Document ID: SEC-2008-0444-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-03-21T04:00Z

[Federal Register: March 21, 2008 (Volume 73, Number 56)]
[Notices]               
[Page 15239-15241]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21mr08-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57504; File No. SR-NASD-2007-52]

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

March 14, 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 July 23, 2007, the National Association of Securities Dealers, Inc. 
(``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc. 
(``FINRA'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by 
FINRA.\3\ On February 7, 2008, FINRA filed Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA proposes 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 the 
National Adjudicatory Council (``NAC''), acting through the NAC's 
Review Subcommittee,\4\ and to delete certain text that is no longer 
necessary. The text of the proposed rule change is available at the 
principal office of FINRA, the Commission's Public Reference Room and 
http://www.finra.org.
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    \4\ For purposes of the proposed rule change, the term ``Review 
Subcommittee'' will have the meaning set forth in NASD Rule 
9120(aa).
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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
    The NASD Rule 9700 Series, Procedures on Grievances Concerning the 
Automated Systems, provides

[[Page 15240]]

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.\5\ Although 
by its terms the Rule 9700 Series has potentially broader application, 
it historically has been used only for appeals of staff Over-the-
Counter Bulletin Board (``OTCBB'') eligibility determinations under 
Rule 6530.\6\
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    \5\ See Securities Exchange Act Release No. 27867, 55 FR 12978 
(April 6, 1990) (order approving SR-NASD-90-6).
    \6\ The OTCBB is a facility for the publication of quotations in 
eligible OTC 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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    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 the Board.\7\ 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. There is no discretion to grant 
extensions of time for ineligible securities to become eligible or any 
other form of relief.
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    \7\ Currently, the Nasdaq Listing and Hearing Review Council 
(``NLHRC'') has authority to review hearing panel decisions and has 
only ever had one such review, which upheld the decision of the 
hearing panel. NLHRC decisions may be called for further review by 
FINRA's Board solely upon the request of one or more Governors. 
Finally, an aggrieved party also has the right to appeal a decision 
to the Commission.
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    Given that these reviews focus on one narrow issue, FINRA now 
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 \8\ appointed by 
FINRA's Office of Hearing Officers (``OHO''), subject to discretionary 
review by the NAC, acting through the NAC's Review Subcommittee.\9\
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    \8\ For purposes of the proposed rule change, the term ``Hearing 
Officer'' will have the meaning set forth in Rule 9120(p).
    \9\ 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 will 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.\10\ As is currently the case with most expedited 
actions under the Rule 9550 Series, aggrieved parties will not have the 
right to appeal the decision to the NAC's Review Subcommittee.\11\ The 
Hearing Officer decision, if not called for review by the NAC's Review 
Subcommittee, would constitute final FINRA action on the matter.\12\
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    \10\ The NAC's Review Subcommittee will have the right to call 
an OHO 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.
    \11\ 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.
    \12\ 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 \13\ of the NAC to conduct a review.\14\ 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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    \13\ For purposes of the proposed rule change, the term 
``Subcommittee'' will have the meaning set forth in Rule 9120(cc). 
The Subcommittee will be comprised as set forth in Rule 9331(a)(1).
    \14\ 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 SEC. FINRA believes that this abbreviated review process is 
appropriate given the narrow and straightforward issue presented and 
the experience of OHO and the NAC in adjudicating matters. FINRA 
further believes the streamlined review process strikes an appropriate 
balance between the need to ensure fairness to aggrieved parties and 
the need for expedited action in these instances.
    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).\15\
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    \15\ In accordance with Rule 6530, an aggrieved party requesting 
a review of an OTCBB eligibility determination by a Hearing Officer 
will 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 
OHO 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 will 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. As noted above, Rule 9710 provides that the scope of the 
Rule 9700 Series is to provide 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 NASD Code of Procedure (Rule 9000 Series) or the 
Uniform Practice Code (Rule 11000 Series). There are certain appeal and 
procedural rights contained in FINRA Rules other than the Rule 9000 
Series or the Rule 11000 Series. For example, within the Alternative 
Display Facility (``ADF'') Rules (the Rule 4000A Series), there are 
certain appeals rights and procedures relating to ADF related 
grievances (e.g., ADF Trading Center excused withdrawals reviews under 
Rule 4619A). In such cases, given the language in Rule 9710, there may 
be confusion whether the Rule 9700 Series or the Rule 4000A Series 
governs such disputes. Therefore, FINRA proposes to amend 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. FINRA believes that this clarification will alleviate any 
potential confusion in this regard and is consistent with the history 
and intent of the Rule 9700 Series.
    Finally, FINRA proposes to delete language in Rule 6530(e) that is 
no longer necessary. Specifically, Rule 6530(e) contains text 
indicating that periodic filings for reporting periods

[[Page 15241]]

ended before October 1, 2005 will not count toward determining 
eligibility for quotation on the OTCBB pursuant to paragraph (e). Given 
that the text relating to the October 1, 2005 timeframe is no longer 
necessary, FINRA proposes to delete that text as part of this proposed 
rule change.
    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 30 days following 
publication of the Regulatory Notice announcing 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,\16\ 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 strikes 
an appropriate balance between the need to ensure fairness to aggrieved 
parties and the need for expedited action in these instances.
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    \16\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose 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

    FINRA has not solicited, and does not intend to solicit, comments 
on this proposed rule change. FINRA has not received any unsolicited 
written comments from members or other interested parties.

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 No. SR-NASD-2007-52 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-NASD-2007-52. 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-NASD-2007-52 and should be 
submitted on or before April 11, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-5709 Filed 3-20-08; 8:45 am]

BILLING CODE 8011-01-P