Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, To Amend the By-Laws of FINRA Regulation To Realign the Representation of Industry Members on the National Adjudicatory Council To Follow More Closely the Categories of Industry Representation on the FINRA Board, 56872-56876 [E8-22927]
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56872
Federal Register / Vol. 73, No. 190 / Tuesday, September 30, 2008 / Notices
also obtain the customer’s name, Tax
Identification Number, address, and
telephone number.
2. Statutory Basis
The Exchange believes that the
proposed rule changes are consistent
with Section 6 of the Act,15 in general,
and further the objectives of Section
6(b)(5),16 in particular, in that they are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanisms of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest, by providing the
investing public with options
communications rules that are designed
to provide appropriate safeguards and
greater clarity by promoting
harmonization between the Amex and
other SRO options communications
rules and conforming Rule 921 to the
requirements of Rule 17a–3(a)(17) under
the Exchange Act. The Exchange also
believes that the proposal is consistent
with Section 6(b)(5) of the Exchange Act
because the proposed amendments to
Amex Rule 991 reflect amendments to
the Securities Act that generally exempt
standardized options, and will update
and reorganize the Rule.
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
Exchange Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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 the Exchange consents,
the Commission will (A) by order
15 15
16 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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approve such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.17
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–22962 Filed 9–29–08; 8:45 am]
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:
BILLING CODE 8010–01–P
Electronic Comments
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change, and
Amendment No. 1 Thereto, To Amend
the By-Laws of FINRA Regulation To
Realign the Representation of Industry
Members on the National Adjudicatory
Council To Follow More Closely the
Categories of Industry Representation
on the FINRA Board
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2008–51 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58626; File No. SR–FINRA–
2008–046]
September 23, 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
All submissions should refer to File
September 8, 2008, Financial Industry
Number SR–Amex–2008–51. This file
Regulatory Authority, Inc. (‘‘FINRA,’’
number should be included on the
f/k/a National Association of Securities
subject line if e-mail is used. To help the Dealers, Inc. (‘‘NASD’’)) filed with the
Commission process and review your
Securities and Exchange Commission
comments more efficiently, please use
(‘‘SEC’’ or ‘‘Commission’’) the proposed
only one method. The Commission will rule change as described in Items I, II,
post all comments on the Commission’s and III below, which Items have been
Internet Web site (https://www.sec.gov/
substantially prepared by FINRA. On
rules/sro.shtml). Copies of the
September 17, 2008, FINRA filed
submission, all subsequent
Amendment No. 1 to the proposed rule
amendments, all written statements
change. The Commission is publishing
with respect to the proposed rule
this notice to solicit comments on the
change that are filed with the
proposed rule change, as amended, from
Commission, and all written
interested persons.
communications relating to the
I. Self-Regulatory Organization’s
proposed rule change between the
Statement of the Terms of Substance of
Commission and any person, other than
the Proposed Rule Change
those that may be withheld from the
FINRA is proposing to amend the Bypublic in accordance with the
Laws of FINRA’s regulatory subsidiary
provisions of 5 U.S.C. 552, will be
(‘‘FINRA Regulation’’) to realign the
available for inspection and copying in
representation of industry members on
the Commission’s Public Reference
the National Adjudicatory Council
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filing also will (‘‘NAC’’) to follow more closely the
industry representation on the FINRA
be available for inspection and copying
Board of Governors (‘‘FINRA Board’’), to
at the principal office of the Amex. All
eliminate the Regional Nominating
comments received will be posted
Committees, to transfer such
without change; the Commission does
committees’ responsibilities for NAC
not edit personal identifying
industry appointments to the FINRA
information from submissions. You
Nominating Committee (‘‘Nominating
should submit only information that
Committee’’), and to change the name of
you wish to make available publicly. All
‘‘NASD Regulation’’ and ‘‘NASD’’ to
submissions should refer to File
Number SR–Amex–2008–51 and should
17 17 CFR 200.30–3(a)(12).
be submitted on or before October 21,
1 15 U.S.C. 78s(b)(1).
2008.
2 17 CFR 240.19b–4.
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‘‘FINRA Regulation’’ and ‘‘FINRA’’
respectively. The text of the proposed
rule change is available at FINRA, on its
Web site (https://www.finra.org), 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
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1. Purpose
Background on FINRA and Its
Regulatory Subsidiary
On July 30, 2007, NASD and the New
York Stock Exchange consolidated their
member firm regulation operations into
a combined organization, FINRA. As
part of the consolidation, the SEC
approved amendments to the NASD ByLaws to implement governance and
related changes.3 The approved changes
included a FINRA Board governance
structure that balanced public and
industry representation and designated
seven governor seats to represent
member firms of various sizes based on
the criteria of firm size.
FINRA Regulation (formerly known as
NASD Regulation) is a subsidiary of
FINRA that operates according to the
Plan of Allocation and Delegation of
Functions by NASD to Subsidiaries, as
amended, which NASD adopted first in
1996 when it formed NASD Regulation.
FINRA Regulation’s By-Laws were not
amended at the time of the
consolidation, other than in a few
sections where those By-Laws conflicted
with the new FINRA By-Laws.
The proposed rule change would
modify the FINRA Regulation By-Laws
to: Restructure the industry
representation on the NAC to parallel
the firm-size criteria for industry
representation on the FINRA Board;
modify the nomination process for
3 See Securities Exchange Act Release No. 56145
(July 26, 2007), 72 FR 42169 (August 1, 2007), as
amended by Securities Exchange Act Release No.
56145A (May 30, 2008), 73 FR 32377 (June 6, 2008)
(File No. SR–NASD–2007–023).
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56873
certain industry member seats on the
NAC by using the Nominating
Committee and discontinuing the
Regional Nominating Committees; and
adopt conforming changes to reflect the
corporate name change and similar
matters.4
are first selected through Regional
Nominating Committees (through either
an uncontested or a contested
nomination process), then nominated by
the Nominating Committee, and finally
appointed by the FINRA Regulation
Board.
The National Adjudicatory Council
The NAC is appointed pursuant to the
FINRA Regulation By-Laws to review all
disciplinary decisions issued by Hearing
Panels and presides over disciplinary
matters that have been appealed to or
called for review by the NAC. The NAC
also reviews statutory disqualification
matters and considers appeals of
membership proceedings and
exemption requests.5
Under current FINRA Regulation ByLaw provisions, the NAC must consist
of no fewer than 12 and no more than
14 members.6 The number of nonindustry members, including at least
three public members, must equal or
exceed the number of industry
members.7 Since 1999, each of five
geographic regions, which had been
established by the NASD Board of
Governors, has been represented on the
NAC. Non-industry members of the
NAC and two ‘‘at-large’’ industry
members currently are nominated to
serve on the NAC by the Nominating
Committee and then appointed by the
FINRA Regulation Board.8 The five
industry members of the NAC who are
drawn from the five geographic regions
Discussion of Changes to the NAC
Election Process
The proposed rule change would
amend Article I (Definitions), Article V
(National Adjudicatory Council), and
Article VI (National Adjudicatory
Council Regional Nominations for
Industry Members) of the FINRA
Regulation By-Laws to replace the
current regionally based approach for
appointing industry representatives to
the NAC with a process that is based on
firm size and is similar to the FINRA
Board’s approach.9 The NAC’s
regionally based election process is a
legacy NASD practice that no longer
parallels the governance structure of the
FINRA Board. The proposed rule change
would replace the five regionally based
industry members of the NAC with two
small firm, one mid-size firm, and two
large firm industry representatives. The
make-up of the NAC under the proposed
rule change would follow more closely
the current make-up of the FINRA
Board.
The restructured NAC would
therefore consist of 14 members,
including seven industry members, two
of whom are ‘‘at large’’ and five of
whom are designated specifically as
representatives of large firms, mid-size
firms, and small firms, and seven nonindustry members, three of whom are
public.10 The tenure of NAC members is
generally three years and the terms of
the NAC members are staggered. The
proposal would not disrupt the process
4 The proposed rule change would revise, delete,
and/or renumber various provisions of the FINRA
Regulation By-Laws. Renumbered sections are
referred to herein as ‘‘proposed FINRA Regulation
By-Laws.’’ All other sections (that is, sections for
which new numbering did not result from the
proposed revisions) are referred to as ‘‘current
FINRA Regulation By-Laws.’’
5 See current FINRA Regulation By-Laws, Article
V, Section 5.1 (Appointment and Authority).
6 The 2008 NAC consists of 14 members, and the
NAC has had no fewer than 14 members
consistently for many years. To reflect past
practices, the proposed rule change would
eliminate the 12 to 14 member range currently
indicated in the FINRA Regulation By-Laws and
state instead that the NAC shall consist of 14
members, divided equally between industry and
non-industry. The proposal would eliminate the
concept of non-industry members exceeding
industry members and state simply that nonindustry NAC members will equal industry NAC
members. Given that the population of the NAC
will be 14, its balanced nature can be achieved with
an equal industry/non-industry composition.
7 See current FINRA Regulation By-Laws, Article
V, Section 5.2 (Number of Members and
Qualifications).
8 Consistent with Article V of the FINRA
Regulation By-Laws, the current 14-member NAC
includes seven industry and seven non-industry
members. Five of the industry NAC members
represent the five geographic regions. The
remaining two industry seats are ‘‘at-large’’ seats,
which NASD historically used and FINRA currently
uses to add balance to the types of firms being
represented on the NAC.
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9 The FINRA Board consists of eleven Public
Governors (who are appointed), ten Industry
Governors (seven of whom are elected by industry
members), the current Chief Executive Officer
(‘‘CEO’’) of NYSE Regulation, and the current CEO
of FINRA. The ten Industry Governors include: (a)
Three elected Governors who are registered with
member firms that employ 500 or more registered
persons (Large Firm Governors); (b) one elected
Governor who is registered with a member firm that
employs at least 151 and no more than 499
registered persons (Mid-Size Firm Governor); (c)
three elected Governors who are registered with
member firms that employ at least one and no more
than 150 registered persons (Small Firm Governors);
(d) one appointed Governor who is associated with
a floor member of the New York Stock Exchange;
(e) one appointed Governor who is associated with
an independent contractor financial planning
member firm or an insurance company affiliate; and
(f) one appointed Governor who is associated with
an affiliate of an investment company. See FINRA
By-Laws, Article VII (Board of Governors).
10 A public member of the NAC has no material
business relationship with a broker or dealer or a
self-regulatory organization registered under the
Act.
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of approximately one-third of the NAC
members completing their service in a
particular year and being replaced with
newly appointed NAC members. The
proposal would result in a Small Firm
and a Large Firm NAC Member joining
the NAC near the beginning of 2009; a
Mid-Sized Firm NAC Member joining in
2010; and a Small Firm and Large Firm
NAC Member joining in 2011. The
proposed selection process would allow
for the service of NAC members with
knowledge, impartiality, and judicial
temperament, while maintaining the
same level of indirect representation of
FINRA’s membership.
In conjunction with eliminating the
regionally based criteria for identifying
industry NAC members, the proposed
rule change also would simplify the
NAC appointment process for industry
representatives and follow more closely
the procedures for electing industry
members of the FINRA Board. The
process proposed would eliminate the
five Regional Nominating Committees
and have the Nominating Committee
perform their functions instead. Rather
than relying on Regional Nominating
Committees to first identify possible
industry candidates before submission
of the candidates to the Nominating
Committee and the FINRA Regulation
Board, the Nominating Committee
would identify and solicit candidates
for all NAC seats, including the five
industry-member positions that are
based on firm size.11 The Nominating
Committee would be free to consult
with or receive recommendations for
industry NAC members from other
FINRA committees, such as the District
Nominating Committees, before
communicating its nominations to the
FINRA Board.
The proposed rule change would
continue the current process of allowing
individuals who seek to serve on the
NAC but were not nominated, known as
additional candidates, to gather
petitions in support of their candidacy
and potentially compete in a contested
election. Additional candidates would
petition to be considered as Small, MidSize, or Large Firm NAC Members based
on the size of the firm with which they
are registered.
Under the proposal, additional
candidates would be able to qualify for
a contested election by gathering
petitions from three percent of the firms
in their size category, which is lower
than the ten percent requirement
additional candidates currently need to
gather when they seek to qualify for a
11 See proposed FINRA Regulation By-Laws,
Article V, Section 5.3 (Appointments).
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regional NAC seat.12 In the event of a
contested election, FINRA members
would have an opportunity to vote for
a NAC candidate based on firm size.13
Specifically, small, mid-size, or large
firms would vote for NAC candidates
only if the contested election was for a
NAC seat designated for a firm of
corresponding size.
The proposed rule change would
ensure that the winner of a contested
election serves on the NAC. While all
NAC members would continue to be
recommended initially by the
Nominating Committee and appointed
by the FINRA Board,14 the candidate
who receives the most votes in any
contested election for a Small, Mid-Size,
or Large Firm NAC Member seat would
be required under the FINRA Regulation
By-Laws to be appointed to the NAC.15
The current By-Law section that
discusses the procedure in the event
that the Regional Nominating
Committee’s nominee is rejected by the
National Nominating Committee would
accordingly be deleted. The proposal
would not change the NAC selection
process if no additional candidates
reach the threshold to qualify for a
contested election. As in the past when
there are no additional candidates, the
industry NAC members selected by the
Nominating Committee would not have
a contested election and would be
recommended for appointment to the
NAC.16
To verify that a NAC nominee or
candidate would satisfy the definition of
an Industry, Small Firm, Mid-Sized
Firm, Large Firm, Non-Industry, or
Public Member of the NAC, the
proposed rule change would authorize
the FINRA Secretary to collect
12 Compare current FINRA Regulation By-Laws,
Article VI, Section 6.15 (Requirement for Petition
Supporting Additional Candidate) with proposed
FINRA Regulation By-Laws, Article VI, Section 6.2
(Designation of Additional Candidates).
13 See proposed FINRA Regulation By-Laws,
Article VI, Section 6.3 (List of FINRA Members
Eligible to Vote) and Article VI, Section 6.7
(Ballots).
14 The seven non-industry members and two atlarge industry members would continue to follow
the nomination and Board appointment process
currently employed for non-industry and at-large
industry NAC members.
15 See proposed FINRA Regulation By-Laws,
Article V, Section 5.3 (Appointments) and 5.5
(Rejection of Nominating Committee Nominee).
16 The proposed FINRA Regulation By-Laws
retain the possibility that the Nominating
Committee could propose two or more candidates
for a single open small, mid-size, or large firm NAC
seat. See proposed FINRA Regulation By-Laws,
Article VI, Section 6.5 (Notice of Contested
Nomination). In such a case, there would be a
contested election. The proposed rule change
would clarify that only when the Nominating
Committee nominates two or more candidates for
the same open seat would the Nominating
Committee trigger a contested election.
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information from candidates as is
reasonably necessary to serve as the
basis for such a determination.17
The proposed rule change would
modify slightly the provision that
restricts NAC members and certain
committees from communicating in an
official capacity in support of a
candidate in a contested election. The
current rules, which permit individuals
who are Directors or NAC or other
committee members to communicate
their views regarding a candidate in an
individual capacity, would remain the
same. The modification would specify
the narrow circumstances under which
the Nominating Committee may support
its candidate by sending a maximum of
two mailings in support of its
nominee.18 The proposal would clarify
that this limited support is available
during contested NAC elections by
referring to support allowed ‘‘under
these By-Laws,’’ which includes the
support allowed under Article IV,
Section 4.16.19
The proposed rule change would
designate the Secretary of FINRA,
instead of the FINRA Regulation
Secretary, as the person who would
send notice to FINRA members
announcing a contested NAC election;
assist in preparing ballots; prepare a list
of FINRA members eligible to vote;
arrange for the location for counting of
ballots by an independent agent; resolve
ballots that were set aside, if necessary;
extend a time period regarding elections
for good cause; and similar duties.20 The
proposal designates the FINRA
Secretary because this office fulfills the
same role when FINRA holds elections
for the Board of Governors.
As a result of the NAC’s restructuring,
FINRA would continue to promote fair
representation of its members because
seven of the NAC seats will be drawn
from members of the industry and the
industry candidates for five of those
seats will be announced to the
membership and are subject to a
potential election by member firms of a
similar size.
17 See proposed FINRA Regulation By-Laws,
Article V, Section 5.4 (Nomination Process).
18 See proposed FINRA Regulation By-Laws,
Article IV, Section 4.16(b) (Communication of
Views Regarding Contested Election or
Nomination). Section 4.16(b) would also mirror the
language of the FINRA By-Law provision that
allows, in contested elections, the appropriate
FINRA committee to communicate a responsive
message in reply to an additional candidate’s
communication. See FINRA By-Laws, Article VII,
Section 11(b) (Communication of Views).
19 See proposed FINRA Regulation By-Laws,
Article VI, Section 6.6 (Administrative Support).
20 See proposed FINRA Regulation By-Laws,
Article VI, Sections 6.5, 6.7, 6.8, 6.10, 6.11, 6.13,
and 6.14.
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In addition, the rule change would
indicate in proposed Article V, Section
5.10 (Filling of Vacancies) that the NAC
may continue to function while FINRA
fills a vacancy on the NAC. The
proposal also would incorporate the
concept into Section 5.10 from proposed
Section 5.9 (Disqualification), which
specifies that a vacancy on the NAC
lasting six months or less will not cause
a violation of the compositional
requirements of current Article V,
Section 5.2 (Number of Members and
Qualifications).
The proposed rule change would
amend the FINRA Regulation By-Law
provisions regarding resignation,
removal, appointment, and
disqualification of NAC members and
the NAC’s authority to act on FINRA’s
behalf by designating the FINRA Board
as the body authorized to oversee the
NAC.21 The FINRA Board has long had
explicit authority under Articles XII and
XIII of its By-Laws to establish
procedures for disciplinary proceedings
and to impose sanctions in certain
circumstances, and has consistently
relied on the NAC to render judgment
on disciplinary matters, including
imposing sanctions. The proposal
would reinforce these roles by
simplifying the FINRA Board’s
relationship with the NAC and
establishing directly with the FINRA
Board the authority to remove all NAC
members (for refusal, failure, neglect, or
inability to discharge duties), accept
their resignations, appoint them, and
declare them disqualified. Moreover, the
FINRA Board’s direct authority over
resignation, removal, appointment, and
disqualification would logically extend
the FINRA Board’s existing authority to
review the substance of the NAC’s
appellate decisions, which exists
through the FINRA Board’s
discretionary power to call a case for
review by the FINRA Board.22 FINRA
believes that the proposed rule change
will benefit the appellate portion of the
disciplinary process by extending the
FINRA Board’s oversight of the NAC’s
members.
The proposed rule change would
amend current Article V, Section 5.2 of
the FINRA Regulation By-Laws (Number
of Members and Qualifications) to
eliminate the reference that the Chair of
the NAC shall automatically serve as a
Director of the FINRA Regulation Board
for a one-year term. As a result of the
NASD and NYSE consolidation, the
NAC Chair’s automatic service on the
21 See current FINRA Regulation By-Laws, Article
V, Sections 5.1 (Appointment and Authority), and
proposed Sections 5.7–5.9.
22 See Rule 9351.
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FINRA Board of Governors was
previously eliminated in 2007.
Accordingly, the NAC Chair no longer
automatically has the prerequisite
requirement to be appointed to the
FINRA Regulation Board.23
Conforming Changes Relating to the
New FINRA Name
The proposed rule change would
make certain non-substantive changes to
several articles of the FINRA Regulation
By-Laws as follows:
• ‘‘The NASD’’ or ‘‘NASD’’ is
replaced with ‘‘FINRA’’ or ‘‘the
Corporation’’;
• ‘‘NASD Regulation’’ is changed to
‘‘FINRA Regulation’’;
• ‘‘the Rules of the Association’’ is
replaced with ‘‘the Rules of the
Corporation;’’ and
• ‘‘National Nominating Committee’’
is replaced with ‘‘Nominating
Committee.’’
The proposed rule change would
modify the term ‘‘Industry Member’’ in
the definitional section of FINRA
Regulation’s By-Laws, Article I, by
limiting the look-back test that
characterizes NAC or committee
members as industry if they have served
as an officer, director, or employee of a
broker or dealer, among other reasons,
within the past twelve months. The
current provision uses a three year lookback test. This proposed change would
make the definition of ‘‘Industry
Member’’ for NAC and other committee
members consistent with the ‘‘Industry
Governor’’ and ‘‘Industry committee
member’’ definitions in the FINRA ByLaws.24
The proposal would also add the term
‘‘independent director’’ to the portion of
the definition of ‘‘Industry Member’’
that excludes outside directors of a
broker or dealer. Independent director is
synonymous with outside director, but
would be added to the exclusionary
clause to harmonize the FINRA
Regulation By-Laws with the FINRA ByLaws’ use of the term ‘‘independent
director’’ when defining an Industry
Governor. In addition, the definition of
‘‘Public Director’’ and ‘‘Public
Member,’’ which refers to NAC or
committee members, would be modified
to clarify that, for example, a Public
Director’s service on FINRA
Regulation’s Board or a Public Member’s
service on the NAC does not disqualify
that person from satisfying the
23 Additional changes to the FINRA Regulation
By-Laws regarding the FINRA Regulation Board and
capital stock will be proposed by FINRA in a
related proposed rule change that FINRA
anticipates filing in the near future.
24 See FINRA By-Laws, Article I(t).
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56875
definition of Pubic Director or Public
Member.25
The proposed rule change would
reflect that FINRA Regulation’s
Delaware registered agent is Corporate
Creations Network Inc.
The effective date of the proposed
rule change will be the date of
Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,26 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; and Section 15A(b)(4) of
the Act,27 which requires that FINRA
rules are designed to assure a fair
representation of FINRA’s members in
the administration of its affairs. The
composition of the FINRA Board has
previously been found to meet the
statutory requirement, and FINRA
believes that the proposed rule change
will align the representation of industry
members on the NAC to follow more
closely the industry representation on
the FINRA Board.
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 reason for so finding or (ii)
as to which FINRA consents, the
Commission will:
A. By order approve such proposed
rule change; or
25 See proposed FINRA Regulation By-Laws,
Article I(hh) and (ii).
26 15 U.S.C. 78o–3(b)(6).
27 15 U.S.C. 78o–3(b)(4).
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Federal Register / Vol. 73, No. 190 / Tuesday, September 30, 2008 / Notices
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2008–046 on the
subject line.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–22927 Filed 9–29–08; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
ebenthall on PROD1PC60 with NOTICES
Jkt 214001
101+ Users .........
[Release No. 34–58622; File No. SR–
NASDAQ–2008–072]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Establish a PORTAL Reference
Database and Related Fees
September 23, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on
to Secretary, Securities and Exchange
September 16, 2008, the NASDAQ Stock
Commission, 100 F Street, NE.,
Market LLC (‘‘Nasdaq’’) filed with the
Washington, DC 20549–1090.
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
All submissions should refer to File
change as described in Items I, II, and
Number SR–FINRA–2008–046. This file
III below, which Items have been
number should be included on the
prepared by Nasdaq. The Commission is
subject line if e-mail is used. To help the publishing this notice to solicit
Commission process and review your
comments on the proposed rule change
comments more efficiently, please use
from interested persons.
only one method. The Commission will
post all comments on the Commission’s I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
Internet Web site (https://www.sec.gov/
the Proposed Rule Change
rules/sro.shtml). Copies of the
submission, all subsequent
Nasdaq proposes to establish a
amendments, all written statements
PORTAL Reference Database. Nasdaq
with respect to the proposed rule
will make the proposed rule change
change that are filed with the
effective immediately upon approval.
Commission, and all written
The text of the proposed rule change
communications relating to the
is below. Proposed new language is
proposed rule change between the
italicized.3
Commission and any person, other than
*
*
*
*
*
those that may be withheld from the
7050. PORTAL Reference Database
public in accordance with the
provisions of 5 U.S.C. 552, will be
The following charges shall apply to
available for inspection and copying in
access to the PORTAL Reference
the Commission’s Public Reference
Database:
Room, 100 F Street, NE., Washington,
(1) For PORTAL data for 2008 and
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. future years, the annual fee is:
$20,000
Copies of the filing also will be available 1–20 Users ............................
21 to 100 Users ....................
$50,000
for inspection and copying at the
101+ Users ...........................
$100,000
principal office of FINRA. All comments
(2) For PORTAL data for 1990 to 2007,
received will be posted without change;
the fee for each year of reference data
the Commission does not edit personal
shall be:
identifying information from
submissions. You should submit only
28 17 CFR 200.30–3(a)(12).
information that you wish to make
1 15 U.S.C. 78s(b)(1).
available publicly. All submissions
2 17 CFR 240.19b–4.
should refer to File Number SR–FINRA–
3 Changes are marked to the rule text that appears
2008–046 and should be submitted on
in the electronic Nasdaq Manual found at https://
or before October 21, 2008.
nasdaq.complinet.com.
15:35 Sep 29, 2008
21 to 100 Users
BILLING CODE 8010–01–P
Paper Comments
VerDate Aug<31>2005
1–20 Users .........
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
*
*
*
$20,000 (not to exceed
$200,000 for access to
all PORTAL historical
data files from 1990 to
2007).
$50,000 (not to exceed
$500,000 for access to
all PORTAL historical
data files from 1990 to
2007).
$100,000 (not to exceed
$1,000,000 for access
to all PORTAL historical data files from
1990 to 2007).
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq 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
The National Association of Securities
Dealers, Inc. (‘‘NASD’’) created the
PORTAL Market in 1990,4
simultaneously with the SEC’s adoption
of Rule 144A,5 to be a new trading
system for the purpose of quoting,
trading, and reporting trades in
securities deemed eligible for resale by
Qualified Institutional Buyers under
Rule 144A. Rule 144A provides an
exemption from registration under
Section 5 of the Securities Act 6 for
resales of privately placed securities to
investors that meet the eligibility
requirements of being a qualified
institutional buyer (‘‘QIB’’) under Rule
144A(a)(1),7 i.e., institutional investors
that in the aggregate own or invest on
a discretionary basis at least $100
million in securities and broker/dealers
that in the aggregate own or invest on
a discretionary basis at least $10 million
in securities. The PORTAL Market did
4 Securities Exchange Act Release No. 27956
(April 27, 1990), 55 FR 18781 (May 4, 1990) (the
‘‘original PORTAL rule filing’’).
5 Securities Act Release No. 6862 (April 23, 1990),
55 FR 17933 (April 30, 1990).
6 17 [sic] U.S.C. 77e.
7 17 CFR 230.144A(a)(1).
E:\FR\FM\30SEN1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Notices]
[Pages 56872-56876]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22927]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58626; File No. SR-FINRA-2008-046]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change, and
Amendment No. 1 Thereto, To Amend the By-Laws of FINRA Regulation To
Realign the Representation of Industry Members on the National
Adjudicatory Council To Follow More Closely the Categories of Industry
Representation on the FINRA Board
September 23, 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 September 8, 2008, Financial Industry Regulatory Authority, Inc.
(``FINRA,'' f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) 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. On September 17, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend the By-Laws of FINRA's regulatory
subsidiary (``FINRA Regulation'') to realign the representation of
industry members on the National Adjudicatory Council (``NAC'') to
follow more closely the industry representation on the FINRA Board of
Governors (``FINRA Board''), to eliminate the Regional Nominating
Committees, to transfer such committees' responsibilities for NAC
industry appointments to the FINRA Nominating Committee (``Nominating
Committee''), and to change the name of ``NASD Regulation'' and
``NASD'' to
[[Page 56873]]
``FINRA Regulation'' and ``FINRA'' respectively. The text of the
proposed rule change is available at FINRA, on its Web site (https://
www.finra.org), 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
Background on FINRA and Its Regulatory Subsidiary
On July 30, 2007, NASD and the New York Stock Exchange consolidated
their member firm regulation operations into a combined organization,
FINRA. As part of the consolidation, the SEC approved amendments to the
NASD By-Laws to implement governance and related changes.\3\ The
approved changes included a FINRA Board governance structure that
balanced public and industry representation and designated seven
governor seats to represent member firms of various sizes based on the
criteria of firm size.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 56145 (July 26,
2007), 72 FR 42169 (August 1, 2007), as amended by Securities
Exchange Act Release No. 56145A (May 30, 2008), 73 FR 32377 (June 6,
2008) (File No. SR-NASD-2007-023).
---------------------------------------------------------------------------
FINRA Regulation (formerly known as NASD Regulation) is a
subsidiary of FINRA that operates according to the Plan of Allocation
and Delegation of Functions by NASD to Subsidiaries, as amended, which
NASD adopted first in 1996 when it formed NASD Regulation. FINRA
Regulation's By-Laws were not amended at the time of the consolidation,
other than in a few sections where those By-Laws conflicted with the
new FINRA By-Laws.
The proposed rule change would modify the FINRA Regulation By-Laws
to: Restructure the industry representation on the NAC to parallel the
firm-size criteria for industry representation on the FINRA Board;
modify the nomination process for certain industry member seats on the
NAC by using the Nominating Committee and discontinuing the Regional
Nominating Committees; and adopt conforming changes to reflect the
corporate name change and similar matters.\4\
---------------------------------------------------------------------------
\4\ The proposed rule change would revise, delete, and/or
renumber various provisions of the FINRA Regulation By-Laws.
Renumbered sections are referred to herein as ``proposed FINRA
Regulation By-Laws.'' All other sections (that is, sections for
which new numbering did not result from the proposed revisions) are
referred to as ``current FINRA Regulation By-Laws.''
---------------------------------------------------------------------------
The National Adjudicatory Council
The NAC is appointed pursuant to the FINRA Regulation By-Laws to
review all disciplinary decisions issued by Hearing Panels and presides
over disciplinary matters that have been appealed to or called for
review by the NAC. The NAC also reviews statutory disqualification
matters and considers appeals of membership proceedings and exemption
requests.\5\
---------------------------------------------------------------------------
\5\ See current FINRA Regulation By-Laws, Article V, Section 5.1
(Appointment and Authority).
---------------------------------------------------------------------------
Under current FINRA Regulation By-Law provisions, the NAC must
consist of no fewer than 12 and no more than 14 members.\6\ The number
of non-industry members, including at least three public members, must
equal or exceed the number of industry members.\7\ Since 1999, each of
five geographic regions, which had been established by the NASD Board
of Governors, has been represented on the NAC. Non-industry members of
the NAC and two ``at-large'' industry members currently are nominated
to serve on the NAC by the Nominating Committee and then appointed by
the FINRA Regulation Board.\8\ The five industry members of the NAC who
are drawn from the five geographic regions are first selected through
Regional Nominating Committees (through either an uncontested or a
contested nomination process), then nominated by the Nominating
Committee, and finally appointed by the FINRA Regulation Board.
---------------------------------------------------------------------------
\6\ The 2008 NAC consists of 14 members, and the NAC has had no
fewer than 14 members consistently for many years. To reflect past
practices, the proposed rule change would eliminate the 12 to 14
member range currently indicated in the FINRA Regulation By-Laws and
state instead that the NAC shall consist of 14 members, divided
equally between industry and non-industry. The proposal would
eliminate the concept of non-industry members exceeding industry
members and state simply that non-industry NAC members will equal
industry NAC members. Given that the population of the NAC will be
14, its balanced nature can be achieved with an equal industry/non-
industry composition.
\7\ See current FINRA Regulation By-Laws, Article V, Section 5.2
(Number of Members and Qualifications).
\8\ Consistent with Article V of the FINRA Regulation By-Laws,
the current 14-member NAC includes seven industry and seven non-
industry members. Five of the industry NAC members represent the
five geographic regions. The remaining two industry seats are ``at-
large'' seats, which NASD historically used and FINRA currently uses
to add balance to the types of firms being represented on the NAC.
---------------------------------------------------------------------------
Discussion of Changes to the NAC Election Process
The proposed rule change would amend Article I (Definitions),
Article V (National Adjudicatory Council), and Article VI (National
Adjudicatory Council Regional Nominations for Industry Members) of the
FINRA Regulation By-Laws to replace the current regionally based
approach for appointing industry representatives to the NAC with a
process that is based on firm size and is similar to the FINRA Board's
approach.\9\ The NAC's regionally based election process is a legacy
NASD practice that no longer parallels the governance structure of the
FINRA Board. The proposed rule change would replace the five regionally
based industry members of the NAC with two small firm, one mid-size
firm, and two large firm industry representatives. The make-up of the
NAC under the proposed rule change would follow more closely the
current make-up of the FINRA Board.
---------------------------------------------------------------------------
\9\ The FINRA Board consists of eleven Public Governors (who are
appointed), ten Industry Governors (seven of whom are elected by
industry members), the current Chief Executive Officer (``CEO'') of
NYSE Regulation, and the current CEO of FINRA. The ten Industry
Governors include: (a) Three elected Governors who are registered
with member firms that employ 500 or more registered persons (Large
Firm Governors); (b) one elected Governor who is registered with a
member firm that employs at least 151 and no more than 499
registered persons (Mid-Size Firm Governor); (c) three elected
Governors who are registered with member firms that employ at least
one and no more than 150 registered persons (Small Firm Governors);
(d) one appointed Governor who is associated with a floor member of
the New York Stock Exchange; (e) one appointed Governor who is
associated with an independent contractor financial planning member
firm or an insurance company affiliate; and (f) one appointed
Governor who is associated with an affiliate of an investment
company. See FINRA By-Laws, Article VII (Board of Governors).
---------------------------------------------------------------------------
The restructured NAC would therefore consist of 14 members,
including seven industry members, two of whom are ``at large'' and five
of whom are designated specifically as representatives of large firms,
mid-size firms, and small firms, and seven non-industry members, three
of whom are public.\10\ The tenure of NAC members is generally three
years and the terms of the NAC members are staggered. The proposal
would not disrupt the process
[[Page 56874]]
of approximately one-third of the NAC members completing their service
in a particular year and being replaced with newly appointed NAC
members. The proposal would result in a Small Firm and a Large Firm NAC
Member joining the NAC near the beginning of 2009; a Mid-Sized Firm NAC
Member joining in 2010; and a Small Firm and Large Firm NAC Member
joining in 2011. The proposed selection process would allow for the
service of NAC members with knowledge, impartiality, and judicial
temperament, while maintaining the same level of indirect
representation of FINRA's membership.
---------------------------------------------------------------------------
\10\ A public member of the NAC has no material business
relationship with a broker or dealer or a self-regulatory
organization registered under the Act.
---------------------------------------------------------------------------
In conjunction with eliminating the regionally based criteria for
identifying industry NAC members, the proposed rule change also would
simplify the NAC appointment process for industry representatives and
follow more closely the procedures for electing industry members of the
FINRA Board. The process proposed would eliminate the five Regional
Nominating Committees and have the Nominating Committee perform their
functions instead. Rather than relying on Regional Nominating
Committees to first identify possible industry candidates before
submission of the candidates to the Nominating Committee and the FINRA
Regulation Board, the Nominating Committee would identify and solicit
candidates for all NAC seats, including the five industry-member
positions that are based on firm size.\11\ The Nominating Committee
would be free to consult with or receive recommendations for industry
NAC members from other FINRA committees, such as the District
Nominating Committees, before communicating its nominations to the
FINRA Board.
---------------------------------------------------------------------------
\11\ See proposed FINRA Regulation By-Laws, Article V, Section
5.3 (Appointments).
---------------------------------------------------------------------------
The proposed rule change would continue the current process of
allowing individuals who seek to serve on the NAC but were not
nominated, known as additional candidates, to gather petitions in
support of their candidacy and potentially compete in a contested
election. Additional candidates would petition to be considered as
Small, Mid-Size, or Large Firm NAC Members based on the size of the
firm with which they are registered.
Under the proposal, additional candidates would be able to qualify
for a contested election by gathering petitions from three percent of
the firms in their size category, which is lower than the ten percent
requirement additional candidates currently need to gather when they
seek to qualify for a regional NAC seat.\12\ In the event of a
contested election, FINRA members would have an opportunity to vote for
a NAC candidate based on firm size.\13\ Specifically, small, mid-size,
or large firms would vote for NAC candidates only if the contested
election was for a NAC seat designated for a firm of corresponding
size.
---------------------------------------------------------------------------
\12\ Compare current FINRA Regulation By-Laws, Article VI,
Section 6.15 (Requirement for Petition Supporting Additional
Candidate) with proposed FINRA Regulation By-Laws, Article VI,
Section 6.2 (Designation of Additional Candidates).
\13\ See proposed FINRA Regulation By-Laws, Article VI, Section
6.3 (List of FINRA Members Eligible to Vote) and Article VI, Section
6.7 (Ballots).
---------------------------------------------------------------------------
The proposed rule change would ensure that the winner of a
contested election serves on the NAC. While all NAC members would
continue to be recommended initially by the Nominating Committee and
appointed by the FINRA Board,\14\ the candidate who receives the most
votes in any contested election for a Small, Mid-Size, or Large Firm
NAC Member seat would be required under the FINRA Regulation By-Laws to
be appointed to the NAC.\15\ The current By-Law section that discusses
the procedure in the event that the Regional Nominating Committee's
nominee is rejected by the National Nominating Committee would
accordingly be deleted. The proposal would not change the NAC selection
process if no additional candidates reach the threshold to qualify for
a contested election. As in the past when there are no additional
candidates, the industry NAC members selected by the Nominating
Committee would not have a contested election and would be recommended
for appointment to the NAC.\16\
---------------------------------------------------------------------------
\14\ The seven non-industry members and two at-large industry
members would continue to follow the nomination and Board
appointment process currently employed for non-industry and at-large
industry NAC members.
\15\ See proposed FINRA Regulation By-Laws, Article V, Section
5.3 (Appointments) and 5.5 (Rejection of Nominating Committee
Nominee).
\16\ The proposed FINRA Regulation By-Laws retain the
possibility that the Nominating Committee could propose two or more
candidates for a single open small, mid-size, or large firm NAC
seat. See proposed FINRA Regulation By-Laws, Article VI, Section 6.5
(Notice of Contested Nomination). In such a case, there would be a
contested election. The proposed rule change would clarify that only
when the Nominating Committee nominates two or more candidates for
the same open seat would the Nominating Committee trigger a
contested election.
---------------------------------------------------------------------------
To verify that a NAC nominee or candidate would satisfy the
definition of an Industry, Small Firm, Mid-Sized Firm, Large Firm, Non-
Industry, or Public Member of the NAC, the proposed rule change would
authorize the FINRA Secretary to collect information from candidates as
is reasonably necessary to serve as the basis for such a
determination.\17\
---------------------------------------------------------------------------
\17\ See proposed FINRA Regulation By-Laws, Article V, Section
5.4 (Nomination Process).
---------------------------------------------------------------------------
The proposed rule change would modify slightly the provision that
restricts NAC members and certain committees from communicating in an
official capacity in support of a candidate in a contested election.
The current rules, which permit individuals who are Directors or NAC or
other committee members to communicate their views regarding a
candidate in an individual capacity, would remain the same. The
modification would specify the narrow circumstances under which the
Nominating Committee may support its candidate by sending a maximum of
two mailings in support of its nominee.\18\ The proposal would clarify
that this limited support is available during contested NAC elections
by referring to support allowed ``under these By-Laws,'' which includes
the support allowed under Article IV, Section 4.16.\19\
---------------------------------------------------------------------------
\18\ See proposed FINRA Regulation By-Laws, Article IV, Section
4.16(b) (Communication of Views Regarding Contested Election or
Nomination). Section 4.16(b) would also mirror the language of the
FINRA By-Law provision that allows, in contested elections, the
appropriate FINRA committee to communicate a responsive message in
reply to an additional candidate's communication. See FINRA By-Laws,
Article VII, Section 11(b) (Communication of Views).
\19\ See proposed FINRA Regulation By-Laws, Article VI, Section
6.6 (Administrative Support).
---------------------------------------------------------------------------
The proposed rule change would designate the Secretary of FINRA,
instead of the FINRA Regulation Secretary, as the person who would send
notice to FINRA members announcing a contested NAC election; assist in
preparing ballots; prepare a list of FINRA members eligible to vote;
arrange for the location for counting of ballots by an independent
agent; resolve ballots that were set aside, if necessary; extend a time
period regarding elections for good cause; and similar duties.\20\ The
proposal designates the FINRA Secretary because this office fulfills
the same role when FINRA holds elections for the Board of Governors.
---------------------------------------------------------------------------
\20\ See proposed FINRA Regulation By-Laws, Article VI, Sections
6.5, 6.7, 6.8, 6.10, 6.11, 6.13, and 6.14.
---------------------------------------------------------------------------
As a result of the NAC's restructuring, FINRA would continue to
promote fair representation of its members because seven of the NAC
seats will be drawn from members of the industry and the industry
candidates for five of those seats will be announced to the membership
and are subject to a potential election by member firms of a similar
size.
[[Page 56875]]
In addition, the rule change would indicate in proposed Article V,
Section 5.10 (Filling of Vacancies) that the NAC may continue to
function while FINRA fills a vacancy on the NAC. The proposal also
would incorporate the concept into Section 5.10 from proposed Section
5.9 (Disqualification), which specifies that a vacancy on the NAC
lasting six months or less will not cause a violation of the
compositional requirements of current Article V, Section 5.2 (Number of
Members and Qualifications).
The proposed rule change would amend the FINRA Regulation By-Law
provisions regarding resignation, removal, appointment, and
disqualification of NAC members and the NAC's authority to act on
FINRA's behalf by designating the FINRA Board as the body authorized to
oversee the NAC.\21\ The FINRA Board has long had explicit authority
under Articles XII and XIII of its By-Laws to establish procedures for
disciplinary proceedings and to impose sanctions in certain
circumstances, and has consistently relied on the NAC to render
judgment on disciplinary matters, including imposing sanctions. The
proposal would reinforce these roles by simplifying the FINRA Board's
relationship with the NAC and establishing directly with the FINRA
Board the authority to remove all NAC members (for refusal, failure,
neglect, or inability to discharge duties), accept their resignations,
appoint them, and declare them disqualified. Moreover, the FINRA
Board's direct authority over resignation, removal, appointment, and
disqualification would logically extend the FINRA Board's existing
authority to review the substance of the NAC's appellate decisions,
which exists through the FINRA Board's discretionary power to call a
case for review by the FINRA Board.\22\ FINRA believes that the
proposed rule change will benefit the appellate portion of the
disciplinary process by extending the FINRA Board's oversight of the
NAC's members.
---------------------------------------------------------------------------
\21\ See current FINRA Regulation By-Laws, Article V, Sections
5.1 (Appointment and Authority), and proposed Sections 5.7-5.9.
\22\ See Rule 9351.
---------------------------------------------------------------------------
The proposed rule change would amend current Article V, Section 5.2
of the FINRA Regulation By-Laws (Number of Members and Qualifications)
to eliminate the reference that the Chair of the NAC shall
automatically serve as a Director of the FINRA Regulation Board for a
one-year term. As a result of the NASD and NYSE consolidation, the NAC
Chair's automatic service on the FINRA Board of Governors was
previously eliminated in 2007. Accordingly, the NAC Chair no longer
automatically has the prerequisite requirement to be appointed to the
FINRA Regulation Board.\23\
---------------------------------------------------------------------------
\23\ Additional changes to the FINRA Regulation By-Laws
regarding the FINRA Regulation Board and capital stock will be
proposed by FINRA in a related proposed rule change that FINRA
anticipates filing in the near future.
---------------------------------------------------------------------------
Conforming Changes Relating to the New FINRA Name
The proposed rule change would make certain non-substantive changes
to several articles of the FINRA Regulation By-Laws as follows:
``The NASD'' or ``NASD'' is replaced with ``FINRA'' or
``the Corporation'';
``NASD Regulation'' is changed to ``FINRA Regulation'';
``the Rules of the Association'' is replaced with ``the
Rules of the Corporation;'' and
``National Nominating Committee'' is replaced with
``Nominating Committee.''
The proposed rule change would modify the term ``Industry Member''
in the definitional section of FINRA Regulation's By-Laws, Article I,
by limiting the look-back test that characterizes NAC or committee
members as industry if they have served as an officer, director, or
employee of a broker or dealer, among other reasons, within the past
twelve months. The current provision uses a three year look-back test.
This proposed change would make the definition of ``Industry Member''
for NAC and other committee members consistent with the ``Industry
Governor'' and ``Industry committee member'' definitions in the FINRA
By-Laws.\24\
---------------------------------------------------------------------------
\24\ See FINRA By-Laws, Article I(t).
---------------------------------------------------------------------------
The proposal would also add the term ``independent director'' to
the portion of the definition of ``Industry Member'' that excludes
outside directors of a broker or dealer. Independent director is
synonymous with outside director, but would be added to the
exclusionary clause to harmonize the FINRA Regulation By-Laws with the
FINRA By-Laws' use of the term ``independent director'' when defining
an Industry Governor. In addition, the definition of ``Public
Director'' and ``Public Member,'' which refers to NAC or committee
members, would be modified to clarify that, for example, a Public
Director's service on FINRA Regulation's Board or a Public Member's
service on the NAC does not disqualify that person from satisfying the
definition of Pubic Director or Public Member.\25\
---------------------------------------------------------------------------
\25\ See proposed FINRA Regulation By-Laws, Article I(hh) and
(ii).
---------------------------------------------------------------------------
The proposed rule change would reflect that FINRA Regulation's
Delaware registered agent is Corporate Creations Network Inc.
The effective date of the proposed rule change will be the date of
Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\26\ 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; and Section 15A(b)(4) of the Act,\27\ which requires
that FINRA rules are designed to assure a fair representation of
FINRA's members in the administration of its affairs. The composition
of the FINRA Board has previously been found to meet the statutory
requirement, and FINRA believes that the proposed rule change will
align the representation of industry members on the NAC to follow more
closely the industry representation on the FINRA Board.
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\26\ 15 U.S.C. 78o-3(b)(6).
\27\ 15 U.S.C. 78o-3(b)(4).
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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 reason for so finding or (ii) as to
which FINRA consents, the Commission will:
A. By order approve such proposed rule change; or
[[Page 56876]]
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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2008-046 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2008-046. 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 (https://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 the filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2008-046 and should be
submitted on or before October 21, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-22927 Filed 9-29-08; 8:45 am]
BILLING CODE 8010-01-P
