Document ID: SEC-2008-0732-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-05-23T04:00Z

[Federal Register: May 23, 2008 (Volume 73, Number 101)]
[Notices]               
[Page 30174-30176]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23my08-123]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-57820; File No. SR-FINRA-2008-017]

 
Self-Regulatory Organizations: Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Order Granting Accelerated 
Approval of Proposed Rule Change Relating to Section 1(a) of Article 
III of the FINRA By-Laws

May 15, 2008.
    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 May 7, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by FINRA. This 
order provides notice of the proposed rule change and approves the 
proposed rule change on an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend Section 1(a) of Article III of the 
FINRA By-Laws, to interpret the reference to a ``registered broker'' in 
Section 1(a) of Article III of the FINRA By-Laws to include any bank 
exempted from the definition of ``broker'' under Section 3(a)(4)(E) of 
the Act \3\ as of the date of filing of the proposed rule change. The 
proposed rule change is submitted in furtherance of the consolidation 
of the member firm regulatory functions of NASD and NYSE Regulation, 
Inc. (``NYSE Regulation''). There are no changes to the text of FINRA 
rules as a result of the proposed rule change.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78c(a)(4)(E).

---------------------------------------------------------------------------

[[Page 30175]]

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 III 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
    On July 30, 2007, NASD and NYSE Regulation consolidated their 
member firm regulation operations into a combined organization, 
FINRA.\4\ To achieve the consolidation's goal to eliminate duplicative 
member firm regulation and enable FINRA to meet its new regulatory 
responsibilities, the NYSE amended NYSE Rule 2(b) to require FINRA 
membership as a condition of being an NYSE member organization 
(``Mandatory FINRA Membership filing'').\5\ Moreover, in furtherance of 
the consolidation, FINRA adopted NASD IM-1013-1 to enable eligible NYSE 
member organizations to become FINRA members through an expedited 
process.\6\
---------------------------------------------------------------------------

    \4\ On July 26, 2007, the Commission approved amendments to the 
NASD By-Laws to implement governance and related changes to 
accommodate the consolidation of the member firm regulatory 
functions of NASD and NYSE Regulation. See Securities Exchange Act 
Release No. 56145 (July 26, 2007), 72 FR 42169 (Aug. 1, 2007) (File 
No. SR-NASD-2007-023). The Commission also approved a plan by FINRA 
and NYSE Regulation to allocate regulatory responsibility relating 
to the NYSE member firm regulation rules to FINRA. See Securities 
Exchange Act Release No. 56148 (July 26, 2007), 72 FR 42146 (Aug. 1, 
2007) (File No. 4-544).
    \5\ See Securities Exchange Act Release No. 56654 (Oct. 12, 
2007), 72 FR 59129 (Oct. 18, 2007) (File No. SR-NYSE-2007-67); 
Securities Exchange Act Release No. 56953 (Dec. 12, 2007), 72 FR 
71990 (Dec. 19, 2007) (extending grace period for NYSE-only member 
organizations to apply for and be approved as FINRA members to June 
30, 2008). See also Securities Exchange Act Release No. 56751 (Nov. 
6, 2007), 72 FR 64098 (Nov. 14, 2007) (File No. SR-FINRA-2007-19).
    \6\ See Securities Exchange Act Release No. 56653 (Oct. 12, 
2007); 72 FR 59127 (Oct. 18, 2007) (File No. SR-NASD-2007-056).
---------------------------------------------------------------------------

    NYSE Rule 2(b) expressly permits entities that are exempt from 
registration as brokers or dealers pursuant to the Act to become NYSE 
member organizations.\7\ In contrast, Section 1(a) of Article III of 
the FINRA By-Laws addresses those ``registered'' brokers, dealers, 
municipal securities brokers or dealers, or government securities 
brokers or dealers that are eligible to become members of FINRA. 
Accordingly, in furtherance of the consolidation, the proposed rule 
change would allow FINRA to treat any NYSE member organization that, as 
of the date of filing of the proposed rule change, is a bank exempt 
from the definition of broker under Section 3(a)(4)(E) of the Act as a 
registered broker for purposes of the FINRA By-Laws, thereby allowing 
any such bank to be eligible to become a FINRA member.\8\
---------------------------------------------------------------------------

    \7\ See also NYSE Rule 346(a).
    \8\ This category of NYSE member organizations is limited to one 
entity.
---------------------------------------------------------------------------

    FINRA believes this interpretation is necessary notwithstanding the 
prohibitions of Section 15A(g)(1) of the Act,\9\ which requires a 
registered securities association to deny membership to any person who 
is not a registered broker or dealer. The Commission has already 
recognized the important benefits of eliminating duplicative member 
firm regulation through the consolidation of the member firm regulatory 
operations of NASD and NYSE Regulation. Interpreting the reference to 
registered broker in Section 1(a) of Article III of the FINRA By-Laws 
to include any bank exempted from the definition of ``broker'' under 
Section 3(a)(4)(E) of the Act for the narrow purposes of FINRA 
membership will allow FINRA to consider all NYSE members for membership 
and to assume responsibility for member firm regulation of such 
entities.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(g)(1).
---------------------------------------------------------------------------

    Any bank becoming a FINRA member pursuant to this interpretation, 
and its associated persons, would be required to comply with the FINRA 
By-Laws, Schedules to the By-Laws, and all applicable FINRA rules,\10\ 
excluding the following: (a) The bank would not be required to be a 
registered broker-dealer; and (b) as long as the bank remains subject 
to bank capital adequacy requirements, FINRA would not require it to 
comply with capital requirements of either the NASD or the consolidated 
FINRA rules. FINRA would provide any such bank 180 days following 
approval of its membership application in which to achieve compliance 
with the NASD rules governing member conduct. FINRA also would require 
the bank to file a Form BD for FINRA purposes only \11\ and the 
information provided on the form would be available via BrokerCheck 
pursuant to NASD IM-8310-2.\12\ The bank, as part of the application 
process, also would be required to submit an amended Form U4 for each 
associated person denoting any registration categories that are 
recognized jointly by FINRA and NYSE (e.g., General Securities 
Representative (Series 7)).
---------------------------------------------------------------------------

    \10\ The FINRA rulebook currently consists of the NASD rules and 
certain incorporated NYSE rules. The incorporated NYSE rules apply 
solely to those members of FINRA that are also members of NYSE on or 
after July 30, 2007, until such time as FINRA adopts a consolidated 
rulebook applicable to all of its members.
    \11\ FINRA understands that a bank relying on Section 3(a)(4)(E) 
of the Act is not required to file Form BD with the Commission.
    \12\ FINRA will need to implement certain systems changes to 
accommodate the filing of a Form BD by any bank that becomes a 
member of FINRA pursuant to this interpretation.
---------------------------------------------------------------------------

    Any bank applying for FINRA membership pursuant to this 
interpretation would not be eligible to rely on the waive-in process 
set forth in NASD IM-1013-1, since that process was primarily designed 
for those NYSE member organizations whose business activities are 
limited to ``permitted floor activities'' as defined in NASD IM-1013-1. 
Rather, a bank applying for FINRA membership pursuant to this 
interpretation would be required to apply for and receive approval 
pursuant to the application process described in NASD Rule 1013 (New 
Membership Application and Interview). FINRA recognizes that NYSE has a 
comprehensive membership application and review process based on 
similar principles and standards to that of FINRA, and thus would work 
expeditiously to consider for approval any application pursuant to this 
interpretation.
    In addition, similar to those NYSE member organizations that become 
FINRA members pursuant to the waive-in process, any bank relying on 
this interpretation would not be assessed the fee set forth in Section 
4(b)(1) to Schedule A of the FINRA By-Laws for any initial Form U4 
filed by the applicant with FINRA for the registration of any 
representative or principal associated with the firm at the time it 
submits its application for FINRA membership. Also, the bank would not 
be assessed the membership application fee set forth in Section 4(e) to 
Schedule A of the FINRA By-Laws. FINRA believes these fee waivers are 
appropriate, since NYSE mandated FINRA membership in furtherance of the 
consolidation and because the application review process will not 
require the same resources as when a new applicant that is not already 
a member of NYSE seeks membership.

[[Page 30176]]

    The effective date of the proposed rule change would be the date of 
Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b) of the Act, including Section 15A(b)(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 that the proposed 
rule change will further facilitate the consolidation of the member 
firm regulation functions of FINRA and NYSE Regulation, resulting in 
more effective and efficient regulation of all brokers, thereby 
enhancing investor protection.

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. 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-2008-017 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2008-017. 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, 
NW., 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-2008-017 and should be 
submitted on or before June 13, 2008.

IV. Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder.\13\ As such, the Commission finds the proposal 
to be consistent with the objectives of Section 15A of the Act,\14\ in 
that it is designed to promote just and equitable principles of trade, 
to prevent fraudulent and manipulative acts and practices, and in 
general, to protect investors and the public interest. The proposed 
rule change furthers the purposes of the consolidation by recognizing 
the unique status of any NYSE member organization that is exempt from 
the definition of broker under Section 3(a)(4)(E) of the Act. Moreover, 
the proposed rule change does not propose any substantive amendments to 
existing rules.
---------------------------------------------------------------------------

    \13\ In approving this rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The Commission also finds good cause for approving the proposed 
rule change prior to the 30th day after its publication in the Federal 
Register. Accordingly, the Commission believes good cause exists, 
consistent with Sections 15A(b)(5) and 19(b) of the Act to approve the 
proposed rule change on an accelerated basis.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-FINRA-2008-017) be, and 
hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon
Deputy Secretary.
 [FR Doc. E8-11529 Filed 5-22-08; 8:45 am]

BILLING CODE 8010-01-P