Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA Rule 3130 (Annual Certification of Compliance and Supervisory Processes) in the Consolidated FINRA Rulebook, 57395-57397 [E8-23197]
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Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices
407(a) and 407.10 be eliminated.19
Rather than requiring the member to
obtain FINRA’s consent to open a
securities or commodities account or
execute a trade (as set forth under NYSE
Rules 407(a) and 407.10), FINRA
believes that it is sufficient, as set forth
under NASD Rule 3090(a), to continue
to require the member to obtain and
implement an instruction from the
FINRA employee directing the member
to provide duplicate statements to
FINRA. The proposed rule change
would, as set forth in NASD Rule
3090(b), continue to prohibit members
from making any loan of money or
securities to a FINRA employee, subject
to the exceptions set forth in that rule.
Lastly, the proposed rule change would,
as set forth in NASD Rule 3090(c),
continue to prohibit members from
directly or indirectly giving, or
permitting to be given, anything above
nominal value to any FINRA employee
who has responsibility for a ‘‘regulatory
matter’’ involving the member. FINRA
does not believe that its employees
should be permitted to receive gifts of
up to $50 per year when such
employees have responsibility for a
regulatory matter. In addition, FINRA
proposed not to adopt the $50 limit in
NYSE Rule 350(a)(2) for gifts to all other
employees to maintain consistency with
the FINRA Code of Conduct, which, like
NASD Rule 3060(a) (and proposed
FINRA Rule 3220(a)), establishes a $100
limit. Rule 3090(c) need not be amended
to address the employment and
compensation issues as to NYSE
employees in NYSE Rules 350(a)(1) and
350.10 because the FINRA Code of
Conduct addresses these issues through
its provisions on Outside Activities or
Employment.
FINRA proposed to delete listing and
delisting proceedings as potential
‘‘regulatory matters’’ under NASD Rule
3090(c) in light of FINRA’s separation
from NASDAQ and The American Stock
Exchange.
III. Comment Letters
The Commission received one
comment letter on the proposal 20 and a
response to comments from FINRA.21 In
its comment letter, SIFMA supported
FINRA’s effort to consolidate its two
mstockstill on PROD1PC66 with NOTICES
19 With
respect to NYSE Rule 407(a), the only
change to the rule at this stage in the rulebook
consolidation would be to delete language
pertaining to employees of the NYSE. See Exhibit
5. NYSE Rule 407.10 would be deleted in its
entirety. With respect to NYSE Rules 350(a)(1),
350(a)(2) and 350.10, see supra notes 10 and 11.
20 See supra, footnote 5.
21 See letter from Gary L. Goldsholle, Vice
President and Associate General Counsel, FINRA
Regulatory Group, dated September 11, 2008.
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17:52 Oct 01, 2008
Jkt 217001
rulebooks.22 However, SIFMA suggested
that FINRA should amend the proposed
rule change with respect to NASD Rule
3060 to incorporate a principles-based
approach to gifts and gratuities.23
SIFMA said that FINRA should permit
firms to establish their own gifts and
gratuities policies and limits rather than
retain the limits set forth in the rule.24
SIFMA also supports the inclusion of a
safe harbor in new Rule 3220, under
which a FINRA member firm would be
deemed to be in compliance with new
Rule 3220, if the aggregate annual
amount of gifts and gratuities to any one
person did not exceed a de minimis
amount, such as $250.25
FINRA responded to the request by
SIFMA for a principles-based approach
to gifts and gratuities by stating that
FINRA had given a great deal of
consideration to this approach, but had
determined to maintain the existing
standards, which offer predictability
and clarity.26 FINRA also noted that it
does not believe that it is appropriate at
this time to increase the limit for gifts
and gratuities to $250 from $100.27
57395
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,30 that the
proposed rule change (SR–FINRA–
2008–027) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–23196 Filed 10–1–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Release No. 34–58661; File No. SR–FINRA–
2008–030]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Adopt
FINRA Rule 3130 (Annual Certification
of Compliance and Supervisory
Processes) in the Consolidated FINRA
Rulebook
IV. Discussion and Findings
September 26, 2008.
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act, and the rules and regulations
thereunder that are applicable to a
national securities association.28 In
particular, the Commission believes that
the proposed rule change is consistent
with the provisions of Section 15A(b)(6)
of the Act,29 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
Commission believes that, as part of the
FINRA rulebook consolidation process,
the proposed rule change would
streamline and reorganize existing rules
that govern influencing or rewarding the
employees of others and transactions
involving FINRA employees. Further,
the proposed rule change would provide
greater regulatory clarity with respect to
these issues.
I. Introduction
22 See
SIFMA letter.
23 Id.
On June 18, 2008, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (f/k/a National Association
of Securities Dealers, Inc. (‘‘NASD’’))
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to adopt NASD Rule 3013
(Annual Certification of Compliance
and Supervisory Processes) and IM–
3013 (Annual Compliance and
Supervision Certification) as a FINRA
rule in the consolidated FINRA
rulebook (‘‘Consolidated FINRA
Rulebook’’) 3 without material change,
and to delete the corresponding
provisions in Incorporated NYSE Rule
342.30 and NYSE Rule Interpretations
311(b)(5)/04 through /05 and 342.30(d)/
01 through (e)/01.4 The proposed rule
change would renumber NASD Rule
3013 and IM–3013 as FINRA Rule 3130
in the Consolidated FINRA Rulebook.
The proposed rule change was
published for comment in the Federal
24 Id.
30 15
25 Id.
26 See
27 Id.
28 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
29 15 U.S.C. 78o–3(b)(6).
PO 00000
Frm 00078
Fmt 4703
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See infra note 7 for discussion about the
Consolidated FINRA Rulebook.
4 See infra note 7 regarding ‘‘Incorporated NYSE
Rules.’’
31 17
supra, footnote 21.
Sfmt 4703
E:\FR\FM\02OCN1.SGM
02OCN1
57396
Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices
Register on July 15, 2008.5 The
Commission received two comment
letters in response to the proposed rule
change.6 This order approves the
proposed rule change.
mstockstill on PROD1PC66 with NOTICES
II. Description of the Proposed Rule
Change
As part of the process of developing
the new consolidated rulebook (the
‘‘Consolidated FINRA Rulebook’’),7
FINRA proposed to adopt NASD Rule
3013 (Annual Certification of
Compliance and Supervisory Processes)
and IM–3013 (Annual Compliance and
Supervision Certification) as a FINRA
rule without material change and, delete
the corresponding provisions in
Incorporated NYSE Rule 342.30 and
NYSE Rule Interpretations 311(b)(5)/04
through /05 and 342.30(d)/01 through
(e)/01. The proposed rule change would
renumber NASD Rule 3013 and IM–
3013 as FINRA Rule 3130 in the
Consolidated FINRA Rulebook.
Currently, NASD Rule 3013 and
Incorporated NYSE Rule 342 require
each member to designate one or more
principals to serve as a chief compliance
officer (‘‘CCO’’). These Rules further
require that the chief executive officer(s)
(‘‘CEO’’) certify annually that the
member has in place processes to
establish, maintain, review, modify and
test policies and procedures reasonably
designed to achieve compliance with
applicable NASD (or NYSE) rules and
federal securities laws and regulations.
The certification includes not only a
statement that the member has in place
certain compliance processes, but also
that the CEO(s) has conducted one or
more meetings with the CCO(s) in the
preceding 12 months to discuss the
processes. Incorporated NYSE Rule 342
and NASD IM–3013 explain that the
mandated meetings between the CEO(s)
and CCO(s) must include a discussion of
the member’s compliance efforts to date
5 See Securities Exchange Act Release No. 358118
(July 8, 2008); 73 FR 40647 (July 15, 2008)
(‘‘notice’’).
6 See letters from Amal Aly, Managing Director
and Associate General Counsel, Securities Industry
and Financial Markets Association (‘‘SIFMA’’) to
Florence Harmon, Acting Secretary, Commission,
dated August 4, 2008 (‘‘SIFMA Letter’’), and letter
from Christine LaBastille, Managing Director,
Integrated Management Solutions (‘‘IMS’’) to
Secretary, Commission, dated August 5, 2008 (‘‘IMS
Letter’’).
7 The current FINRA rulebook consists of two sets
of rules: (1) NASD Rules and (2) rules incorporated
from NYSE (‘‘Incorporated NYSE Rules’’) (together
referred to as the ‘‘Transitional Rulebook’’). The
Incorporated NYSE Rules apply only to those
members of FINRA that are also members of the
NYSE (‘‘Dual Members’’). Dual Members also must
comply with NASD Rules. For more information
about the rulebook consolidation process, see
FINRA Information Notice, March 12, 2008
(Rulebook Consolidation Process).
VerDate Aug<31>2005
17:52 Oct 01, 2008
Jkt 217001
and identify and address significant
compliance problems and plans for
emerging business areas. NASD IM–
3013 contains additional guidance,
including setting forth the expertise that
is expected of a CCO. The same
expertise requirements are also found in
Incorporated NYSE Rule Interpretation
342.30.
There currently are four differences
between the NASD and NYSE rules.
First, NASD IM–3013 requires that the
member provide to its board of directors
and audit committees (or equivalent
bodies) the report that evidences the
processes to which the CEO(s) certifies
either prior to execution of the
certification or at the earlier of their
next scheduled meetings or within 45
days of certification. The Incorporated
NYSE rules require submission of the
report to those bodies prior to
certification. FINRA does not intend to
require the board of directors or audit
committee to review or consider the
report as a condition to the CEO
executing the certification; rather,
FINRA intends the provision to ensure
that those governing bodies remain
informed of this aspect of the member’s
compliance system in the context of
their overall responsibility for
governance and internal controls of the
member for which they serve.
Accordingly, the proposed rule change
would maintain the NASD rule
requirements.
Second, the current rules differ in the
certification deadline. Incorporated
NYSE Rule 342.30 requires certification
as part of the submission of a member’s
annual compliance report, which is due
by April 1 of each year. NASD Rule
3013 requires certification not later than
the anniversary of the prior year’s
certification. And while NASD allowed
members to execute their first
certification no later than April 1, 2006,
to accommodate Dual Members, many
FINRA-only firms executed their first
certification earlier than that and thus
have differing anniversary dates.
Moreover, new members are required to
execute their first certification within a
year of approval for membership;
therefore some firms necessarily are on
a cycle that does not correspond to
April 1. The proposed rule change
would maintain the NASD rule deadline
to provide firms the flexibility to certify
on a schedule that meets with their
organizational structure and procedures.
Firms that have certified on April 1 of
each year could continue to do so on
that date.
Third, Incorporated NYSE Rule
342.30 requires that the member submit
its certification to the Exchange,
whereas the NASD rule requires only
PO 00000
Frm 00079
Fmt 4703
Sfmt 4703
that the certification be maintained for
inspection. FINRA believes the
submission of the certification creates
an unnecessary—albeit small—
additional burden on members with no
attendant benefits to FINRA’s
examination program. Therefore, the
proposed rule change would retain the
NASD requirement that the
certifications be kept for inspection by
members.
Finally, while both rules permit
designation of multiple CCOs subject to
certain conditions, Incorporated NYSE
Rule Interpretation 311(b)(5) requires
Exchange approval of the allocation of
supervisory responsibilities between
those CCOs. By comparison, the NASD
rules rely on the business judgment of
the member and require only that the
member define and document the areas
of responsibility allocated to each CCO.
FINRA believes the NASD approach is
more appropriate, and therefore the
proposed rule change would not adopt
the approval requirement into the new
rule in the Consolidated FINRA
Rulebook.
III. Comment Letters
The Commission received two
comment letters on the proposal,8 to
which FINRA responded to in a letter to
the Commission.9 The first commenter
generally supported the proposal but
disagreed with the deletion of the April
1 certification deadline contained in
Incorporated NYSE Rule 342.30.10 In
this commenter’s view, adopting the
NASD rule requiring certification no
later than on the anniversary date of the
previous year’s certification could make
the process less predictable and
potentially more cumbersome for
member firms. Specifically, the
commenter indicated that for larger
firms, the annual deadline would
‘‘inject uncertainty as to when the entire
report and process should commence
each year’’ and that ‘‘the time period
covered by the report and certification
will be constantly shifting.’’ 11 As an
alternative, the commenter suggested
either: (1) Retaining the April 1 deadline
of Incorporated NYSE rule 342.30 or; (2)
amending the proposed rule to allow
member firms to effect annual
certifications no later than three weeks
after the anniversary date of the
previous year’s certification, but in no
event later than April 1.
8 See
supra note 6.
letter from Philip Shaikun, Associate Vice
President and Associate General Counsel, FINRA to
Florence E. Harmon, Acting Secretary, Commission,
dated September 4, 2008 (‘‘FINRA Letter’’).
10 SIFMA Letter.
11 SIFMA Letter.
9 See
E:\FR\FM\02OCN1.SGM
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Federal Register / Vol. 73, No. 192 / Thursday, October 2, 2008 / Notices
FINRA responded that under the
proposed rule change, firms that
previously certified on or near April 1
may continue to do so, so long as the
certification is executed no later than
the anniversary of the prior year’s
certification.12 Furthermore, FINRA
indicated that the commenter’s concern
appears to result from the mistaken
assumption that firms that are members
of both FINRA and the NYSE must
couple the CEO certification with the
annual compliance report that is
required to be submitted each year on
April 1 under Incorporated NYSE Rule
342.30. FINRA stated that a firm may
choose to time the process of the CEO
certification so that it coincides with the
Annual Compliance Report
requirement, but that the proposed rule
change does not compel this outcome,
thus giving a firm flexibility as to when
the certification process begins and
ends. In addition, FINRA indicated that
the commenter did not adequately
consider the needs of FINRA-only firms
that have chosen a cycle other than
April 1 that better meets their
organizational structure and
procedures.13
The second commenter asserted that
NASD Rule 3013 is unworkable and
ineffectual for small FINRA member
firms and urged FINRA to adopt a small
firm exemption as part of the
proposal.14 The commenter stated that
the provision requiring the CEO and
CCO to meet to discuss and review
elements related to the certification is
unworkable for small firms when the
CEO and CCO are the same person.
FINRA indicated that it expects that a
person who is both CEO and CCO of a
firm will contemplate the required
topics of the meeting and document that
he or she has reviewed those matters.15
IV. Discussion and Findings
After careful review of the proposed
rule change, the comment letters and
FINRA’s response to the comment
letters, the Commission finds that the
proposed rule change is consistent with
the requirements of the Act, and the
rules and regulations thereunder that
are applicable to national securities
associations,16 and in particular,
Section 15A(b)(6) of the Act,17 which
12 FINRA
Letter.
mstockstill on PROD1PC66 with NOTICES
13 Id.
14 IMS Letter. IMS also commented on the
requirements of NASD Rule 3012, which is not part
of the proposal.
15 FINRA Letter.
16 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition and capital formation. See
15 U.S.C. 78c(f).
17 15 U.S.C. 78o–3(b)(6).
VerDate Aug<31>2005
17:52 Oct 01, 2008
Jkt 217001
requires among other things, that FINRA
rules 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
Commission believes that it is
reasonable for FINRA to adopt NASD
Rule 3013 and IM–3013 as FINRA Rule
3130 in the Consolidated FINRA
Rulebook because they have previously
been found to meet statutory
requirements.18
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–FINRA–
2008–030) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–23197 Filed 10–1–08; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–58649; File No. SR–NYSE–
2008–82]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change, as Modified
by Amendment No. 1, To Modify Its
Policy With Respect to Legal Opinions
in Connection With Listings of
Securities
57397
September 21, 2008, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice, as amended, to solicit
comments on the proposal from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
In its filing with the Commission, the
Exchange 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 III below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange 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 III below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
September 25, 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 9, 2008, New York Stock
Exchange LLC (‘‘NYSE’’ or ‘‘the
Exchange’’) filed with the Securities and
Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. On
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Manual by removing the provisions
throughout Chapter Seven that require
issuers to supply opinions of counsel to
the Exchange in connection with any
initial listing application or
supplemental listing application.4
18 See e.g. Securities Exchange Act Release No.
53509 (March 17, 2006), 71 FR 15238 (March 27,
2006) (SR–NASD–2006–036) (order approving rule
change to IM–3013 finding that the proposed
change furthered investor protection goals and
provided clarity regarding application of the rule);
Securities Exchange Act Release No. 56285 (August
17, 2007), 72 FR 48715 (August 24, 2007) (SR–
NASD–2007–049) (order approving rule change to
NASD Rule 3013 and IM–3013 finding that the
proposed changes decreased the likelihood of fraud
and manipulative acts in addition to increasing
investor protection).
19 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00080
Fmt 4703
Sfmt 4703
3 In Amendment No. 1, the Exchange made
technical, non-substantive corrections to Exhibits 3
and 5.
4 This filing deletes references to the opinion of
counsel requirements from the ‘‘Reference Guide
For Subsequent Listing Applications’’ section at the
front of the Manual and replaces them with a
requirement (i) furnish the Exchange with copies of
opinions of counsel filed in connection with recent
public offerings or (ii) if no opinions of counsel
exist, provide to the Exchange a certificate of good
standing from the company’s jurisdiction of
incorporation. In addition, the filing makes the
same modification to the following sections of the
Manual: 702.04 (Supporting Documents); 703.01
(part 2) (General Information); 703.02 (part 3) (Stock
Split/Stock Rights/Stock Dividend Listing Process);
703.03 (Short Term Rights Offerings Relating to
E:\FR\FM\02OCN1.SGM
Continued
02OCN1
]]>Agencies
[Federal Register Volume 73, Number 192 (Thursday, October 2, 2008)]
[Notices]
[Pages 57395-57397]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-23197]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Release No. 34-58661; File No. SR-FINRA-2008-030]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA
Rule 3130 (Annual Certification of Compliance and Supervisory
Processes) in the Consolidated FINRA Rulebook
September 26, 2008.
I. Introduction
On June 18, 2008, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt NASD Rule 3013 (Annual Certification of
Compliance and Supervisory Processes) and IM-3013 (Annual Compliance
and Supervision Certification) as a FINRA rule in the consolidated
FINRA rulebook (``Consolidated FINRA Rulebook'') \3\ without material
change, and to delete the corresponding provisions in Incorporated NYSE
Rule 342.30 and NYSE Rule Interpretations 311(b)(5)/04 through /05 and
342.30(d)/01 through (e)/01.\4\ The proposed rule change would renumber
NASD Rule 3013 and IM-3013 as FINRA Rule 3130 in the Consolidated FINRA
Rulebook. The proposed rule change was published for comment in the
Federal
[[Page 57396]]
Register on July 15, 2008.\5\ The Commission received two comment
letters in response to the proposed rule change.\6\ This order approves
the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See infra note 7 for discussion about the Consolidated FINRA
Rulebook.
\4\ See infra note 7 regarding ``Incorporated NYSE Rules.''
\5\ See Securities Exchange Act Release No. 358118 (July 8,
2008); 73 FR 40647 (July 15, 2008) (``notice'').
\6\ See letters from Amal Aly, Managing Director and Associate
General Counsel, Securities Industry and Financial Markets
Association (``SIFMA'') to Florence Harmon, Acting Secretary,
Commission, dated August 4, 2008 (``SIFMA Letter''), and letter from
Christine LaBastille, Managing Director, Integrated Management
Solutions (``IMS'') to Secretary, Commission, dated August 5, 2008
(``IMS Letter'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
As part of the process of developing the new consolidated rulebook
(the ``Consolidated FINRA Rulebook''),\7\ FINRA proposed to adopt NASD
Rule 3013 (Annual Certification of Compliance and Supervisory
Processes) and IM-3013 (Annual Compliance and Supervision
Certification) as a FINRA rule without material change and, delete the
corresponding provisions in Incorporated NYSE Rule 342.30 and NYSE Rule
Interpretations 311(b)(5)/04 through /05 and 342.30(d)/01 through (e)/
01. The proposed rule change would renumber NASD Rule 3013 and IM-3013
as FINRA Rule 3130 in the Consolidated FINRA Rulebook.
---------------------------------------------------------------------------
\7\ The current FINRA rulebook consists of two sets of rules:
(1) NASD Rules and (2) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together referred to as the ``Transitional
Rulebook''). The Incorporated NYSE Rules apply only to those members
of FINRA that are also members of the NYSE (``Dual Members''). Dual
Members also must comply with NASD Rules. For more information about
the rulebook consolidation process, see FINRA Information Notice,
March 12, 2008 (Rulebook Consolidation Process).
---------------------------------------------------------------------------
Currently, NASD Rule 3013 and Incorporated NYSE Rule 342 require
each member to designate one or more principals to serve as a chief
compliance officer (``CCO''). These Rules further require that the
chief executive officer(s) (``CEO'') certify annually that the member
has in place processes to establish, maintain, review, modify and test
policies and procedures reasonably designed to achieve compliance with
applicable NASD (or NYSE) rules and federal securities laws and
regulations. The certification includes not only a statement that the
member has in place certain compliance processes, but also that the
CEO(s) has conducted one or more meetings with the CCO(s) in the
preceding 12 months to discuss the processes. Incorporated NYSE Rule
342 and NASD IM-3013 explain that the mandated meetings between the
CEO(s) and CCO(s) must include a discussion of the member's compliance
efforts to date and identify and address significant compliance
problems and plans for emerging business areas. NASD IM-3013 contains
additional guidance, including setting forth the expertise that is
expected of a CCO. The same expertise requirements are also found in
Incorporated NYSE Rule Interpretation 342.30.
There currently are four differences between the NASD and NYSE
rules. First, NASD IM-3013 requires that the member provide to its
board of directors and audit committees (or equivalent bodies) the
report that evidences the processes to which the CEO(s) certifies
either prior to execution of the certification or at the earlier of
their next scheduled meetings or within 45 days of certification. The
Incorporated NYSE rules require submission of the report to those
bodies prior to certification. FINRA does not intend to require the
board of directors or audit committee to review or consider the report
as a condition to the CEO executing the certification; rather, FINRA
intends the provision to ensure that those governing bodies remain
informed of this aspect of the member's compliance system in the
context of their overall responsibility for governance and internal
controls of the member for which they serve. Accordingly, the proposed
rule change would maintain the NASD rule requirements.
Second, the current rules differ in the certification deadline.
Incorporated NYSE Rule 342.30 requires certification as part of the
submission of a member's annual compliance report, which is due by
April 1 of each year. NASD Rule 3013 requires certification not later
than the anniversary of the prior year's certification. And while NASD
allowed members to execute their first certification no later than
April 1, 2006, to accommodate Dual Members, many FINRA-only firms
executed their first certification earlier than that and thus have
differing anniversary dates. Moreover, new members are required to
execute their first certification within a year of approval for
membership; therefore some firms necessarily are on a cycle that does
not correspond to April 1. The proposed rule change would maintain the
NASD rule deadline to provide firms the flexibility to certify on a
schedule that meets with their organizational structure and procedures.
Firms that have certified on April 1 of each year could continue to do
so on that date.
Third, Incorporated NYSE Rule 342.30 requires that the member
submit its certification to the Exchange, whereas the NASD rule
requires only that the certification be maintained for inspection.
FINRA believes the submission of the certification creates an
unnecessary--albeit small--additional burden on members with no
attendant benefits to FINRA's examination program. Therefore, the
proposed rule change would retain the NASD requirement that the
certifications be kept for inspection by members.
Finally, while both rules permit designation of multiple CCOs
subject to certain conditions, Incorporated NYSE Rule Interpretation
311(b)(5) requires Exchange approval of the allocation of supervisory
responsibilities between those CCOs. By comparison, the NASD rules rely
on the business judgment of the member and require only that the member
define and document the areas of responsibility allocated to each CCO.
FINRA believes the NASD approach is more appropriate, and therefore the
proposed rule change would not adopt the approval requirement into the
new rule in the Consolidated FINRA Rulebook.
III. Comment Letters
The Commission received two comment letters on the proposal,\8\ to
which FINRA responded to in a letter to the Commission.\9\ The first
commenter generally supported the proposal but disagreed with the
deletion of the April 1 certification deadline contained in
Incorporated NYSE Rule 342.30.\10\ In this commenter's view, adopting
the NASD rule requiring certification no later than on the anniversary
date of the previous year's certification could make the process less
predictable and potentially more cumbersome for member firms.
Specifically, the commenter indicated that for larger firms, the annual
deadline would ``inject uncertainty as to when the entire report and
process should commence each year'' and that ``the time period covered
by the report and certification will be constantly shifting.'' \11\ As
an alternative, the commenter suggested either: (1) Retaining the April
1 deadline of Incorporated NYSE rule 342.30 or; (2) amending the
proposed rule to allow member firms to effect annual certifications no
later than three weeks after the anniversary date of the previous
year's certification, but in no event later than April 1.
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\8\ See supra note 6.
\9\ See letter from Philip Shaikun, Associate Vice President and
Associate General Counsel, FINRA to Florence E. Harmon, Acting
Secretary, Commission, dated September 4, 2008 (``FINRA Letter'').
\10\ SIFMA Letter.
\11\ SIFMA Letter.
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[[Page 57397]]
FINRA responded that under the proposed rule change, firms that
previously certified on or near April 1 may continue to do so, so long
as the certification is executed no later than the anniversary of the
prior year's certification.\12\ Furthermore, FINRA indicated that the
commenter's concern appears to result from the mistaken assumption that
firms that are members of both FINRA and the NYSE must couple the CEO
certification with the annual compliance report that is required to be
submitted each year on April 1 under Incorporated NYSE Rule 342.30.
FINRA stated that a firm may choose to time the process of the CEO
certification so that it coincides with the Annual Compliance Report
requirement, but that the proposed rule change does not compel this
outcome, thus giving a firm flexibility as to when the certification
process begins and ends. In addition, FINRA indicated that the
commenter did not adequately consider the needs of FINRA-only firms
that have chosen a cycle other than April 1 that better meets their
organizational structure and procedures.\13\
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\12\ FINRA Letter.
\13\ Id.
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The second commenter asserted that NASD Rule 3013 is unworkable and
ineffectual for small FINRA member firms and urged FINRA to adopt a
small firm exemption as part of the proposal.\14\ The commenter stated
that the provision requiring the CEO and CCO to meet to discuss and
review elements related to the certification is unworkable for small
firms when the CEO and CCO are the same person. FINRA indicated that it
expects that a person who is both CEO and CCO of a firm will
contemplate the required topics of the meeting and document that he or
she has reviewed those matters.\15\
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\14\ IMS Letter. IMS also commented on the requirements of NASD
Rule 3012, which is not part of the proposal.
\15\ FINRA Letter.
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IV. Discussion and Findings
After careful review of the proposed rule change, the comment
letters and FINRA's response to the comment letters, the Commission
finds that the proposed rule change is consistent with the requirements
of the Act, and the rules and regulations thereunder that are
applicable to national securities associations,\16\ and in particular,
Section 15A(b)(6) of the Act,\17\ which requires among other things,
that FINRA rules 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
Commission believes that it is reasonable for FINRA to adopt NASD Rule
3013 and IM-3013 as FINRA Rule 3130 in the Consolidated FINRA Rulebook
because they have previously been found to meet statutory
requirements.\18\
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\16\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition and capital
formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o-3(b)(6).
\18\ See e.g. Securities Exchange Act Release No. 53509 (March
17, 2006), 71 FR 15238 (March 27, 2006) (SR-NASD-2006-036) (order
approving rule change to IM-3013 finding that the proposed change
furthered investor protection goals and provided clarity regarding
application of the rule); Securities Exchange Act Release No. 56285
(August 17, 2007), 72 FR 48715 (August 24, 2007) (SR-NASD-2007-049)
(order approving rule change to NASD Rule 3013 and IM-3013 finding
that the proposed changes decreased the likelihood of fraud and
manipulative acts in addition to increasing investor protection).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-FINRA-2008-030) be, and it hereby is,
approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-23197 Filed 10-1-08; 8:45 am]
BILLING CODE 8011-01-P
