Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to the Supervision of Market Letters, 57177-57179 [E8-23047]

Download as PDF Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices that are specific to the NYSE marketplace. NASD Rule 1130 (Reliance on Current Membership List) is to be deleted as it is duplicative of Article IV, Section 4 of the FINRA By-Laws. Also, Incorporated NYSE Rules 405A (NonManaged Fee-Based Account Programs—Disclosure and Monitoring) will be repealed because it is subsumed under NASD Rule 2110’s Notice to Members 03–68. Further, Incorporated NYSE Rules 440F (Public Short Sale Transactions Effected on the Exchange) and 440G (Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations) will be eliminated because they are specific to the NYSE marketplace and relate solely to exchange transactions. Finally, Incorporated NYSE Rule 477 (Retention of Jurisdiction—Failure to Cooperate) will be repealed because it retains jurisdiction over former members and associated person for initiating disciplinary action, which is also specified under Article IV, Section 6 and Article V, Section 4 of the FINRA By-Laws. The Commission notes that the deletion of these rules will eliminate duplicative provisions covered by other rules in the Consolidated FINRA Rulebook and remove unnecessary requirements that are specific to the NYSE marketplace. In eliminating duplicative and unnecessary rules, the proposed rule change should further the objectives of Section 15A(b)(6) of the Act,19 which requires 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. jlentini on PROD1PC65 with NOTICES Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,20 that the Marketplace and Procedural Rules Proposal (SR–FINRA–2008–021), as modified by Amendment No. 1; the Waive-In Firms Proposal (SR–FINRA– 2008–022); the General Standards Proposal (SR–FINRA–2008–026), as modified by Amendment No. 1; the Ethical Conduct and Fairness Opinion Rules Proposal (SR–FINRA–2008–028); and the Miscellaneous Rules Proposal (SR–FINRA–2008–029), as modified by Amendment No. 1, be, and hereby are, approved. 19 15 20 15 U.S.C. 78o–3(b)(6). U.S.C. 78s(b)(2). VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Florence E. Harmon, Acting Secretary. [FR Doc. E8–23040 Filed 9–30–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58648; File No. SR–FINRA– 2008–044] 57177 ‘‘correspondence’’ and would define ‘‘correspondence’’ in NASD Rule 2211 to include market letters distributed by a member to one or more of its existing retail customers and fewer than 25 prospective retail customers within any 30 calendar-day period. Below is the text of the proposed rule change. Proposed new language is underlined; proposed deletions are in brackets. * * * * * NASD Rules Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to the Supervision of Market Letters September 25, 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 4, 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’’ or ‘‘SEC’’) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by FINRA.3 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 FINRA is proposing to amend NASD Rules 2210 (Communications with the Public) and 2211 (Institutional Sales Material and Correspondence) and Incorporated New York Stock Exchange (‘‘NYSE’’) Rule 472 (Communications with the Public) to address the supervision of market letters.4 Among other things, the proposed rule change would amend the definition of ‘‘sales literature’’ in NASD Rule 2210 to exclude market letters that qualify as 21 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Items include non-substantive edits discussed during a September 24, 2008 telephone call between Philip Shaikun, Associate Vice President and Associate General Counsel, FINRA; Haimera Workie, Branch Chief, Office of Chief Counsel, Division of Trading and Markets, SEC; and Timothy Cornell, Attorney, Office of Chief Counsel, Division of Trading and Markets, SEC. 4 The FINRA rulebook currently includes (1) NASD Rules and (2) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to members of both FINRA and the NYSE, referred to as Dual Members. 1 15 PO 00000 Frm 00131 Fmt 4703 Sfmt 4703 2200. COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC 2210. Communications with the Public (a) Definitions. For purposes of this Rule and any interpretation thereof, ‘‘communications with the public’’ consist of: (1) No Change. (2) ‘‘Sales Literature.’’ Any written or electronic communication, other than an advertisement, independently prepared reprint, institutional sales material and correspondence, that is generally distributed or made generally available to customers or the public, including circulars, research reports, [market letters,] performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or published article, and press releases concerning a member’s products or services. (3) through (6) No Change. (b) through (e) No Change. * * * * * 2211. Institutional Sales Material and Correspondence (a) Definitions For purposes of Rule 2210, this Rule, and any interpretation thereof: (1) ‘‘Correspondence’’ consists of any written letter or electronic mail message and any market letter distributed by a member to: (A) one or more of its existing retail customers; and (B) fewer than 25 prospective retail customers within any 30 calendar-day period. (2) through (4) No Change. (5) ‘‘Market Letter’’ means any written communication excepted from the definition of ‘‘research report’’ pursuant to Rule 2711(a)(9)(A). (b) through (e) No Change. * * * * * E:\FR\FM\01OCN1.SGM 01OCN1 57178 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices any item distributed or made available only to institutional investors.5 Rule 472. Communications with the ‘‘Sales literature’’ includes ‘‘market Public letters.’’ Incorporated NYSE Rule 472 similarly requires a qualified person to (a) Approval of Communications and approve in advance of distribution any Research Reports market letter, but contains no exception (1) Each advertisement, [market for market letters sent only to letter,] sales literature or other similar institutional investors. FINRA is type of communication which is concerned that the pre-approval generally distributed or made available requirements may, in some by a member organization to customers circumstances, inhibit the flow of or the public must be approved in information to traders and other advance by an allied member, investors who base their investment supervisory analyst, or qualified person decisions on timely market analysis. designated under the provisions of Rule To address this concern, the proposed 342(b)(1). rule change would amend the definition (2) No Change. of ‘‘sales literature’’ in NASD Rule 2210 to exclude market letters that qualify as (b) through (m) No Change. a ‘‘correspondence’’ and further would * * * Supplementary Material: * * * amend ‘‘correspondence’’ in NASD Rule 2211 to include market letters (as well .10 Definitions as any written letter or electronic mail (1) through (3) No Change. message) distributed by a member to (4) Market letter[s]. ‘‘Market letter[s]’’ one or more of its existing retail [are]is defined as[, but are not limited to, customers and fewer than 25 any written comments on market prospective retail customers within any conditions, individual securities, or 30 calendar-day period. Pursuant to other investment vehicles that are not NASD Rule 2211(b)(1)(A), defined as research reports. They may correspondence does not require also include ‘‘follow-ups’’ to research approval by a registered principal prior reports and articles prepared by member to use, unless such correspondence is organizations which appear in distributed to 25 or more existing retail newspapers and periodicals.] any customers within any 30 calendar-day written communication excepted from period and makes a financial or the definition of ‘‘research report’’ investment recommendation or pursuant to Rule 472.10(2)(a). otherwise promotes a product or service of the member. The proposed rule (5) No Change. change also would amend Incorporated .20 through .140 No Change. NYSE Rule 472 to eliminate the * * * * * requirement that a qualified person approve market letters in advance of II. Self-Regulatory Organization’s distribution. Statement of the Purpose of, and Thus, under the proposed rule Statutory Basis for, the Proposed Rule change, all FINRA members would be Change permitted under FINRA rules to distribute market letters to institutional In its filing with the Commission, investors (as defined in NASD Rule FINRA included statements concerning 2211(a)(3)) without requiring prior the purpose of and basis for the proposed rule change and discussed any approval by a registered principal or qualified person. In addition, under the comments it received on the proposed rule change. The text of these statements proposed rules, a member also could may be examined at the places specified distribute without prior approval by a registered principal a market letter that in Item IV below. FINRA has prepared is sent only to existing retail customers summaries, set forth in sections A, B, and fewer than 25 prospective retail and C below, of the most significant customers within a 30 calendar-day aspects of such statements. period. However, if the market letter A. Self-Regulatory Organization’s both (1) is sent to 25 or more existing Statement of the Purpose of, and retail customers and (2) makes a Statutory Basis for, the Proposed Rule Change 5 Pursuant to NASD Rule 2211(a)(2), Incorporated NYSE Rules jlentini on PROD1PC65 with NOTICES 1. Purpose NASD Rule 2210 (Communications with the Public) requires a registered principal of a member to approve prior to use any item of sales literature. The term ‘‘sales literature’’ does not include VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 communications of any kind sent only to institutional investors (as defined in NASD Rule 2211(a)(3)) are considered to be ‘‘institutional sales material.’’ NASD Rule 2210 does not require approval of institutional sales material by a registered principal prior to use. However, institutional sales material remains subject to the supervision and review requirements of NASD Rule 2211(b)(1)(B). PO 00000 Frm 00132 Fmt 4703 Sfmt 4703 financial or investment recommendation or otherwise promotes a product or service of the member, prior principal approval would be required. In addition, similar to the manner in which other forms of correspondence (i.e., written letters and electronic mail messages) are addressed by NASD Rules 2210 and 2211, if a market letter were sent to 25 or more prospective retail customers within a 30-calendar day period, the market letter would fall within the definition of sales literature and have to be supervised as such, including approval by a registered principal prior to use. As correspondence, market letters would remain subject to the supervision and review requirements of NASD Rule 3010, which requires each firm to establish written procedures that are appropriate to its business, size, structure and customers for the review of outgoing correspondence. If these procedures do not require review of all correspondence prior to use or distribution, they must provide for the education and training of associated persons as to the firm’s procedures governing correspondence, documentation of such education and training, and surveillance and follow-up to ensure that such procedures are implemented and adhered to.6 The proposed changes would allow firms to distribute most market letters in a timely manner without requiring a registered principal to review each market letter prior to distribution, but would maintain investor protection by requiring firms to review such correspondence in accordance with mandated supervisory policies and procedures. The proposal also would create a new definition of the term ‘‘market letter’’ in NASD Rule 2211—and modify the existing definition in Incorporated NYSE Rule 472—to mean any communication specifically excepted from the definition of ‘‘research report’’ under NASD Rule 2711(a)(9)(A) and Incorporated NYSE Rule 472.10(2)(a), respectively. This exception consists of: • Discussions of broad-based indices; • Commentaries on economic, political or market conditions; 6 See also Incorporated NYSE Rule 342. FINRA has proposed to amend the current requirements governing the supervision and review of correspondence. See Regulatory Notice 08–24 (May 2008) (Proposed Consolidated FINRA Rules Governing Supervision and Supervisory Controls). That proposal, if adopted, would reorganize the supervision rules and codify existing guidance with respect to the supervision and review of correspondence. Thus, FINRA does not anticipate any significant changes to the supervision standards on which the proposed rule change is predicated. E:\FR\FM\01OCN1.SGM 01OCN1 Federal Register / Vol. 73, No. 191 / Wednesday, October 1, 2008 / Notices • Technical analyses concerning the demand and supply for a sector, index or industry based on trading volume and price; • Statistical summaries of multiple companies’ financial data, including listings of current ratings; • Recommendations regarding increasing or decreasing holdings in particular industries or sectors; and • Notices of ratings or price target changes (subject to certain disclosure requirements). FINRA proposes to define market letters by reference to an exception from the definition of ‘‘research report’’ under NASD Rule 2711 and Incorporated NYSE Rule 472 to make clear that a firm may not supervise as correspondence communications that fall within the definition of ‘‘research report.’’ The proposed rule change would, however, increase a firm’s flexibility in supervising market letter communications that do not qualify as research reports. FINRA would announce the implementation date of the proposed rule change in a Regulatory Notice to be published no later than 60 days following Commission approval. The implementation date would be the date FINRA publishes the Regulatory Notice announcing Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,7 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. The proposed amendment would allow firms to distribute market letters in a timely and expedient manner, while still requiring firms to review and supervise these communications to ensure that they are fair, balanced and not misleading. jlentini on PROD1PC65 with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change would 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. 7 15 U.S.C. 78o–3(b)(6). VerDate Aug<31>2005 18:22 Sep 30, 2008 Jkt 214001 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 self-regulatory organization 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–2008–044 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–2008–044. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. PO 00000 Frm 00133 Fmt 4703 Sfmt 4703 57179 Copies of such filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA–2008–044 and should be submitted on or before October 22, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Acting Secretary. [FR Doc. E8–23047 Filed 9–30–08; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58635; File No. SR–ISE– 2008–68] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fee Changes. September 24, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 16, 2008, the International Securities Exchange, LLC (the ‘‘Exchange’’ or the ‘‘ISE’’) filed with the Securities and Exchange Commission the proposed rule change, as described in Items I, II, and III below, which items have been prepared by the selfregulatory organization. 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 The ISE is proposing to amend its Schedule of Fees to establish fees for transactions in options on 8 Premium Products.3 The text of the proposed rule change is available at the Exchange. 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Premium Product [sic] is defined in the Schedule of Fees as the products enumerated therein. 1 15 E:\FR\FM\01OCN1.SGM 01OCN1

Agencies

[Federal Register Volume 73, Number 191 (Wednesday, October 1, 2008)]
[Notices]
[Pages 57177-57179]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-23047]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58648; File No. SR-FINRA-2008-044]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
the Supervision of Market Letters

September 25, 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 4, 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'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
prepared by FINRA.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Items include non-substantive edits discussed during a 
September 24, 2008 telephone call between Philip Shaikun, Associate 
Vice President and Associate General Counsel, FINRA; Haimera Workie, 
Branch Chief, Office of Chief Counsel, Division of Trading and 
Markets, SEC; and Timothy Cornell, Attorney, Office of Chief 
Counsel, Division of Trading and Markets, SEC.
---------------------------------------------------------------------------

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

    FINRA is proposing to amend NASD Rules 2210 (Communications with 
the Public) and 2211 (Institutional Sales Material and Correspondence) 
and Incorporated New York Stock Exchange (``NYSE'') Rule 472 
(Communications with the Public) to address the supervision of market 
letters.\4\ Among other things, the proposed rule change would amend 
the definition of ``sales literature'' in NASD Rule 2210 to exclude 
market letters that qualify as ``correspondence'' and would define 
``correspondence'' in NASD Rule 2211 to include market letters 
distributed by a member to one or more of its existing retail customers 
and fewer than 25 prospective retail customers within any 30 calendar-
day period.
---------------------------------------------------------------------------

    \4\ The FINRA rulebook currently includes (1) NASD Rules and (2) 
rules incorporated from NYSE (``Incorporated NYSE Rules''). While 
the NASD Rules generally apply to all FINRA members, the 
Incorporated NYSE Rules apply only to members of both FINRA and the 
NYSE, referred to as Dual Members.
---------------------------------------------------------------------------

    Below is the text of the proposed rule change. Proposed new 
language is underlined; proposed deletions are in brackets.
* * * * *
NASD Rules
2200. COMMUNICATIONS WITH CUSTOMERS AND THE PUBLIC
2210. Communications with the Public
    (a) Definitions. For purposes of this Rule and any interpretation 
thereof, ``communications with the public'' consist of:
    (1) No Change.
    (2) ``Sales Literature.'' Any written or electronic communication, 
other than an advertisement, independently prepared reprint, 
institutional sales material and correspondence, that is generally 
distributed or made generally available to customers or the public, 
including circulars, research reports, [market letters,] performance 
reports or summaries, form letters, telemarketing scripts, seminar 
texts, reprints (that are not independently prepared reprints) or 
excerpts of any other advertisement, sales literature or published 
article, and press releases concerning a member's products or services.
    (3) through (6) No Change.
    (b) through (e) No Change.
* * * * *
2211. Institutional Sales Material and Correspondence
    (a) Definitions
    For purposes of Rule 2210, this Rule, and any interpretation 
thereof:
    (1) ``Correspondence'' consists of any written letter or electronic 
mail message and any market letter distributed by a member to:
    (A) one or more of its existing retail customers; and
    (B) fewer than 25 prospective retail customers within any 30 
calendar-day period.
    (2) through (4) No Change.
    (5) ``Market Letter'' means any written communication excepted from 
the definition of ``research report'' pursuant to Rule 2711(a)(9)(A).
    (b) through (e) No Change.
* * * * *

[[Page 57178]]

Incorporated NYSE Rules
Rule 472. Communications with the Public
    (a) Approval of Communications and Research Reports
    (1) Each advertisement, [market letter,] sales literature or other 
similar type of communication which is generally distributed or made 
available by a member organization to customers or the public must be 
approved in advance by an allied member, supervisory analyst, or 
qualified person designated under the provisions of Rule 342(b)(1).
    (2) No Change.
    (b) through (m) No Change.
* * * Supplementary Material: * * *
    .10 Definitions
    (1) through (3) No Change.
    (4) Market letter[s]. ``Market letter[s]'' [are]is defined as[, but 
are not limited to, any written comments on market conditions, 
individual securities, or other investment vehicles that are not 
defined as research reports. They may also include ``follow-ups'' to 
research reports and articles prepared by member organizations which 
appear in newspapers and periodicals.] any written communication 
excepted from the definition of ``research report'' pursuant to Rule 
472.10(2)(a).
    (5) No Change.
    .20 through .140 No Change.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASD Rule 2210 (Communications with the Public) requires a 
registered principal of a member to approve prior to use any item of 
sales literature. The term ``sales literature'' does not include any 
item distributed or made available only to institutional investors.\5\
---------------------------------------------------------------------------

    \5\ Pursuant to NASD Rule 2211(a)(2), communications of any kind 
sent only to institutional investors (as defined in NASD Rule 
2211(a)(3)) are considered to be ``institutional sales material.'' 
NASD Rule 2210 does not require approval of institutional sales 
material by a registered principal prior to use. However, 
institutional sales material remains subject to the supervision and 
review requirements of NASD Rule 2211(b)(1)(B).
---------------------------------------------------------------------------

    ``Sales literature'' includes ``market letters.'' Incorporated NYSE 
Rule 472 similarly requires a qualified person to approve in advance of 
distribution any market letter, but contains no exception for market 
letters sent only to institutional investors. FINRA is concerned that 
the pre-approval requirements may, in some circumstances, inhibit the 
flow of information to traders and other investors who base their 
investment decisions on timely market analysis.
    To address this concern, the proposed rule change would amend the 
definition of ``sales literature'' in NASD Rule 2210 to exclude market 
letters that qualify as a ``correspondence'' and further would amend 
``correspondence'' in NASD Rule 2211 to include market letters (as well 
as any written letter or electronic mail message) distributed by a 
member to one or more of its existing retail customers and fewer than 
25 prospective retail customers within any 30 calendar-day period. 
Pursuant to NASD Rule 2211(b)(1)(A), correspondence does not require 
approval by a registered principal prior to use, unless such 
correspondence is distributed to 25 or more existing retail customers 
within any 30 calendar-day period and makes a financial or investment 
recommendation or otherwise promotes a product or service of the 
member. The proposed rule change also would amend Incorporated NYSE 
Rule 472 to eliminate the requirement that a qualified person approve 
market letters in advance of distribution.
    Thus, under the proposed rule change, all FINRA members would be 
permitted under FINRA rules to distribute market letters to 
institutional investors (as defined in NASD Rule 2211(a)(3)) without 
requiring prior approval by a registered principal or qualified person. 
In addition, under the proposed rules, a member also could distribute 
without prior approval by a registered principal a market letter that 
is sent only to existing retail customers and fewer than 25 prospective 
retail customers within a 30 calendar-day period. However, if the 
market letter both (1) is sent to 25 or more existing retail customers 
and (2) makes a financial or investment recommendation or otherwise 
promotes a product or service of the member, prior principal approval 
would be required. In addition, similar to the manner in which other 
forms of correspondence (i.e., written letters and electronic mail 
messages) are addressed by NASD Rules 2210 and 2211, if a market letter 
were sent to 25 or more prospective retail customers within a 30-
calendar day period, the market letter would fall within the definition 
of sales literature and have to be supervised as such, including 
approval by a registered principal prior to use.
    As correspondence, market letters would remain subject to the 
supervision and review requirements of NASD Rule 3010, which requires 
each firm to establish written procedures that are appropriate to its 
business, size, structure and customers for the review of outgoing 
correspondence. If these procedures do not require review of all 
correspondence prior to use or distribution, they must provide for the 
education and training of associated persons as to the firm's 
procedures governing correspondence, documentation of such education 
and training, and surveillance and follow-up to ensure that such 
procedures are implemented and adhered to.\6\
---------------------------------------------------------------------------

    \6\ See also Incorporated NYSE Rule 342. FINRA has proposed to 
amend the current requirements governing the supervision and review 
of correspondence. See Regulatory Notice 08-24 (May 2008) (Proposed 
Consolidated FINRA Rules Governing Supervision and Supervisory 
Controls). That proposal, if adopted, would reorganize the 
supervision rules and codify existing guidance with respect to the 
supervision and review of correspondence. Thus, FINRA does not 
anticipate any significant changes to the supervision standards on 
which the proposed rule change is predicated.
---------------------------------------------------------------------------

    The proposed changes would allow firms to distribute most market 
letters in a timely manner without requiring a registered principal to 
review each market letter prior to distribution, but would maintain 
investor protection by requiring firms to review such correspondence in 
accordance with mandated supervisory policies and procedures.
    The proposal also would create a new definition of the term 
``market letter'' in NASD Rule 2211--and modify the existing definition 
in Incorporated NYSE Rule 472--to mean any communication specifically 
excepted from the definition of ``research report'' under NASD Rule 
2711(a)(9)(A) and Incorporated NYSE Rule 472.10(2)(a), respectively. 
This exception consists of:
     Discussions of broad-based indices;
     Commentaries on economic, political or market conditions;

[[Page 57179]]

     Technical analyses concerning the demand and supply for a 
sector, index or industry based on trading volume and price;
     Statistical summaries of multiple companies' financial 
data, including listings of current ratings;
     Recommendations regarding increasing or decreasing 
holdings in particular industries or sectors; and
     Notices of ratings or price target changes (subject to 
certain disclosure requirements).
    FINRA proposes to define market letters by reference to an 
exception from the definition of ``research report'' under NASD Rule 
2711 and Incorporated NYSE Rule 472 to make clear that a firm may not 
supervise as correspondence communications that fall within the 
definition of ``research report.'' The proposed rule change would, 
however, increase a firm's flexibility in supervising market letter 
communications that do not qualify as research reports.
    FINRA would announce the implementation date of the proposed rule 
change in a Regulatory Notice to be published no later than 60 days 
following Commission approval. The implementation date would be the 
date FINRA publishes the Regulatory Notice announcing Commission 
approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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. The proposed amendment would allow firms to distribute 
market letters in a timely and expedient manner, while still requiring 
firms to review and supervise these communications to ensure that they 
are fair, balanced and not misleading.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change would 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 the self-regulatory organization 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-2008-044 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-2008-044. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2008-044 and should be 
submitted on or before October 22, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23047 Filed 9-30-08; 8:45 am]
BILLING CODE 8011-01-P