Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to the Incorporated NYSE Rules, 40403-40407 [E8-15817]

Download as PDF Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Notices the principal office of the Exchange. 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–BSE–2008–34 and should be submitted on or before August 4, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Florence E. Harmon, Acting Secretary. [FR Doc. E8–15886 Filed 7–11–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58103; File No. SR–FINRA– 2008–036] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to the Incorporated NYSE Rules July 3, 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 3, 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, II and III below, which Items have been prepared substantially by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change pwalker on PROD1PC71 with NOTICES FINRA proposes to amend certain rules of the New York Stock Exchange LLC (‘‘NYSE’’) to reduce regulatory duplication and relieve firms that are members of both FINRA and the NYSE (‘‘Dual Members’’) of conflicting or unnecessary regulatory burdens in the interim period before a consolidated FINRA rulebook is completed.3 The text 19 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 This proposal is an extension of the SRO Rule Harmonization Initiative, which compared NYSE regulatory requirements to corresponding NASD regulatory provisions. The purpose of the process VerDate Aug<31>2005 17:08 Jul 11, 2008 Jkt 214001 of the proposed rule change is available at http://www.finra.org, the principal offices of FINRA, and 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 Background On July 30, 2007, FINRA was formed through the consolidation of NASD and the member regulation, enforcement and arbitration operations of NYSE. As part of the consolidation, FINRA incorporated into its rulebook certain NYSE rules related to member firm conduct (‘‘Incorporated NYSE Rules’’). As a result, the current FINRA rulebook consists of two sets of rules: (1) NASD Rules and (2) Incorporated NYSE Rules (together referred to herein as the ‘‘Transitional Rulebook’’). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to Dual Members. FINRA is developing a new consolidated rulebook (‘‘Consolidated FINRA Rulebook’’), which, upon completion, will consist only of FINRA Rules. In the interim period before the Consolidated FINRA Rulebook is completed, FINRA is proposing amendments to certain Incorporated NYSE Rules to reduce regulatory disparities and to relieve Dual Members of conflicting or unnecessary regulatory burdens. The proposed rule change includes those rule changes proposed in the NYSE’s Omnibus filing that would reach an interim solution to an unnecessary regulatory burden or to an inconsistent standard between the Incorporated NYSE Rules and NASD was to achieve, to the extent practicable, substantive harmonization of the two regulatory schemes. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 40403 Rules.4 Additionally, this proposal would rescind certain Incorporated NYSE Rules in substantive areas that are sufficiently addressed by NASD Rules. FINRA believes that the proposed rule change will provide a timely solution to achieve greater harmonization between Incorporated NYSE Rules and NASD Rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance for Dual Members. The proposed rule change would affect the Transitional Rulebook in its application to Dual Members only and does not necessarily reflect FINRA’s intent or conclusion as to the ultimate rule text that will populate the Consolidated FINRA Rulebook. Proposed Amendments Allied Member The proposed rule change would delete the term ‘‘allied member’’ from the Incorporated NYSE Rules. The ‘‘allied member’’ designation is a regulatory category based on a person’s ‘‘control’’ over a member organization.5 Allied membership, as currently administered, has no direct analogue under the FINRA membership scheme. NYSE Rule 2(c) currently defines the term ‘‘allied member’’ as a natural person who is a general partner of a member organization or other employee of a member organization who controls,6 or is a principal executive officer of, such member organization, and who has been approved by the NYSE as an allied member. In instances where the term ‘‘allied member’’ appears in a rule to denote an individual’s status as a member organization ‘‘control person,’’ FINRA is proposing to substitute, for the term ‘‘allied member,’’ the newly defined category of ‘‘principal executive’’ (see proposed NYSE Rule 311.17). The proposed definition for ‘‘principal executive’’ is identical to the current definition of ‘‘principal executive officer’’ in NYSE Rule 311(b)(5) with additional language to clarify that the functional equivalents of such persons would also be included in this category. As such, FINRA is proposing to replace ‘‘principal executive officer’’ with ‘‘principal executive.’’ A ‘‘principal executive’’ would be defined to include: An employee of a member organization designated to exercise senior principal executive 4 See Securities Exchange Act Release No. 56142 (July 26, 2007), 72 FR 42195 (August 1, 2007) (SR– NYSE–2007–22). 5 See NYSE Rule 304(b) (Allied Members and Approved Persons). FINRA did not incorporate NYSE Rule 304. 6 See NYSE Rule 2(f) for the definition of ‘‘control.’’ E:\FR\FM\14JYN1.SGM 14JYN1 40404 Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Notices responsibility over the various areas of the business of the member organization including: Operations, compliance with rules and regulations of regulatory bodies, finances and credit, sales, underwriting, research and administration; and any employee of a member organization who is a functional equivalent of such person. Thus, the ‘‘principal executive’’ designation would encompass each Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Compliance Officer, Chief Legal Officer or any person assigned comparable functions or responsibilities (e.g., a person in a Limited Liability Company with principal executive responsibilities but with other than a principal executive title). Unlike the ‘‘allied member’’ designation, ‘‘principal executive’’ would not require a registration process, approval by the NYSE or a particular qualification examination. However, each ‘‘principal executive’’ would be required to take and pass any qualification examinations necessary to perform his or her assigned functions. pwalker on PROD1PC71 with NOTICES Buy-In Rules In an effort to harmonize and update the SRO Operational, Clearing and Settlement Rules (collectively referred to herein as the ‘‘Buy-In Rules’’), FINRA is proposing to reposition NYSE Rules 283, 285, 286, 287, 288, 289, and 290 into NYSE Rule 282 so that NYSE Rule 282 would serve as a complete, central repository for all requirements and procedures related to transactions subject to the Buy-In Rules. The substance of the repositioned rules would not be altered by the proposed rule change. The proposed rule change would bring the NYSE Buy-In Rules closer to the format of NASD Rule 11810 (Buying-In). Additionally, consistent with the NYSE’s Omnibus filing, FINRA is proposing to add the substance of NYSE Rule 140 to NYSE Rule 282.7 Although FINRA did not incorporate NYSE Rule 140 into its rulebook, FINRA staff believes that the Omnibus proposal appropriately places the substance of NYSE Rule 140 into Rule 282. FINRA is also proposing amendments to the current text of NYSE Rule 282 to clarify that fails that are subject to the rules of a Qualified Clearing Agency must comply with the procedures or requirements of the Qualified Clearing Agency. This proposal harmonizes the scope of NYSE Rule 282 with the scope of NASD’s 11000 Rule Series. 7 See proposed Rule 282.15. VerDate Aug<31>2005 17:08 Jul 11, 2008 Jkt 214001 Lastly, the proposed rule change would amend NYSE Rule 282 to adopt certain provisions of NASD Rule 11810 to further harmonize the requirements related to transactions subject to the Buy-In Rules. Specifically, FINRA proposes to add to the Supplementary Material of NYSE Rule 282 the following sections of NASD Rule 11810: (f) (Securities in Transit); (h) (‘‘CloseOut’’ Under Committee or Exchange Rulings); (i) (Failure to Deliver and Liability Notice Procedures); (j) (Contracts Made for Cash); (l) (‘‘Buy-In’’ Desk Required); and (m) (Buy-In of Accrued Securities). NYSE Rule 311 (Formation and Approval of Member Organizations) and Its Interpretation NYSE Rule 311 governs the formation and approval of member organizations. In addition to the ‘‘allied member’’ proposals to NYSE Rule 311 noted above, the proposed rule change would delete paragraph (h) of NYSE Rule 311, which prescribes the number of partners to be named in a member organization in order for it to conduct business. There is no equivalent NASD requirement. The proposed deletion recognizes that NYSE Rule 311(h) is outdated and no longer necessary in light of the current spectrum of member organizations’ business models. NYSE Rule 342.13 (Acceptability of Supervisors) and Its Interpretation NYSE Rule 342.13(a) currently requires that persons who are to be assigned certain prescribed supervisory responsibilities 8 have a creditable threeyear record as a registered representative or have three years of equivalent experience before functioning as a supervisor.9 FINRA is proposing to amend NYSE Rule 342.13(a) and its Interpretation to eliminate the prescribed three-year record requirement for supervisory personnel. Additionally, the proposal would conform NYSE Rule 342.13(a) to the standard outlined in NASD Rule 1014(a)(10)(D) with respect to firms that are submitting an application to become FINRA members. In such instances, supervisory candidates would be required to have one year of ‘‘direct 8 In this regard, NYSE Rule 342.13(a) references NYSE Rule 342(d) which requires that ‘‘[q]ualified persons acceptable to the Exchange shall be in charge of: (1) Any office of a member or member organization, (2) any regional or other group of offices, (3) any sales department or activity.’’ 9 NYSE Rule 342.13(a) also requires that persons assigned supervisory responsibility pursuant to NYSE Rule 342(d) must pass a qualification examination acceptable to the NYSE that demonstrates competence relevant to assigned responsibilities. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 experience’’ or two years of ‘‘related experience’’ in the subject area to be supervised. NYSE Rule 345 (Employees— Registration, Approval, Records) and Its Interpretation NYSE Rule 345 and its Interpretation 10 currently provide that certain exam-qualified registered persons will not receive NYSE approval to perform functions pursuant to such qualifications without first completing certain prescribed training periods. To harmonize NYSE Rule 345 with NASD registration requirements, FINRA is proposing to eliminate the prescribed training periods in NYSE Rule 345 and its Interpretation. The proposed amendments would allow member organizations to determine, consistent with their overall supervisory obligations, the extent and duration of training for such registered persons before they are permitted to perform functions requiring registration. NYSE Rule 345(a) prohibits member organizations from permitting any natural person to perform regularly the duties customarily performed by a registered representative, a securities lending representative, a securities trader or a direct supervisor of such persons, unless such person shall have been registered with, qualified by and is acceptable to the NYSE. To reduce regulatory duplication and in furtherance of the SRO Rule Harmonization Initiative, the proposed rule change would limit the prohibition in paragraph (a) to securities lending representatives and their direct supervisors. The substance of NYSE Rule 345(a) with respect to registered representatives and their supervisors is effectively addressed by NASD Rule 1031. FINRA is proposing to delete the registration category of ‘‘securities trader’’ from the Incorporated NYSE Rules because it does not serve any regulatory purpose. Registration as a securities trader requires an individual to pass the Series 7 examination, which qualifies an individual as a general securities representative. FINRA understands that the securities trader registration category was created to avoid application of the four-month training requirement for a registered representative.11 In view of the fact that the four-month training requirement in NYSE Rule 345 is being eliminated, there is no need for an additional registration category tied to the Series 7. However, if the NYSE wishes to retain 10 See NYSE Rule Interpretation 345.15/01 and /02. 11 See E:\FR\FM\14JYN1.SGM NYSE Rule 345.15(b)(2) and (5). 14JYN1 Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Notices pwalker on PROD1PC71 with NOTICES the securities trader registration category, it can do so in a unique NYSE rule. NYSE Rule 345(b) currently prohibits any natural person, other than a member or allied member, to assume the duties of an officer with the power to legally bind such member or member organization unless such member or member organization has filed an application with and received the approval of the NYSE. The proposed rule change would delete NYSE Rule 345(b) in its entirety. There is no equivalent NASD rule. NYSE Rule 346 (Limitations— Employment and Association With Members and Member Organizations) and Its Interpretation NYSE Rule 346 sets forth limitations on the outside business activities of member organization employees. FINRA is proposing to delete NYSE Rule 346(c) which currently requires that prompt written notice be given to the NYSE whenever any member or member organization knows, or in the exercise of reasonable care should know, that any person, other than a member, allied member or employee, directly or indirectly, controls, is controlled by or is under common control with such member or member organization. FINRA believes that this provision is unnecessary as it is a requirement on Form BD that each broker-dealer disclose such control relationships.12 The proposed rule change also harmonizes with the NASD regulatory structure as there is no corresponding NASD requirement. NYSE Rule 407 (Transactions— Employees of Members, Member Organizations and the Exchange) provides, in part, that no employee of a member organization shall establish or maintain a securities or commodities account or enter into a private securities transaction without the prior written consent of his or her member organization. FINRA is proposing to reposition the requirements pertaining to ‘‘private securities transactions’’ (e.g., interests in oil or gas ventures, real estate syndications, tax shelters, etc.) from NYSE Rule 407 13 to NYSE Rule 346 since NYSE Rule 346 more directly addresses issues related to the outside activities of registered persons. Additionally, FINRA is proposing definitions of the terms ‘‘private securities transactions,’’ ‘‘selling compensation’’ and ‘‘immediate family members’’ that are substantially 12 See Question 10 on Form BD. 13 See NYSE Rule 407(b) and section .11 in the Supplementary Material. VerDate Aug<31>2005 17:08 Jul 11, 2008 Jkt 214001 identical to the NASD’s corresponding definitions.14 NYSE Rule 346(e) currently requires that persons who are assigned or delegated supervisory authority pursuant to NYSE Rule 342 devote their entire time during business hours to their member organization, unless otherwise permitted by the NYSE. FINRA is proposing amendments to NYSE Rule 346(e) and Supplementary Material section .10 that would eliminate the SRO approval requirement in order for supervisory persons to devote less than their entire time to the business of their member organization. In lieu thereof, the amended rule would require the prior written approval of the member organization, pursuant to the exercise of due diligence, for such arrangements. The proposed rule change would require the identification of any entity for which the supervisory person will be performing services during business hours and a description of such services. The member organization’s written approval would be required to set forth the approximate amount of time the supervisory person is expected to devote to each entity, with particular attention paid to the approximate time expected to be required for the person, based upon qualifications and experience, to effectively discharge his or her supervisory responsibilities on behalf of the member organization. In addition, the amendments would require documentation that the member organization has made a good faith determination that the arrangement will not compromise the protection of investors or the public interest, compromise the supervisor’s duties at the member organization, or give rise to a material conflict of interest. FINRA is also proposing, as conforming changes, to delete the NYSE Rule 346 Interpretation relating to the outside connections of supervisory persons 15 and to amend the Interpretation to NYSE Rule 311, which includes a reference to Rule 346(e). NYSE Rule 351 (Reporting Requirements) NYSE Rule 351(d) requires each member organization to report certain statistical information regarding customer complaints. The requirement currently extends to both oral and written complaints. The proposed rule change would adopt NYSE Rule 351.13 to limit the definition of the term 14 See proposed changes to NYSE Rule 346 Supplementary Material. 15 See NYSE Rule Interpretation 346/03 (Outside Connections—Supervisory Persons). PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 40405 ‘‘customer complaint’’ to any written statement of a customer, or any person acting on behalf of a customer, other than a broker or dealer, alleging a grievance involving the activities of those persons under the control of a member organization. This proposed definition is substantially similar to the current definition in NASD Rule 3070(c). NYSE Rule 352 (Guarantees, Sharing in Accounts, and Loan Arrangements) NYSE Rule 352 restricts the extent to which member organization personnel may share in customer account profits or losses. NYSE Rule 352(b) generally prohibits member organizations, allied members and registered representatives from sharing profits or losses in any customer account. However, NYSE Rule 352(c) permits such sharing in proportion to financial contributions made to a joint account. First, FINRA is proposing to amend NYSE Rule 352(c) to exempt, from the proportional contribution requirement, joint accounts with immediate family members held by principal executives or registered representatives of a member organization. This amendment would limit the regulation of accounts that may reasonably entail profit and loss participation on a disproportionate basis, as with joint accounts between husband and wife, while retaining coverage of the rule for other accounts. NASD Rule 2330(f)(1)(A) similarly addresses the circumstances under which a FINRA member or a person associated with a FINRA member may share in profits and losses with a customer, provided such sharing is proportionate to the financial contributions of each account holder; NASD Rule 2330(f)(1)(B) exempts from this proportionality requirement accounts shared between an associated person and a customer who is an immediate family member of such associated person. Second, the proposed rule change would make clear that any sharing arrangement entered into pursuant to NYSE Rule 352(c) is subject to the NYSE Rule 352(a) provision that no member organization shall guarantee or in any way represent that it will guarantee any customer against loss in any account or on any transaction; and no employee of such member organization shall guarantee or in any way represent that either he or she, or his or her employer, will guarantee any customer against loss in any customer account or on any customer transaction. Third, the proposed rule change would define the term ‘‘immediate family’’ in NYSE Rule 352(c) to include E:\FR\FM\14JYN1.SGM 14JYN1 40406 Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Notices parents, mother-in-law or father-in-law, husband or wife, children or any relative to whose support the principal executive or registered representative contributes directly or indirectly. This proposed definition would harmonize with the standard under NASD Rule 2330(f)(1)(B). The existing definition of ‘‘immediate family’’ in NYSE Rule 352(g) is retained for other provisions in the Rule, essentially allowing persons acting in the capacity of a registered representative or principal executive to lend to or borrow from a more extensive range of family members. The broader NYSE Rule 352(g) standard is also consistent with the corresponding NASD standard in connection with borrowing from or lending to customers.16 Lastly, FINRA is proposing amendments to NYSE Rule 352(d) to streamline the reference in the rule to Rule 205–3 of the Investment Advisers Act of 1940. Specifically, the revised provision would provide that, notwithstanding the general prohibition against sharing in profits under paragraph (b), a person acting as an investment adviser (whether or not registered as such) may receive compensation based on a share of profits or gains in an account if all of the conditions in Rule 205–3 of the Investment Advisers Act of 1940 are satisfied. This proposal better aligns NYSE Rule 352 with NASD Rule 2330(f). pwalker on PROD1PC71 with NOTICES NYSE Rule 404 (Individual Members Not to Carry Accounts) A FINRA Letter of Approval that details the scope of approved activities is sent to new FINRA members. The requirements of NYSE Rule 404 are duplicative of this Letter. Therefore, FINRA is proposing to rescind NYSE Rule 404. NYSE Rule 408 (Discretionary Power in Customers’ Accounts) NYSE Rule 408 provides, in part, that no employee of a member organization shall exercise discretionary power in any customer’s account or accept orders for an account from a person other than the customer without first obtaining written authorization from the customer. FINRA is proposing amendments to NYSE Rule 408(a) that would require member organizations to obtain the signature of any person or persons authorized to exercise discretion in such accounts, of any substitute so authorized, and the date such discretionary authority was granted. The proposed amendment would conform NYSE Rule 408(a) to corresponding requirements in NASD Rule 3110(c)(3). NYSE Rule 412 (Customer Account Transfer Contracts) and Its Interpretation NYSE Rule 412 governs the transfer of customer accounts from one member to another. This rule is duplicative of NASD Rule 11870 (Customer Account Transfer Contracts). Thus, FINRA is proposing to rescind NYSE Rule 412 and its Interpretation. NYSE Rule 436 (Interest on Credit Balances) and Its Interpretation FINRA is proposing to rescind NYSE Rule 436 and its Interpretation as it has become outdated and is no longer applicable to the current business models of members. There is no comparable NASD Rule. NYSE Rule 446 (Business Continuity and Contingency Plans) NYSE Rule 446 is nearly identical to NASD Rules 3510 (Business Continuity Plans) and 3520 (Emergency Contact Information). To reduce regulatory duplication in these areas and to advance the efforts to create a Consolidated FINRA Rulebook, FINRA is proposing to delete NYSE Rule 446 because NASD Rules sufficiently address this area. Following Commission approval of the proposed rule change, FINRA will publish a Regulatory Notice(s) setting forth the effective date(s) of the proposals. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of section 15A(b)(6) of the Act,17 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 provide greater harmonization between Incorporated NYSE Rules and NASD Rules of similar purpose, resulting in less burdensome and more efficient regulatory compliance for Dual Members. Where proposed amendments do not entirely conform to existing NASD rules or address a provision without a direct NASD Rule counterpart, FINRA believes the standards they would establish otherwise further the objectives of the 16 See NASD Rule 2370(c) (Borrowing From or Lending To Customers). VerDate Aug<31>2005 17:08 Jul 11, 2008 Jkt 214001 PO 00000 17 15 U.S.C. 78o–3(b)(6). Frm 00124 Fmt 4703 Sfmt 4703 Act by providing greater regulatory clarity and practicality and relieving unnecessary regulatory burdens in the interim period until a Consolidated FINRA Rulebook is completed. 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. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or (ii) as to which FINRA consents, the Commission will: (A) By order approve such proposed rule change; or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. 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 rulecomments@sec.gov. Please include File Number SR–FINRA–2008–036 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–FINRA–2008–036. 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 E:\FR\FM\14JYN1.SGM 14JYN1 Federal Register / Vol. 73, No. 135 / Monday, July 14, 2008 / Notices 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 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 publicly available. All submissions should refer to File Number SR–FINRA– 2008–036 and should be submitted on or before August 4, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Florence E. Harmon, Acting Secretary. [FR Doc. E8–15817 Filed 7–11–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58114; File No. SR–NASD– 2007–041] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc. (f/k/a National Association of Securities Dealers, Inc.); Notice of Filing of Amendment No. 2 to Proposed Rule Change To Amend the Minimum PriceImprovement Standards Set Forth in NASD Interpretive Material (IM) 2110–2 pwalker on PROD1PC71 with NOTICES July 7, 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 June 26, 2008, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) 3 filed with the 18 17 CFR 200.30–3(a)(12). 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 1 15 VerDate Aug<31>2005 17:08 Jul 11, 2008 Jkt 214001 Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) Amendment No. 2 to SR–NASD–2007–041 as described in Items I, II, and III below, which Items have been substantially prepared by FINRA.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 2, from interested parties. 40407 1. Purpose On June 27, 2007, FINRA filed with the Commission SR–NASD–2007–041, proposing amendments to the minimum price-improvement provisions in IM– 2110–2 (‘‘original proposal’’). On August 28, 2007, the Commission published for comment the proposed rule change in the Federal Register.5 The Commission received one commenter letter on the proposed rule change.6 On November 1, 2007, FINRA submitted a response letter to the Commission.7 On May 20, 2008, FINRA filed with the Commission Amendment No. 1 to the proposed rule change. FINRA is filing this Amendment No. 2, which replaces and supersedes Amendment No. 1 to SR–NASD–2007– 041, to amend the proposed rule change to address an inconsistency in the application of the proposed minimum price improvement standards as discussed herein. On February 26, 2007, the Commission approved SR–NASD–2005– 146, which, among other things, expanded the scope of IM–2110–2 8 to apply to over-the-counter (‘‘OTC’’) equity securities and amended the minimum level of price-improvement that a member must provide to trade ahead of an unexecuted customer limit order (‘‘price-improvement standards’’). The rule changes in SR–NASD–2005– 146 were initially scheduled to become effective on July 26, 2007.9 Following Commission approval of SR–NASD–2005–146, several firms raised concerns regarding the timing of the implementation of the proposed rule change and the application of the approved minimum price-improvement standards. In response to these concerns, FINRA filed a proposed rule change to delay the effective date of the changes in SR–NASD–2005–146 pending its review of the amended price-improvement standards.10 Subsequently, FINRA filed SR– NASD–2007–041 with the Commission to further amend the price-improvement standards in IM–2110–2 based on new tiered standards that varied according to the price of the customer limit order. In response to the publication of the proposed rule change in the Federal Register, the Commission received one comment letter on the proposal.11 As further detailed in the FINRA Response Letter, the commenter noted an inconsistency in the application of proposed minimum price-improvement standards in low-priced securities when the customer limit order and the proprietary trade fall into different minimum price improvement tiers (e.g., a customer limit order to sell is priced 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). 4 FINRA filed the original proposed rule change on June 27, 2007. FINRA filed Amendment No. 1 to the proposed rule change on May 20, 2008. Amendment No. 2 supersedes and replaces Amendment No. 1. 5 See Securities Exchange Act Release No. 56297 (August 21, 2007), 72 FR 49337 (August 28, 2007) (notice of filing of SR–NASD–2007–041). 6 See Letter to Secretary, Commission, from Jess Haberman, Compliance Director, Fidessa Corp., dated September 5, 2007. 7 See Letter from Andrea Orr, FINRA, to Nancy M. Morris, Secretary, Commission, dated November 1, 2007 (‘‘FINRA Response Letter’’). 8 Currently, IM–2110–2 generally prohibits a member from trading for its own account in an exchange-listed security at a price that is equal to or better than an unexecuted customer limit order in that security, unless the member immediately thereafter executes the customer limit order at the price at which it traded for its own account or better. 9 See NASD Notice to Members 07–19 (April 2007). 10 See Securities Exchange Act Release No. 56103 (July 19, 2007), 72 FR 40918 (July 25, 2007) (notice of filing and immediate effectiveness of SR–NASD– 2007–039). See also See Securities Exchange Act Release No. 56822 (November 20, 2007), 72 FR 67326 (November 28, 2007) (notice of filing and immediate effectiveness of SR–FINRA–2007–023); and Securities Exchange Act Release No. 57133 (January 11, 2008), 73 FR 3500 (January 18, 2008) (notice of filing and immediate effectiveness of SR– FINRA–2007–038). 11 See supra note 6. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA proposes to amend the proposed rule change to address an inconsistency in the application of the proposed minimum price-improvements standards. The text of the proposed rule change is available on FINRA’s Web site (http://www.finra.org), at FINRA’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 E:\FR\FM\14JYN1.SGM 14JYN1

Agencies

[Federal Register Volume 73, Number 135 (Monday, July 14, 2008)]
[Notices]
[Pages 40403-40407]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-15817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58103; File No. SR-FINRA-2008-036]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of a Proposed Rule Change Relating to 
the Incorporated NYSE Rules

July 3, 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 3, 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, II 
and III below, which Items have been prepared substantially by FINRA. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA proposes to amend certain rules of the New York Stock 
Exchange LLC (``NYSE'') to reduce regulatory duplication and relieve 
firms that are members of both FINRA and the NYSE (``Dual Members'') of 
conflicting or unnecessary regulatory burdens in the interim period 
before a consolidated FINRA rulebook is completed.\3\ The text of the 
proposed rule change is available at http://www.finra.org, the 
principal offices of FINRA, and the Commission's Public Reference Room.
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    \3\ This proposal is an extension of the SRO Rule Harmonization 
Initiative, which compared NYSE regulatory requirements to 
corresponding NASD regulatory provisions. The purpose of the process 
was to achieve, to the extent practicable, substantive harmonization 
of the two regulatory schemes.
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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

Background

    On July 30, 2007, FINRA was formed through the consolidation of 
NASD and the member regulation, enforcement and arbitration operations 
of NYSE. As part of the consolidation, FINRA incorporated into its 
rulebook certain NYSE rules related to member firm conduct 
(``Incorporated NYSE Rules''). As a result, the current FINRA rulebook 
consists of two sets of rules: (1) NASD Rules and (2) Incorporated NYSE 
Rules (together referred to herein as the ``Transitional Rulebook''). 
While the NASD Rules generally apply to all FINRA members, the 
Incorporated NYSE Rules apply only to Dual Members. FINRA is developing 
a new consolidated rulebook (``Consolidated FINRA Rulebook''), which, 
upon completion, will consist only of FINRA Rules.
    In the interim period before the Consolidated FINRA Rulebook is 
completed, FINRA is proposing amendments to certain Incorporated NYSE 
Rules to reduce regulatory disparities and to relieve Dual Members of 
conflicting or unnecessary regulatory burdens. The proposed rule change 
includes those rule changes proposed in the NYSE's Omnibus filing that 
would reach an interim solution to an unnecessary regulatory burden or 
to an inconsistent standard between the Incorporated NYSE Rules and 
NASD Rules.\4\ Additionally, this proposal would rescind certain 
Incorporated NYSE Rules in substantive areas that are sufficiently 
addressed by NASD Rules.
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    \4\ See Securities Exchange Act Release No. 56142 (July 26, 
2007), 72 FR 42195 (August 1, 2007) (SR-NYSE-2007-22).
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    FINRA believes that the proposed rule change will provide a timely 
solution to achieve greater harmonization between Incorporated NYSE 
Rules and NASD Rules of similar purpose, resulting in less burdensome 
and more efficient regulatory compliance for Dual Members. The proposed 
rule change would affect the Transitional Rulebook in its application 
to Dual Members only and does not necessarily reflect FINRA's intent or 
conclusion as to the ultimate rule text that will populate the 
Consolidated FINRA Rulebook.

Proposed Amendments

Allied Member

    The proposed rule change would delete the term ``allied member'' 
from the Incorporated NYSE Rules. The ``allied member'' designation is 
a regulatory category based on a person's ``control'' over a member 
organization.\5\ Allied membership, as currently administered, has no 
direct analogue under the FINRA membership scheme.
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    \5\ See NYSE Rule 304(b) (Allied Members and Approved Persons). 
FINRA did not incorporate NYSE Rule 304.
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    NYSE Rule 2(c) currently defines the term ``allied member'' as a 
natural person who is a general partner of a member organization or 
other employee of a member organization who controls,\6\ or is a 
principal executive officer of, such member organization, and who has 
been approved by the NYSE as an allied member. In instances where the 
term ``allied member'' appears in a rule to denote an individual's 
status as a member organization ``control person,'' FINRA is proposing 
to substitute, for the term ``allied member,'' the newly defined 
category of ``principal executive'' (see proposed NYSE Rule 311.17). 
The proposed definition for ``principal executive'' is identical to the 
current definition of ``principal executive officer'' in NYSE Rule 
311(b)(5) with additional language to clarify that the functional 
equivalents of such persons would also be included in this category. As 
such, FINRA is proposing to replace ``principal executive officer'' 
with ``principal executive.''
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    \6\ See NYSE Rule 2(f) for the definition of ``control.''
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    A ``principal executive'' would be defined to include: An employee 
of a member organization designated to exercise senior principal 
executive

[[Page 40404]]

responsibility over the various areas of the business of the member 
organization including: Operations, compliance with rules and 
regulations of regulatory bodies, finances and credit, sales, 
underwriting, research and administration; and any employee of a member 
organization who is a functional equivalent of such person. Thus, the 
``principal executive'' designation would encompass each Chief 
Executive Officer, Chief Financial Officer, Chief Operations Officer, 
Chief Compliance Officer, Chief Legal Officer or any person assigned 
comparable functions or responsibilities (e.g., a person in a Limited 
Liability Company with principal executive responsibilities but with 
other than a principal executive title).
    Unlike the ``allied member'' designation, ``principal executive'' 
would not require a registration process, approval by the NYSE or a 
particular qualification examination. However, each ``principal 
executive'' would be required to take and pass any qualification 
examinations necessary to perform his or her assigned functions.

Buy-In Rules

    In an effort to harmonize and update the SRO Operational, Clearing 
and Settlement Rules (collectively referred to herein as the ``Buy-In 
Rules''), FINRA is proposing to reposition NYSE Rules 283, 285, 286, 
287, 288, 289, and 290 into NYSE Rule 282 so that NYSE Rule 282 would 
serve as a complete, central repository for all requirements and 
procedures related to transactions subject to the Buy-In Rules. The 
substance of the repositioned rules would not be altered by the 
proposed rule change. The proposed rule change would bring the NYSE 
Buy-In Rules closer to the format of NASD Rule 11810 (Buying-In).
    Additionally, consistent with the NYSE's Omnibus filing, FINRA is 
proposing to add the substance of NYSE Rule 140 to NYSE Rule 282.\7\ 
Although FINRA did not incorporate NYSE Rule 140 into its rulebook, 
FINRA staff believes that the Omnibus proposal appropriately places the 
substance of NYSE Rule 140 into Rule 282. FINRA is also proposing 
amendments to the current text of NYSE Rule 282 to clarify that fails 
that are subject to the rules of a Qualified Clearing Agency must 
comply with the procedures or requirements of the Qualified Clearing 
Agency. This proposal harmonizes the scope of NYSE Rule 282 with the 
scope of NASD's 11000 Rule Series.
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    \7\ See proposed Rule 282.15.
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    Lastly, the proposed rule change would amend NYSE Rule 282 to adopt 
certain provisions of NASD Rule 11810 to further harmonize the 
requirements related to transactions subject to the Buy-In Rules. 
Specifically, FINRA proposes to add to the Supplementary Material of 
NYSE Rule 282 the following sections of NASD Rule 11810: (f) 
(Securities in Transit); (h) (``Close-Out'' Under Committee or Exchange 
Rulings); (i) (Failure to Deliver and Liability Notice Procedures); (j) 
(Contracts Made for Cash); (l) (``Buy-In'' Desk Required); and (m) 
(Buy-In of Accrued Securities).

NYSE Rule 311 (Formation and Approval of Member Organizations) and Its 
Interpretation

    NYSE Rule 311 governs the formation and approval of member 
organizations. In addition to the ``allied member'' proposals to NYSE 
Rule 311 noted above, the proposed rule change would delete paragraph 
(h) of NYSE Rule 311, which prescribes the number of partners to be 
named in a member organization in order for it to conduct business. 
There is no equivalent NASD requirement. The proposed deletion 
recognizes that NYSE Rule 311(h) is outdated and no longer necessary in 
light of the current spectrum of member organizations' business models.

NYSE Rule 342.13 (Acceptability of Supervisors) and Its Interpretation

    NYSE Rule 342.13(a) currently requires that persons who are to be 
assigned certain prescribed supervisory responsibilities \8\ have a 
creditable three-year record as a registered representative or have 
three years of equivalent experience before functioning as a 
supervisor.\9\ FINRA is proposing to amend NYSE Rule 342.13(a) and its 
Interpretation to eliminate the prescribed three-year record 
requirement for supervisory personnel. Additionally, the proposal would 
conform NYSE Rule 342.13(a) to the standard outlined in NASD Rule 
1014(a)(10)(D) with respect to firms that are submitting an application 
to become FINRA members. In such instances, supervisory candidates 
would be required to have one year of ``direct experience'' or two 
years of ``related experience'' in the subject area to be supervised.
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    \8\ In this regard, NYSE Rule 342.13(a) references NYSE Rule 
342(d) which requires that ``[q]ualified persons acceptable to the 
Exchange shall be in charge of: (1) Any office of a member or member 
organization, (2) any regional or other group of offices, (3) any 
sales department or activity.''
    \9\ NYSE Rule 342.13(a) also requires that persons assigned 
supervisory responsibility pursuant to NYSE Rule 342(d) must pass a 
qualification examination acceptable to the NYSE that demonstrates 
competence relevant to assigned responsibilities.
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NYSE Rule 345 (Employees--Registration, Approval, Records) and Its 
Interpretation

    NYSE Rule 345 and its Interpretation \10\ currently provide that 
certain exam-qualified registered persons will not receive NYSE 
approval to perform functions pursuant to such qualifications without 
first completing certain prescribed training periods. To harmonize NYSE 
Rule 345 with NASD registration requirements, FINRA is proposing to 
eliminate the prescribed training periods in NYSE Rule 345 and its 
Interpretation. The proposed amendments would allow member 
organizations to determine, consistent with their overall supervisory 
obligations, the extent and duration of training for such registered 
persons before they are permitted to perform functions requiring 
registration.
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    \10\ See NYSE Rule Interpretation 345.15/01 and /02.
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    NYSE Rule 345(a) prohibits member organizations from permitting any 
natural person to perform regularly the duties customarily performed by 
a registered representative, a securities lending representative, a 
securities trader or a direct supervisor of such persons, unless such 
person shall have been registered with, qualified by and is acceptable 
to the NYSE. To reduce regulatory duplication and in furtherance of the 
SRO Rule Harmonization Initiative, the proposed rule change would limit 
the prohibition in paragraph (a) to securities lending representatives 
and their direct supervisors. The substance of NYSE Rule 345(a) with 
respect to registered representatives and their supervisors is 
effectively addressed by NASD Rule 1031. FINRA is proposing to delete 
the registration category of ``securities trader'' from the 
Incorporated NYSE Rules because it does not serve any regulatory 
purpose. Registration as a securities trader requires an individual to 
pass the Series 7 examination, which qualifies an individual as a 
general securities representative. FINRA understands that the 
securities trader registration category was created to avoid 
application of the four-month training requirement for a registered 
representative.\11\ In view of the fact that the four-month training 
requirement in NYSE Rule 345 is being eliminated, there is no need for 
an additional registration category tied to the Series 7. However, if 
the NYSE wishes to retain

[[Page 40405]]

the securities trader registration category, it can do so in a unique 
NYSE rule.
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    \11\ See NYSE Rule 345.15(b)(2) and (5).
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    NYSE Rule 345(b) currently prohibits any natural person, other than 
a member or allied member, to assume the duties of an officer with the 
power to legally bind such member or member organization unless such 
member or member organization has filed an application with and 
received the approval of the NYSE. The proposed rule change would 
delete NYSE Rule 345(b) in its entirety. There is no equivalent NASD 
rule.

NYSE Rule 346 (Limitations--Employment and Association With Members and 
Member Organizations) and Its Interpretation

    NYSE Rule 346 sets forth limitations on the outside business 
activities of member organization employees. FINRA is proposing to 
delete NYSE Rule 346(c) which currently requires that prompt written 
notice be given to the NYSE whenever any member or member organization 
knows, or in the exercise of reasonable care should know, that any 
person, other than a member, allied member or employee, directly or 
indirectly, controls, is controlled by or is under common control with 
such member or member organization. FINRA believes that this provision 
is unnecessary as it is a requirement on Form BD that each broker-
dealer disclose such control relationships.\12\ The proposed rule 
change also harmonizes with the NASD regulatory structure as there is 
no corresponding NASD requirement.
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    \12\ See Question 10 on Form BD.
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    NYSE Rule 407 (Transactions--Employees of Members, Member 
Organizations and the Exchange) provides, in part, that no employee of 
a member organization shall establish or maintain a securities or 
commodities account or enter into a private securities transaction 
without the prior written consent of his or her member organization. 
FINRA is proposing to reposition the requirements pertaining to 
``private securities transactions'' (e.g., interests in oil or gas 
ventures, real estate syndications, tax shelters, etc.) from NYSE Rule 
407 \13\ to NYSE Rule 346 since NYSE Rule 346 more directly addresses 
issues related to the outside activities of registered persons. 
Additionally, FINRA is proposing definitions of the terms ``private 
securities transactions,'' ``selling compensation'' and ``immediate 
family members'' that are substantially identical to the NASD's 
corresponding definitions.\14\
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    \13\ See NYSE Rule 407(b) and section .11 in the Supplementary 
Material.
    \14\ See proposed changes to NYSE Rule 346 Supplementary 
Material.
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    NYSE Rule 346(e) currently requires that persons who are assigned 
or delegated supervisory authority pursuant to NYSE Rule 342 devote 
their entire time during business hours to their member organization, 
unless otherwise permitted by the NYSE. FINRA is proposing amendments 
to NYSE Rule 346(e) and Supplementary Material section .10 that would 
eliminate the SRO approval requirement in order for supervisory persons 
to devote less than their entire time to the business of their member 
organization. In lieu thereof, the amended rule would require the prior 
written approval of the member organization, pursuant to the exercise 
of due diligence, for such arrangements. The proposed rule change would 
require the identification of any entity for which the supervisory 
person will be performing services during business hours and a 
description of such services. The member organization's written 
approval would be required to set forth the approximate amount of time 
the supervisory person is expected to devote to each entity, with 
particular attention paid to the approximate time expected to be 
required for the person, based upon qualifications and experience, to 
effectively discharge his or her supervisory responsibilities on behalf 
of the member organization. In addition, the amendments would require 
documentation that the member organization has made a good faith 
determination that the arrangement will not compromise the protection 
of investors or the public interest, compromise the supervisor's duties 
at the member organization, or give rise to a material conflict of 
interest. FINRA is also proposing, as conforming changes, to delete the 
NYSE Rule 346 Interpretation relating to the outside connections of 
supervisory persons \15\ and to amend the Interpretation to NYSE Rule 
311, which includes a reference to Rule 346(e).
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    \15\ See NYSE Rule Interpretation 346/03 (Outside Connections--
Supervisory Persons).
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NYSE Rule 351 (Reporting Requirements)

    NYSE Rule 351(d) requires each member organization to report 
certain statistical information regarding customer complaints. The 
requirement currently extends to both oral and written complaints. The 
proposed rule change would adopt NYSE Rule 351.13 to limit the 
definition of the term ``customer complaint'' to any written statement 
of a customer, or any person acting on behalf of a customer, other than 
a broker or dealer, alleging a grievance involving the activities of 
those persons under the control of a member organization. This proposed 
definition is substantially similar to the current definition in NASD 
Rule 3070(c).

NYSE Rule 352 (Guarantees, Sharing in Accounts, and Loan Arrangements)

    NYSE Rule 352 restricts the extent to which member organization 
personnel may share in customer account profits or losses. NYSE Rule 
352(b) generally prohibits member organizations, allied members and 
registered representatives from sharing profits or losses in any 
customer account. However, NYSE Rule 352(c) permits such sharing in 
proportion to financial contributions made to a joint account.
    First, FINRA is proposing to amend NYSE Rule 352(c) to exempt, from 
the proportional contribution requirement, joint accounts with 
immediate family members held by principal executives or registered 
representatives of a member organization. This amendment would limit 
the regulation of accounts that may reasonably entail profit and loss 
participation on a disproportionate basis, as with joint accounts 
between husband and wife, while retaining coverage of the rule for 
other accounts. NASD Rule 2330(f)(1)(A) similarly addresses the 
circumstances under which a FINRA member or a person associated with a 
FINRA member may share in profits and losses with a customer, provided 
such sharing is proportionate to the financial contributions of each 
account holder; NASD Rule 2330(f)(1)(B) exempts from this 
proportionality requirement accounts shared between an associated 
person and a customer who is an immediate family member of such 
associated person.
    Second, the proposed rule change would make clear that any sharing 
arrangement entered into pursuant to NYSE Rule 352(c) is subject to the 
NYSE Rule 352(a) provision that no member organization shall guarantee 
or in any way represent that it will guarantee any customer against 
loss in any account or on any transaction; and no employee of such 
member organization shall guarantee or in any way represent that either 
he or she, or his or her employer, will guarantee any customer against 
loss in any customer account or on any customer transaction.
    Third, the proposed rule change would define the term ``immediate 
family'' in NYSE Rule 352(c) to include

[[Page 40406]]

parents, mother-in-law or father-in-law, husband or wife, children or 
any relative to whose support the principal executive or registered 
representative contributes directly or indirectly. This proposed 
definition would harmonize with the standard under NASD Rule 
2330(f)(1)(B). The existing definition of ``immediate family'' in NYSE 
Rule 352(g) is retained for other provisions in the Rule, essentially 
allowing persons acting in the capacity of a registered representative 
or principal executive to lend to or borrow from a more extensive range 
of family members. The broader NYSE Rule 352(g) standard is also 
consistent with the corresponding NASD standard in connection with 
borrowing from or lending to customers.\16\
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    \16\ See NASD Rule 2370(c) (Borrowing From or Lending To 
Customers).
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    Lastly, FINRA is proposing amendments to NYSE Rule 352(d) to 
streamline the reference in the rule to Rule 205-3 of the Investment 
Advisers Act of 1940. Specifically, the revised provision would provide 
that, notwithstanding the general prohibition against sharing in 
profits under paragraph (b), a person acting as an investment adviser 
(whether or not registered as such) may receive compensation based on a 
share of profits or gains in an account if all of the conditions in 
Rule 205-3 of the Investment Advisers Act of 1940 are satisfied. This 
proposal better aligns NYSE Rule 352 with NASD Rule 2330(f).

NYSE Rule 404 (Individual Members Not to Carry Accounts)

    A FINRA Letter of Approval that details the scope of approved 
activities is sent to new FINRA members. The requirements of NYSE Rule 
404 are duplicative of this Letter. Therefore, FINRA is proposing to 
rescind NYSE Rule 404.

NYSE Rule 408 (Discretionary Power in Customers' Accounts)

    NYSE Rule 408 provides, in part, that no employee of a member 
organization shall exercise discretionary power in any customer's 
account or accept orders for an account from a person other than the 
customer without first obtaining written authorization from the 
customer. FINRA is proposing amendments to NYSE Rule 408(a) that would 
require member organizations to obtain the signature of any person or 
persons authorized to exercise discretion in such accounts, of any 
substitute so authorized, and the date such discretionary authority was 
granted. The proposed amendment would conform NYSE Rule 408(a) to 
corresponding requirements in NASD Rule 3110(c)(3).

NYSE Rule 412 (Customer Account Transfer Contracts) and Its 
Interpretation

    NYSE Rule 412 governs the transfer of customer accounts from one 
member to another. This rule is duplicative of NASD Rule 11870 
(Customer Account Transfer Contracts). Thus, FINRA is proposing to 
rescind NYSE Rule 412 and its Interpretation.

NYSE Rule 436 (Interest on Credit Balances) and Its Interpretation

    FINRA is proposing to rescind NYSE Rule 436 and its Interpretation 
as it has become outdated and is no longer applicable to the current 
business models of members. There is no comparable NASD Rule.

NYSE Rule 446 (Business Continuity and Contingency Plans)

    NYSE Rule 446 is nearly identical to NASD Rules 3510 (Business 
Continuity Plans) and 3520 (Emergency Contact Information). To reduce 
regulatory duplication in these areas and to advance the efforts to 
create a Consolidated FINRA Rulebook, FINRA is proposing to delete NYSE 
Rule 446 because NASD Rules sufficiently address this area.
    Following Commission approval of the proposed rule change, FINRA 
will publish a Regulatory Notice(s) setting forth the effective date(s) 
of the proposals.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\17\ 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 
provide greater harmonization between Incorporated NYSE Rules and NASD 
Rules of similar purpose, resulting in less burdensome and more 
efficient regulatory compliance for Dual Members. Where proposed 
amendments do not entirely conform to existing NASD rules or address a 
provision without a direct NASD Rule counterpart, FINRA believes the 
standards they would establish otherwise further the objectives of the 
Act by providing greater regulatory clarity and practicality and 
relieving unnecessary regulatory burdens in the interim period until a 
Consolidated FINRA Rulebook is completed.
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    \17\ 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.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which FINRA consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-FINRA-2008-036 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2008-036. 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

[[Page 40407]]

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 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 publicly available. All submissions 
should refer to File Number SR-FINRA-2008-036 and should be submitted 
on or before August 4, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15817 Filed 7-11-08; 8:45 am]
BILLING CODE 8010-01-P