Document ID: SEC-2007-1536-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-11-13T05:00Z

[Federal Register: November 13, 2007 (Volume 72, Number 218)]
[Notices]               
[Page 63945-63946]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13no07-102]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56742; File No. SR-FINRA-2007-008]

 
 Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend the 
Definition of Office of Supervisory Jurisdiction in NASD Rule 
3010(g)(1) To Exempt Locations That Solely Conduct Final Approval of 
Research Reports

November 5, 2007.

I. Introduction

    On August 30, 2007, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a the 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 amend the definition of Office of Supervisory 
Jurisdiction (``OSJ'') in NASD Rule 3010(g)(1) to exempt locations that 
solely conduct final approval of research reports. The proposed rule 
change was published for comment in the Federal Register on October 5, 
2007.\3\ The Commission received two comment letters in support of the 
proposal.\4\ 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. 56585 (October 1, 
2007), 72 FR 57081.
    \4\ See letters to Nancy M. Morris, Secretary, Commission, from 
Marian H. Desilets, President, Association of Registration 
Management, Inc., dated October 25, 2007, and Jill Ostergaard and 
Christopher Mahon, Co-Chairs, Securities Industry and Financial 
Markets Association Self Regulation and Supervisory Practices 
Committee, dated October 30, 2007.
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II. Description of the Proposal

    NASD Rule 3010(g)(1) currently defines OSJ to mean any office of a 
member at which any one or more of the following functions takes place: 
(a) Order execution and/or market making; (b) structuring of public 
offerings or private placements; (c) maintaining custody of customers' 
funds and/or securities; (d) final acceptance (approval) of new 
accounts on behalf of the member; (e) review and endorsement of 
customer orders, pursuant to paragraph (d) above; (f) final approval of 
advertising or sales literature for use by persons associated with the 
member, pursuant to NASD Rule 2210(b)(1); or (g) responsibility for 
supervising the activities of persons associated with the member at one 
or more other branch offices of the member.
    In July 2006, amendments to the branch office definition under NASD 
Rule 3010(g)(2) went into effect (``Uniform Branch Office 
Definition'').\5\ The Uniform Branch Office Definition was developed 
collectively by FINRA (then known as NASD), the New York Stock Exchange 
LLC (``NYSE'') and the North American Securities Administrators 
Association to establish a national standard. In conjunction with the 
new Uniform Branch Office Definition, a Form BR was introduced to 
provide a more efficient, standardized method for members to register 
branch office locations.
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    \5\ See Securities Exchange Act Release No. 52403 (September 9, 
2005), 70 FR 54782 (September 16, 2005) (SR-NASD-2003-104) (order 
approving Uniform Branch Office Definition).
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    Although FINRA and NYSE sought to adopt consistent interpretations 
of the new Uniform Branch Office Definition, there were nevertheless 
different classifications of a location where final approval of 
research reports by a principal occurs. Under NASD's current rules, 
final review of advertising or sales literature (which includes 
research reports) makes a location an OSJ, and therefore a branch 
office. NYSE's rules, however, do not include an OSJ definition,\6\ and 
NYSE stated in an Information Memo that it deems a location where a 
member stations a qualified supervisory analyst solely to review 
research reports as a ``non-sales location,'' which is an express 
exclusion from the Uniform Branch Office Definition.\7\
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    \6\ See NYSE Rule 342 (Offices--Approval, Supervision and 
Control), which contains the Uniform Branch Office Definition.
    \7\ See NYSE Information Memo 06-13 (March 22, 2006) (Joint 
Interpretive Guidance from NYSE and NASD Relating to the Uniform 
Branch Office Definition, Question and Answer 5).
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    Due to this inconsistency, NASD published Notice to Members 07-12 
in February 2007 seeking comment on a rule harmonization proposal to 
eliminate the definition of OSJ from the NASD manual. After reviewing 
the twenty comments received on the original proposal set forth in its 
Notice to Members 07-12, FINRA determined not to move forward with the 
broad proposal to eliminate the definition of OSJ and adopt new 
classifications for office locations. Instead, consistent with many of 
its commenters' recommendation, FINRA proposed to amend the definition 
of OSJ in the NASD rules to exclude locations that solely conduct final 
approval of research reports, thereby enabling

[[Page 63946]]

FINRA to deem such locations to be ``non-sales locations.''

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.\8\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\9\ which 
requires, among other things, that FINRA 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.
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    \8\ 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).
    \9\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change will resolve 
the conflicting provisions in NASD and NYSE rules over the 
classification of locations that solely conduct final approval of 
research reports, and promote greater consistency in the application of 
the Uniform Branch Office Definition. The Commission also believes that 
providing an exemption from the definition of OSJs to such locations 
will reduce regulatory inefficiencies and eliminate unnecessary costs 
to member firms.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-FINRA-2007-008), be, and 
hereby is, approved. FINRA will announce the effective date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following Commission approval. The effective date will be 
the date of publication of the Regulatory Notice announcing Commission 
approval.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-22064 Filed 11-9-07; 8:45 am]

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