Document ID: SEC-2008-0700-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Association of Securities Dealers, Inc.
Posted Date: 2008-05-13T04:00Z

[Federal Register: May 13, 2008 (Volume 73, Number 93)]
[Notices]               
[Page 27595-27596]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13my08-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57786; File No. SR-NASD-2007-052]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Order Approving Proposed Rule Change as Modified by Amendment No. 1, 
Relating to Amendments to the NASD Rule 9700 Series To Streamline the 
Procedural Rules Applicable to General Grievances Related to FINRA 
Automated Systems

May 6, 2008.

I. Introduction

    On July 23, 2007, the National Association of Securities Dealers, 
Inc. (``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc. 
(``FINRA'')) \1\ filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend the NASD Rule 9700 Series (``Rule 9700 
Series'') to streamline the existing procedural rules applicable to 
general grievances related to FINRA automated systems; to provide 
discretionary review by the National Adjudicatory Council (``NAC''), 
acting through the NAC's Review Subcommittee; \4\ and to delete certain 
text that is no longer necessary. On February 7, 2008, FINRA filed 
Amendment No. 1 to the proposed rule change. The proposed rule change, 
as amended, was published for comment in the Federal Register on March 
21, 2008.\5\ The Commission received no comment letters on the proposed 
rule change. This order approves the proposed rule change, as modified 
by Amendment No. 1.
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    \1\ On July 26, 2007, the Commission approved a proposed rule 
change filed by the NASD to amend the NASD's Certificate of 
Incorporation to reflect its name change to Financial Industry 
Regulatory Authority, Inc., or FINRA, in connection with the 
consolidation of the member firm regulatory functions of NASD and 
NYSE Regulation, Inc. See Securities Exchange Act Release No. 56146 
(July 26, 2007), 72 FR 42190 (August 1, 2007) (SR-NASD-2007-053).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ For purposes of the proposed rule change, the term ``Review 
Subcommittee'' will have the meaning set forth in NASD Rule 
9120(aa).
    \5\ See Securities Exchange Act Release No. 57504 (March 14, 
2008), 73 FR 15239 (March 21, 2008).
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II. Description of the Proposed Rule Change

    The proposed rule change seeks to amend the NASD Rule 9700 Series 
to streamline the existing procedural rules applicable to general 
grievances related to FINRA automated systems, to provide discretionary 
review by NAC, acting through the NAC's Review Subcommittee, and to 
delete certain text that is no longer necessary.
    The NASD Rule 9700 Series, Procedures on Grievances Concerning the 
Automated Systems, provides redress, where justified, for persons 
aggrieved by the operations of any automated quotation, execution or 
communication system owned or operated by FINRA that is not otherwise 
provided for under the Code of Procedure (``Rule 9000 Series'') or the 
Uniform Practice Code (``Rule 11000 Series''). The Rule 9700 Series was 
established to ensure adequate procedural protections to users of FINRA 
systems.\6\ Although by its terms the Rule 9700 Series has potentially 
broader application, it historically has been used only for appeals of 
Over-the-Counter Bulletin Board (``OTCBB'') eligibility determinations 
made by FINRA staff pursuant to Rule 6530.\7\
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    \6\ See Securities Exchange Act Release No. 27867 (April 2, 
1990), 55 FR 12978 (April 6, 1990) (order approving SR-NASD-90-006).
    \7\ The OTCBB is a facility for the publication of quotations in 
eligible over-the-counter equity securities of issuers that are 
subject to the filing of financial reports with the Commission (or 
other appropriate regulator) and are current in their reporting. 
FINRA staff monitors the submission of such periodic reports to 
determine an issuer's initial and continued eligibility for 
quotation on the OTCBB and, pursuant to Rule 6530, restricts the 
quoting of securities of issuers that are late or delinquent in 
filing periodic reports.

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[[Page 27596]]

    Currently under the Rule 9700 Series, a party that is aggrieved by 
the operation of a FINRA automated system may request a review by a 
hearing panel. In accordance with the Rule 9700 Series, the aggrieved 
party may also request a review of the hearing panel's decision by a 
Committee designated by FINRA's Board of Governors (``Board'').\8\ With 
respect to OTCBB eligibility reviews, both of these reviews pursuant to 
the Rule 9700 Series are solely to determine whether the issuer filed a 
complete report by the applicable due date and, thus, whether the 
security of the issuer is eligible for continued quotation. The Rule 
9700 Series does not provide discretion to grant extensions of time for 
ineligible securities to become eligible or any other form of relief.
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    \8\ Currently, the Nasdaq Listing and Hearing Review Council 
(``NLHRC'') has authority to review hearing panel decisions and has 
only ever conducted one such review, which upheld the decision of 
the hearing panel. NLHRC decisions have been subject to further 
review by FINRA's Board solely upon the request of one or more 
Governors. The proposed rule change would eliminate the NLHRC's 
role.
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    Given that these reviews focus on one narrow issue, FINRA proposes 
to amend the Rule 9700 Series to streamline the review process. 
Specifically, reviews of staff determinations under the Rule 9700 
Series would be adjudicated by a Hearing Officer \9\ appointed by 
FINRA's Office of Hearing Officers, subject to discretionary review by 
the NAC, acting through the NAC's Review Subcommittee.\10\
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    \9\ For purposes of the proposed rule change, the term ``Hearing 
Officer'' will have the meaning set forth in Rule 9120(p).
    \10\ Subject to the NAC's discretionary review (acting through 
the NAC's Review Subcommittee), a Hearing Officer currently acts as 
the adjudicator in expedited actions involving (1) a failure to pay 
FINRA dues, fees or other charges and (2) a failure to pay an 
arbitration award or related settlement, pursuant to Rules 9553 and 
9554, respectively.
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    After the review hearing, the Hearing Officer would prepare a 
written decision and provide it to the NAC's Review Subcommittee, which 
would have the ability to call the decision for review during certain 
specified timeframes.\11\ As is currently the case with most expedited 
actions under the Rule 9550 Series, aggrieved parties would not have 
the right to appeal the decision to the NAC's Review Subcommittee.\12\ 
The Hearing Officer's decision, if not called for review by the NAC's 
Review Subcommittee, would constitute final FINRA action on the 
matter.\13\
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    \11\ The NAC's Review Subcommittee would have the right to call 
the Hearing Officer's decision for review within 21 days after 
receipt of such decision, which is consistent with the timeframe for 
the Review Subcommittee's call right involving expedited actions 
under the Rule 9550 Series.
    \12\ Under many of the existing rules with expedited components, 
respondents may not appeal the matter to a FINRA appellate body, 
such as the NAC. For example, the decision of the Hearing Officer 
under Rule 9553 (Failure to Pay Dues, Fees and Other Charges) is not 
appealable, at the request of a party, to the NAC or any other 
internal FINRA appellate body under the existing system.
    \13\ Currently under Rule 9780, FINRA's Board has a right to 
review NLHRC decisions issued pursuant to Rule 9770. The proposed 
rule change would provide the NAC (rather than the Board) with a 
call right, which is consistent with other expedited actions under 
the Rule 9550 Series.
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    If a decision is called for review by the NAC's Review 
Subcommittee, the NAC or NAC's Review Subcommittee would appoint a 
Subcommittee\14\ of the NAC to conduct a review.\15\ Based on its 
review, the Subcommittee would make a recommendation to the NAC and the 
NAC, in turn, would issue a decision on the matter. The decision of the 
NAC would constitute final FINRA action.
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    \14\ For purposes of the proposed rule change, the term 
``Subcommittee'' has the meaning set forth in Rule 9120(cc). The 
Subcommittee would be comprised as set forth in Rule 9331(a)(1).
    \15\ If the NAC's Review Subcommittee calls a matter for review, 
the timelines for such review would be as set forth in proposed Rule 
9760.
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    An aggrieved party also would continue to have the right to appeal 
the Hearing Officer's decision, or the NAC decision, as the case may 
be, to the Commission.
    FINRA also proposes to make conforming and non-substantive changes 
to Rules 6530 and 9120 to reflect the amended review process contained 
in the Rule 9700 Series. There are no proposed changes to other aspects 
of the review process relating to OTCBB eligibility determinations 
under Rule 6530 (e.g., notifications and time periods for requesting 
review, the scope of review and the applicable fees for such 
review).\16\
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    \16\ In accordance with Rule 6530, an aggrieved party requesting 
a review of an OTCBB eligibility determination by a Hearing Officer 
would continue to be required to pay a $4,000 fee for such review. 
Given that aggrieved parties would only have the right to appeal to 
the Office of Hearing Officers and any further level of review would 
be at the discretion of the NAC's Review Subcommittee, the 
additional $4,000 fee currently provided for in Rule 6530(f)(3) 
would be eliminated.
    Also in accordance with Rule 6530, a request for review would 
stay the OTCBB security's removal until the Hearing Officer issues a 
decision. If the NAC's Review Subcommittee calls a matter for 
review, the OTCBB security's removal will be stayed until the NAC 
issues a decision.
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    In addition, FINRA proposes to make a technical change to the text 
of Rule 9710. to clarify that the scope of the Rule 9700 Series is to 
address general grievances not otherwise provided for by any other 
FINRA Rules.
    Finally, FINRA proposes to delete language in Rule 6530(e), 
relating to an October 1, 2005 timeframe, that is no longer necessary.
    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.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.\17\ 
Specifically, the Commission finds that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act\18\ in that it is 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. In particular, the Commission finds 
that the revisions to the Rule 9700 Series governing the review process 
for OTCBB eligibility determinations under Rule 6530 strike a 
reasonable balance between the need to ensure fairness to aggrieved 
parties and the need for expedited action, and appropriately seek to 
clarify that the scope of the Rule 9700 Series is to address general 
grievances not otherwise provided for by any other FINRA Rules.
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    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \18\ 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, 
that the proposed rule change (SR-NASD-2007-052), as modified by 
Amendment No. 1, be, and it hereby is, approved.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Nancy M. Morris,
Secretary.
 [FR Doc. E8-10618 Filed 5-12-08; 8:45 am]

BILLING CODE 8010-01-P