Document ID: SEC-2009-0054-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-01-13T05:00Z

[Federal Register: January 13, 2009 (Volume 74, Number 8)]
[Notices]               
[Page 1738-1740]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13ja09-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59208; File No. SR-FINRA-2008-045]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto, To Amend the FINRA Rule 9520 Series Regarding 
Eligibility Procedures for Persons Subject to Certain Disqualifications

January 6, 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 September 8, 2008, 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'') and amended on December 11, 2008,\3\ 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, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 to SR-FINRA-2008-045 replaced and superseded 
the original rule filing submitted to the Commission on September 8, 
2008.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend the FINRA Rule 9520 Series, which 
governs the eligibility procedures for persons subject to certain 
disqualifications, to comport with the amended definition of 
disqualification in the FINRA By-Laws.
    This Amendment No. 1 to SR-FINRA-2008-045 makes technical changes 
to the original filing filed on September 8, 2008. The text of the 
proposed rule change is attached as Exhibit 5 to this filing.\4\ 
Amendment No. 1 replaces and supersedes the proposed rule change filed 
on September 8, 2008, in its entirety, except with regard to Exhibit 2, 
a proposed Regulatory Notice that details the proposed related 
eligibility procedures.\5\
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    \4\ The text of the proposed rule change to the FINRA Rule 9520 
Series as set forth in Exhibit 5 reflects amendments adopted 
pursuant to proposed rule change SR-FINRA-2008-021, which was 
approved by the Commission. See Securities Exchange Act Release No. 
58643 (September 25, 2008), 73 FR 57174 (October 1, 2008) (SR-FINRA-
2008-021) (approval order). The FINRA Rule 9520 Series, as set forth 
in SR-FINRA-2008-021, became effective on December 15, 2008. See 
FINRA Regulatory Notice 08-57 (SEC Approves New Consolidated FINRA 
Rules) (October 2008).
    \5\ FINRA would issue the proposed Regulatory Notice upon the 
Commission's approval of the proposed rule change; the Regulatory 
Notice is written in a manner that assumes such approval.
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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
    In light of FINRA's obligation to enforce the federal securities 
laws, and as part of the consolidation of the member firm regulatory 
functions of NASD and NYSE Regulation, Inc., and the formation of 
FINRA, FINRA adopted by Board and membership vote a revised By-Law 
definition of disqualification that is consistent with the federal 
securities laws, such that any person subject to a statutory 
disqualification under Section 3(a)(39) of the Act also is subject to 
disqualification under Article III, Section 4 of the FINRA By-Laws.\6\ 
Consequently, as further detailed in the proposed Regulatory Notice 
(see Exhibit 2), FINRA's revised definition of disqualification 
incorporates three additional categories of statutory disqualification, 
including willful violations of the federal securities or commodities 
laws, grounds for statutory disqualification that were enacted in the 
Sarbanes-Oxley Act, and associations with certain other persons subject 
to disqualification.
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    \6\ See Securities Exchange Act Release No. 55495 (March 20, 
2007), 72 FR 14149 (March 26, 2007) (SR-NASD-2007-023) (notice). See 
also Securities Exchange Act Release No. 56145 (July 26, 2007), 72 
FR 42169 (August 1, 2007) (SR-NASD-2007-023) (approval order), as 
amended by Securities Exchange Act Release No. 56145A (May 30, 
2008), 73 FR 32377 (June 6, 2008). See also NASD, SEC No-Action 
Letter, 2007 SEC No-Act. LEXIS 540 (July 27, 2007).
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    Absent the proposed rule change, all persons subject to any of the 
added categories of disqualification would be required to obtain 
approval from FINRA to enter or remain in the securities industry. The 
proposed rule change would both amend the text of the FINRA Rule 9520 
Series generally to reflect the amended definition of disqualification 
in the By-Laws, as well as include the proposed Regulatory Notice that 
outlines in detail the applicable eligibility procedures. The amended 
FINRA Rule 9520 Series would incorporate by reference the procedures 
set forth in the Regulatory Notice. As further detailed in the 
Regulatory Notice, the need for a member to file an application with 
FINRA for approval notwithstanding the disqualification would depend on 
(1) The type of the disqualification; (2) the date of the 
disqualification; and (3) whether the firm or individual is seeking 
admission, readmission or continuation in the securities industry.
    The proposed rule change would amend FINRA Rule 9522 to address the 
initiation of eligibility proceedings and the authority of FINRA's 
Department of Member Regulation (``Member Regulation'') to approve 
applications relating to a disqualification, where the disqualification 
arises from findings or orders specified in Section 15(b)(4)(D), (E) or 
(H) of the Act or arises under Section 3(a)(39)(E) of the Act (i.e., 
the added categories of disqualification). Currently, FINRA Rule 
9522(a)(1) provides, among other things, that if FINRA staff has reason 
to believe that a disqualification exists, FINRA staff will issue a 
written notice to the member or applicant for membership under NASD 
Rule 1013, specifying the grounds for such disqualification. The 
proposed amendments to FINRA Rule 9522(a)(1) provide that FINRA staff 
would issue such written notice with respect to the added categories of 
disqualification only when the member or applicant is required to file 
an application pursuant to the Regulatory Notice. Similarly, the 
proposed rule change would amend FINRA Rule 9522(b) to require a member 
to file an application with FINRA with respect to the added categories 
of disqualification only when instructed to submit one by the 
Regulatory Notice.
    Moreover, under the current rules, Member Regulation is responsible 
for evaluating applications for relief from a disqualification filed by 
a disqualified member or sponsoring member. In certain circumstances, 
Member

[[Page 1739]]

Regulation is authorized to approve the application, while in other 
cases, Member Regulation must make a recommendation to either approve 
or deny the applications to the National Adjudicatory Council 
(``NAC''). The proposed amendments to FINRA Rule 9522 would authorize 
Member Regulation to approve applications based on the added categories 
of disqualification. In the event Member Regulation does not approve 
these applications, the disqualified member or sponsoring member would 
have the right to have the matter decided by the NAC after a hearing 
and consideration by the Statutory Disqualification Committee under 
FINRA Rule 9524.
    In addition, if Member Regulation determines that an application 
relating to a disqualification that arises from findings or orders 
specified in Section 15(b)(4)(D), (E), or (H) of the Act or arises 
under Section 3(a)(39)(E) of the Act should be approved, but with 
specific supervisory requirements that have the consent of the 
disqualified member, sponsoring member and/or disqualified person, then 
proposed FINRA Rule 9523(b) would authorize Member Regulation to 
approve a supervisory plan, without submitting a recommendation to the 
Chairman of the Statutory Disqualification Committee, acting on behalf 
of the NAC. Consistent with the current rule regarding the submission 
of supervisory plans,\7\ proposed FINRA Rule 9523(b)(1) would provide 
that, by submitting an executed letter consenting to a supervisory 
plan, a disqualified member, sponsoring member and/or disqualified 
person waive the following (in summary):
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    \7\ See FINRA Rule 9523(b)(1) (to be renumbered to FINRA Rule 
9523(a)(1)).
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    (a) The right to a hearing and any right of appeal to challenge the 
validity of the supervisory plan;
    (b) The right to claim bias or prejudgment by Member Regulation or 
the General Counsel regarding the supervisory plan; and
    (c) The right to claim a violation of the ex parte prohibitions or 
the separation of functions provisions of FINRA Rules 9143 and 9144, 
respectively, in connection with participation in the supervisory plan.
    If the supervisory plan is rejected, the disqualified member, 
sponsoring member and/or disqualified person would have the right to 
proceed under FINRA Rule 9524.
    The proposed rule change also would make several technical 
amendments. For example, the proposed rule change would amend FINRA 
Rule 9522(c) to allow a member that has filed a statutory 
disqualification application to withdraw that application after the 
start of a hearing but prior to the issuance of a decision by the NAC 
by filing a written notice with FINRA's Department of Registration and 
Disclosure and FINRA's Office of General Counsel. In addition, for 
purposes of clarity and consistency, the proposed rule change would 
amend FINRA Rule 9522(e) to replace references that Member Regulation 
``may grant'' or ``may approve'' certain matters with ``is authorized 
to approve'' such matters.
    The effective date will be 90 days following Commission approval of 
the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ which requires, among 
other things, that FINRA's rules 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 rule change is 
consistent with the provisions of the Act noted above because it should 
allow FINRA to integrate filings mandated by the revised definition of 
disqualification into established programs that monitor subject persons 
and allow FINRA and the Commission to focus resources on filings that 
raise important investor protection concerns.
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    \8\ 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-2008-045 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-2008-045. 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-2008-045 and should be 
submitted on or before February 3, 2009.

[[Page 1740]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-438 Filed 1-12-09; 8:45 am]

BILLING CODE 8011-01-P