Document ID: SEC-2007-1182-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc
Posted Date: 2007-08-24T04:00Z

[Federal Register: August 24, 2007 (Volume 72, Number 164)]
[Notices]               
[Page 48715-48716]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au07-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56285; File No. SR-NASD-2007-049]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to NASD Rule 3013 and Accompanying Interpretive Material 3013

 August 17, 2007.
    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 16, 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 (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been substantially prepared by 
FINRA.\3\ FINRA has designated the proposed rule change as constituting 
a ``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-
4 under the Act,\4\ which renders the proposal effective upon receipt 
of this filing by the Commission. 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.
    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend NASD Rule 3013 and accompanying 
Interpretive Material 3013 to permit members to designate co-chief 
executive officers and multiple chief compliance officers to discharge 
the requirements of those rules. The text of the proposed rule change 
is available on FINRA's Web site (http://www.finra.org), at 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
    NASD Rule 3013 (Annual Certification of Compliance and Supervisory 
Processes) is intended to bolster attention to members' compliance 
programs by requiring substantial and purposeful interaction between 
business and compliance officers throughout the member firm. To that 
end, Rule 3013(a) requires each member to designate and specifically 
identify on Schedule A of the Uniform Application for Broker-Dealer 
Registration (``Form BD'') a principal to serve as chief compliance 
officer (``CCO''). Rule 3013(b) requires that the chief executive 
officer (``CEO'') certify annually that the member has in place 
processes to establish, maintain, review, test and modify written 
policies and procedures reasonably designed to achieve compliance with 
applicable NASD rules, MSRB rules and federal securities laws and 
regulations.
    The certification language and additional guidance are set forth in 
Interpretive Material (``IM'') 3013. The certification includes not 
only a statement that the member has in place certain compliance 
processes, but also that the CEO has conducted one or more meetings 
with the CCO in the preceding 12 months to discuss those processes. The 
interpretive material explains that the mandated meetings between the 
CEO and CCO must include a discussion of the member's compliance 
efforts to date and identify and address significant compliance 
problems and plans for emerging business areas. The IM further sets 
forth the expertise that is expected of a CCO, including the process of 
gaining an understanding of a member's products, services and line 
functions that need to be the subject of compliance policies and 
written supervisory procedures.
    FINRA recognizes that such expertise may reside in more than one 
individual in firms with distinct business segments. In those 
circumstances, FINRA believes the purposes of the rule can be achieved 
with equal effect by dividing the responsibility of advising the member 
on its compliance scheme among those compliance experts within each 
distinct business unit. Accordingly, the proposed rule change would 
permit a member to designate multiple chief compliance officers on 
Schedule A of Form BD, provided that (1) each designated CCO is a 
principal of the firm; (2) the member precisely defines and documents 
the areas of primary compliance responsibility assigned to each 
designated CCO and makes specific provisions for which of the 
designated CCOs has primary compliance responsibility in areas that can 
reasonably be expected to overlap; (3) each designated CCO satisfies 
all of the requirements of Rule 3013 and IM-3013 with respect to his or 
her defined area of primary compliance responsibility as if that 
individual was the member's only CCO; and (4) collectively, the 
designated CCOs have the responsibilities and expertise that enable 
them to consult with the CEO on the totality of the subject matters 
required to be addressed in the certification by the CEO under Rule 
3013.
    Thus, for example, IM-3013 explains that member must conduct one or 
more meetings annually between the CEO and CCO to (1) discuss and 
review the matters that are the subject of the certification; (2) 
discuss and review the member's compliance efforts as of the date of 
such meetings; and (3) identify and address significant compliance 
problems and plans for emerging business areas. A member that chooses 
to have multiple CCOs under the proposed rule change would be required 
to conduct one or more meetings annually between the CEO and each 
designated CCO, individually or collectively. And at each such meeting, 
the CEO would be required to discuss with each CCO the required topics, 
but only as it relates to the particular CCO's defined area of primary 
compliance responsibility. Similarly, the IM currently requires review 
by the CCO of the report evidencing a member's processes and 
consultation by the CEO with the CCO prior to execution of the 
certification. The proposed rule change

[[Page 48716]]

would require review by and consultation with each CCO.
    The proposed rule change also would permit the designation of a 
single co-CEO for the purposes of compliance with Rule 3013 and IM-3013 
only.\5\ However, in contrast to the proposal to allow co-CCOs, co-CEOs 
could not divide up the requirements of the Rule and interpretive 
material; rather, each of the two CEOs would be required to 
individually discharge all of the obligations set forth in Rule 3013 
and IM-3013, each would be held responsible for the representations in 
the certification as if they were the member's only CEO, and the 
signature of each co-CEO would be expected to appear on the same single 
annual certification.
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    \5\ Designation of a co-CEO pursuant to this proposed rule 
change would have no effect on any other regulatory obligation 
imposed on a member or its CEO.
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    As noted in Item 2 of this filing, FINRA has filed the proposed 
rule change for immediate effectiveness. The effective date and the 
implementation date will be the date of filing, July 16, 2007.
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 that the proposed rule change is 
consistent with the provisions of the Act noted above in that it will 
enhance focus on members' compliance and supervision systems, thereby 
decreasing the likelihood of fraud and manipulative acts and increasing 
investor protection.
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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.\7\
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    \7\ 15 U.S.C. 78a.
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\8\
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    \8\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\9\ However, 
Rule 19b-4(f)(6)(iii) \10\ permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and in the public interest because it will: (1) 
Improve the compliance certification and supervisory processes of 
members by assigning responsibility in multiple CCOs based on 
expertise; and (2) still make the designated CCO responsible for 
compliance in his or her area of expertise as if the individual was the 
member's only CCO. For this reason, the Commission designates that the 
proposed rule change become operative immediately.\11\
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    \9\ Rule 19b-4(f)(6)(iii) requires that a self-regulatory 
organization submit to the Commission written notice of its intent 
to file the proposed rule change, along with a brief description of 
the text of the proposed rule change, at least five days prior to 
the date of filing of the proposed rule change, or shorter time as 
designated by the Commission. FINRA has satisfied the five-day pre-
filing notice requirement.
    \10\ Id.
    \11\ For the purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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-NASD-2007-049 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-2007-049. 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-2007-049 and should be 
submitted on or before September 14, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-16761 Filed 8-23-07; 8:45 am]

BILLING CODE 8010-01-P