FINRA Membership Agreement; and
    (6) Representations that the applicant's Uniform Application for 
Broker-Dealer Registration will be amended as needed to keep current 
and accurate; that all individual and entity registrations with FINRA 
will be kept current; and that all information and statements contained 
in the Waive-In Application are current, true, and complete.
    The Waive-In Application must be reviewed within three business 
days of receipt and, if complete, the Department

[[Page 59002]]

would issue a letter notifying the applicant that it has been approved 
for membership. The Membership Agreement would become effective on the 
date of such notification letter.
    Any NYSE Alternext member organization admitted pursuant to 
proposed IM-1013-2, being a member organization of both NYSE and NYSE 
Alternext, would be subject to the consolidated FINRA rules,\10\ the 
NYSE rules incorporated by FINRA,\11\ the FINRA By-Laws and Schedules 
to By-Laws, including Schedule A (Assessments and Fees), and NASD Rules 
8000 (Investigations and Sanctions) and 9000 (Code of Procedure) 
series, provided that its NYSE or NYSE Alternext securities business is 
limited to floor-based activities in either NYSE-traded or NYSE 
Alternext-traded securities, or routing away to other markets orders 
that are ancillary to its core NYSE or NYSE Alternext floor business 
under NYSE Rule 70.40 or NYSE Alternext Equities Rule 70.40 
(``permitted floor activities'').\12\
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    \10\ FINRA is proposing that firms admitted to FINRA membership 
under IM-1013-1 be subject to the consolidated FINRA rules. See 
Securities Exchange Act Release No. 58206 (July 22, 2008), 73 FR 
43808 (July 28, 2008).
    \11\ FINRA proposes to grant NYSE Alternext waive-in member 
organizations a six-month period to comply with Incorporated NYSE 
Rules 311-313.
    \12\ For purposes of this order, activities that are ancillary 
to a Floor broker's core business include (i) routing orders in 
NYSE-traded or NYSE Alternext-traded securities to an away market 
for any reason relating to their ongoing Floor activity, including 
regulatory compliance or meeting best-execution obligations; or (ii) 
provided that the majority of transactions effected by the firm are 
effected on NYSE, sending to other markets orders in NYSE-traded, 
NYSE Alternext-traded, or non-NYSE-traded securities and/or futures 
if such orders relate to hedging positions in NYSE-traded or NYSE 
Alternext-traded securities, or are part of arbitrage or program 
trade strategies that include NYSE-traded or NYSE Alternext-traded 
securities.
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    If an NYSE Alternext member organization admitted pursuant to 
proposed IM-1013-2 seeks to expand its business operations to include 
any activities other than the permitted floor activities or makes 
changes to its securities business that would otherwise require FINRA 
membership, such firm must apply for and receive approval to engage in 
such business activity pursuant to NASD Rule 1017. Upon approval of 
such business expansion, the firm would become subject to all NASD 
Rules, in addition to the consolidated FINRA rules and those NYSE rules 
incorporated by FINRA.
    Associated persons of an NYSE Alternext member organization 
admitted to FINRA pursuant to proposed IM-1013-2 would be subject to 
the same set of rules as the firm with which they are associated. 
Inasmuch as these associated persons would not be subject to NASD Rules 
1021 or 1031, they would not be required to register in a registration 
category recognized by FINRA. To the extent that such persons continue 
to be associated solely with a firm whose business complies with the 
limitations imposed on those firms admitted to FINRA pursuant to 
proposed IM-1013-2, FINRA is not imposing any registration requirements 
beyond those required by the NYSE or NYSE Alternext, provided their 
business is confined in scope as contemplated in proposed IM-1013-
2.\13\
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    \13\ The licensing and other requirements applicable to the NYSE 
Alternext member organizations and their associated persons are 
subject to change as part of the process of establishing the 
Consolidated FINRA Rulebook.
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    Finally, FINRA proposes to amend Interpretive Material Section 
4(b)(1) and 4(e) of Schedule A of the FINRA By-Laws to exempt NYSE 
Alternext applicants from the assessment of a FINRA membership 
application fee and from fees for each initial Form U4 filed by the 
applicant with FINRA for the registration of a representative or 
principal associated with the firm at the time it submits its 
application for FINRA membership pursuant to proposed IM-1013-2.

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association.\14\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(2) of the Act,\15\ which 
requires a national securities association to be so organized and have 
the capacity to carry out the purposes of the Act and to enforce 
compliance by its members and persons associated with its members with 
the provisions of the Act. Further, the Commission finds that the 
proposed rule change is consistent with Section 15A(b)(6) of the 
Act,\16\ in that it is designed, among other things, to prevent 
fraudulent and manipulative acts and practices; to promote just and 
equitable principles of trade; 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.
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78o-3(b)(2).
    \16\ 15 U.S.C. 78o-3(b)(6).
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    The Commission has previously approved a similar waive-in process 
for NYSE members required to become FINRA members.\17\ This proposal 
affords eligible NYSE Alternext members and member organizations with a 
similar expedited process to become FINRA members, provided that they 
engage in permitted floor activities only. The proposal appears 
reasonably designed to facilitate the consolidation of member firm 
regulatory functions of FINRA, NYSE, and NYSE Alternext, thereby 
encouraging more efficient regulation of members and their associated 
persons.
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    \17\ See Securities Exchange Act Release No. 56653, supra note 
6.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-FINRA-2008-043) be, and 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-23839 Filed 10-7-08; 8:45 am]

BILLING CODE 8011-01-P