Document ID: SEC-2009-0704-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt Incorporated NYSE Rule 406 (Designation of Accounts) as a FINRA Rule in the Consolidated FINRA Rulebook
Posted Date: 2009-05-27T04:00Z

[Federal Register: May 27, 2009 (Volume 74, Number 100)]
[Notices]               
[Page 25293-25294]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27my09-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 59947; File No. SR-FINRA-2009-017]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Adopt 
Incorporated NYSE Rule 406 (Designation of Accounts) as a FINRA Rule in 
the Consolidated FINRA Rulebook

May 20, 2009.

I. Introduction

    On March 26, 2009, the 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''), 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 adopt Incorporated NYSE Rule 
406 (Designation of Accounts) as a FINRA rule in the consolidated FINRA 
rulebook (``Consolidated FINRA Rulebook'') \3\ with the minor changes 
discussed below. The proposed rule change was published in the Federal 
Register on April 16, 2009.\4\ The Commission received no comments on 
the proposed rule change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The current FINRA rulebook consists of two sets of rules: 
(1) NASD Rules and (2) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together referred to as the ``Transitional 
Rulebook''). The Incorporated NYSE Rules apply only to those members 
of FINRA that are also members of the NYSE (``Dual Members''). Dual 
members must also comply with NASD Rules. For more information about 
the rulebook consolidation process, see FINRA Information Notice, 
March 12, 2008 (``Rulebook Consolidation Process'').
    \4\ See Exchange Act Release No. 59745 (April 10, 2009), 74 FR 
17705 (April 16, 2009) (``notice'' or ``proposal'').
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II. Description of the Proposed Rule Change

    As part of the process of developing the Consolidated FINRA 
Rulebook,\5\ FINRA proposed to adopt Incorporated NYSE Rule 406, with 
minor changes, as renumbered FINRA Rule 3250 in the Consolidated FINRA 
Rulebook. Incorporated NYSE Rule 406 provides that no member 
organization shall carry an account on its books in the name of a 
person other than that of the customer, except that an account may be 
designated by a number or symbol, provided that the member has on file 
a written statement signed by the customer attesting to the ownership 
of such account. In effect, this rule establishes a general requirement 
that a member must hold each customer account in the customer's name, 
except that a member may identify a customer's account with a number or 
symbol, as long as the member maintains documentation identifying the 
customer.\6\ Currently, Incorporated NYSE Rule 406 applies only to Dual 
Members.
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    \5\ See supra note 3.
    \6\ Members are subject to additional requirements regarding 
customer accounts. See, e.g., Rule 17a-3(a)(9) under the Act 
(requiring records indicating the name and address of the beneficial 
owner of each cash and margin customer account). 17 CFR 240.17a-
3(a)(9).
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    NYSE's enforcement of the rule has addressed, among other things, 
sales practice abuses such as co-mingling of funds, the failure to 
disclose ownership interests in accounts and unauthorized trading.\7\ 
In the notice, FINRA proposed to adopt Incorporated NYSE Rule 406 as 
FINRA Rule 3250, stating it believes that the rule will continue to be 
an important enforcement tool and should be expanded to apply to the 
entire FINRA membership. In the notice, FINRA stated that Incorporated 
NYSE Rule 406 could provide members' customers with a level of 
anonymity within the member and with certain external relationships 
that they find useful, while still allowing customers' identities to be 
clearly known to members and available to regulators. In the proposal, 
FINRA indicated that Incorporated NYSE Rule 406 would be renumbered as 
FINRA Rule 3250 with minor changes to replace references to ``member 
organization'' or ``organization'' with the term ``member.'' \8\
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    \7\ See, e.g., Robert S. Bartek, Exchange Hearing Panel Decision 
73-60 (August 28, 1973); Jeffrey Alan Schultz, Exchange Hearing 
Panel Decision 82-23 (March 18, 1982); Kery Shane Hutner, Exchange 
Hearing Panel Decision 02-27 (January 31, 2002). See also NYSE 
Information Memo 78-80, Members' Accounts and Initiating Orders on 
the NYSE Floor (November 10, 1978) (addressing, among other things, 
NYSE Rule 406(1), now Rule 406).
    \8\ FINRA also stated that it 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.
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III. Discussion and Findings

    After careful review of the proposal, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act, 
and the rules and regulations thereunder that are applicable to a 
national securities associations,\9\ and in particular, with

[[Page 25294]]

Section 15A(b)(6) of the Act,\10\ which requires, among other things, 
that FINRA's rules be designed to prevent fraudulent and manipulative 
practices, to promote just and equitable principles of trade, and in 
general, to protect investors and the public interest. FINRA's adoption 
of Incorporated NYSE Rule 406 as FINRA Rule 3250 in the Consolidated 
FINRA Rulebook, with the minor changes discussed above, will extend to 
all FINRA members the applicability of a rule that serves as an 
important tool to guard against behavior that may be manipulative and 
fraudulent and that may violate just and equitable principles of trade.
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    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-FINRA-2009-017) be, and 
hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-12218 Filed 5-26-09; 8:45 am]

BILLING CODE 8010-01-P