Document ID: SEC-2009-0533-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt Incorporated NYSE Rule 406 (Designation of Accounts) as a FINRA Rule in the Consolidated FINRA Rulebook
Posted Date: 2009-04-16T04:00Z

[Federal Register: April 16, 2009 (Volume 74, Number 72)]
[Notices]               
[Page 17705-17706]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ap09-86]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59745; File No. SR-FINRA-2009-017]

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

April 10, 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 March 26, 2009, 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 Incorporated NYSE Rule 406 (Designation 
of Accounts) as a FINRA rule in the consolidated FINRA rulebook with 
minor changes. The proposed rule change would renumber Incorporated 
NYSE Rule 406 as FINRA Rule 3250 in the consolidated FINRA rulebook.
    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 
Incorporated NYSE Rule 406 into the Consolidated FINRA Rulebook with 
minor changes, discussed below. The proposed rule change would renumber 
Incorporated NYSE Rule 406 as FINRA Rule 3250. 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 the 
member has on file a written statement signed by the customer attesting 
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.\4\
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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 FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ 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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    Currently, Incorporated NYSE Rule 406 applies only to Dual Members 
(i.e.,

[[Page 17706]]

members of both FINRA and NYSE), and NYSE has enforced the rule to 
address, among other things, sales practice abuses such as co-mingling 
of funds, failure to disclose ownership interests in accounts and 
unauthorized trading.\5\ FINRA proposes to adopt Incorporated NYSE Rule 
406 as FINRA Rule 3250 as it believes that this rule will continue to 
be an important enforcement tool and should be expanded to apply to the 
entire FINRA membership. FINRA further notes that the Rule may 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. Consequently, FINRA proposes to adopt 
Incorporated NYSE Rule 406 as FINRA Rule 3250 with minor changes to 
replace references to ``member organization'' or ``organization'' with 
the term ``member.''
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    \5\ 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).
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    As noted above, 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.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ 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 general, to protect investors and the 
public interest. FINRA believes the proposed rule change will provide 
FINRA with an important tool to further ensure that FINRA members 
appropriately designate each customer account, while also providing a 
reasonable means of permitting customers to maintain a certain level of 
anonymity, subject to appropriate documentation identifying the owner.
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    \6\ 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-2009-017 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-2009-017. 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-2009-017 and should be 
submitted on or before May 7, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-8655 Filed 4-15-09; 8:45 am]

BILLING CODE 8010-01-P