Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change Relating to the Adoption of FINRA Rule 2140 (Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes) in the Consolidated FINRA Rulebook, 10632-10634 [E9-5212]
Download as PDF
<![CDATA[
10632
Federal Register / Vol. 74, No. 46 / Wednesday, March 11, 2009 / Notices
provisions of the Securities Act.28 For
example, in a global offering, some debt
securities may be issued as part of a
foreign tranche pursuant to Regulation
S.29 Under the proposed amendment,
U.S. resales of securities from that
tranche effected as Rule 144A 30
transactions would be required to be
reported to TRACE. The proposed
amendment regarding Rule 144A 31
transactions will allow FINRA to obtain
a more complete audit trail of Rule
144A 32 transactions in corporate bonds.
This additional transaction data will
enhance the regulatory surveillance of
the corporate bond market as a whole.33
FINRA will announce the effective
date of the proposed rule change in a
Regulatory Notice to be published no
later than 60 days following
Commission approval. The effective
date will be no later than 30 days
following publication of 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,34 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. FINRA believes that the
proposed rule change will provide
FINRA with heightened capabilities to
regulate and conduct surveillance in the
corporate debt securities markets,
enhance market transparency and
protect investors and other market
participants by including in TRACE
certain corporate debt securities that
currently are traded in the same markets
in which TRACE-eligible securities are
traded by the same market participants
and investors.
B.Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change would impose any
burden on competition that is not
28 15
U.S.C. 77a et seq.
CFR 230.901–905.
30 17 CFR 230.144A.
31 17 CFR 230.144A.
32 17 CFR 230.144A.
33 Currently, as provided in Rule 6750, FINRA
does not disseminate Securities Act Rule 144A
transactions, and FINRA does not propose to amend
Rule 6750. See e-mail from Sharon Zackula,
Associate Vice President and Associate General
Counsel, FINRA, to Geoffrey Pemble, Special
Counsel, Division of Trading and Markets,
Commission, dated March 4, 2009.
34 15 U.S.C. 78o–3(b)(6).
rwilkins on PROD1PC63 with NOTICES
29 17
VerDate Nov<24>2008
17:01 Mar 10, 2009
Jkt 217001
necessary or appropriate in furtherance
of 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
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–2009–004 and
should be submitted on or before April
1, 2009.35
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–5203 Filed 3–10–09; 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 8011–01–P
Electronic Comments
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Granting
Approval of a Proposed Rule Change
Relating to the Adoption of FINRA Rule
2140 (Interfering With the Transfer of
Customer Accounts in the Context of
Employment Disputes) in the
Consolidated FINRA Rulebook
• 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–2009–004 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2009–004. 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
PO 00000
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Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59495; File No. SR–FINRA–
2008–052]
March 3, 2009.
I. Introduction
On October 29, 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’’) proposed
rule change SR–FINRA–2008–052
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’).1 Notice of the proposal was
published in the Federal Register on
January 27, 2009.2 No comment letters
were received. For the reasons
discussed below, the Commission is
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 Securities Exchange Act Release No. 59253
(January 15, 2009), 74 FR 4792.
1 15
E:\FR\FM\11MRN1.SGM
11MRN1
Federal Register / Vol. 74, No. 46 / Wednesday, March 11, 2009 / Notices
granting approval of the proposed rule
change.
II. Description
The proposed rule change adopts
without material change NASD
Interpretive Material 2110–7 (IM–2110–
7) (Interfering With the Transfer of
Customer Accounts in the Context of
Employment Disputes) as a FINRA rule
in the consolidated FINRA rulebook.
(1) Purpose
As part of the process of developing
the new consolidated rulebook
(‘‘Consolidated FINRA Rulebook’’),3
FINRA is proposing to adopt without
material change NASD IM–2110–7 as a
FINRA rule in the Consolidated FINRA
Rulebook. The proposed rule change
would renumber NASD IM–2110–7 as
FINRA Rule 2140 in the Consolidated
FINRA Rulebook.
rwilkins on PROD1PC63 with NOTICES
(A) Background
NASD IM–2110–7 provides that it
shall be inconsistent with just and
equitable principles of trade for a
member or person associated with a
member 4 to interfere with a customer’s
request to transfer his or her account in
connection with the change in
employment of the customer’s registered
representative provided that the account
is not subject to any lien for monies
owed by the customer or other bona fide
claim. Prohibited interference includes,
but is not limited to, seeking a judicial
order or decree that would bar or restrict
the submission, delivery, or acceptance
of a written request from a customer to
transfer his or her account.5
3 The current Consolidated FINRA Rulebook
includes, in addition to FINRA Rules, (1) NASD
Rules and (2) rules incorporated from NYSE
(‘‘Incorporated NYSE Rules’’) (until the completion
of the rulebook consolidation process, the FINRA
rulebook includes NASD Rules and Incorporated
NYSE Rules, together referred to as the
‘‘Transitional Rulebook’’), in addition to the new
consolidated FINRA Rules). While the NASD Rules
generally apply to all FINRA members, the
Incorporated NYSE Rules apply only to those
members of FINRA that are also members of the
NYSE (‘‘Dual Members’’). For more information
about the rulebook consolidation process, see
FINRA Information Notice, March 12, 2008
(Rulebook Consolidation Process).
4 The term ‘‘person associated with a member’’
includes, among others, registered representatives.
See FINRA By-Laws, Article I, Paragraph (rr).
5 IM–2110–7 further states that nothing in the
Interpretation shall affect the operation of NASD
Rule 11870 (Customer Account Transfer Contracts).
Generally, Rule 11870 addresses the transfer of
securities account assets from one member to
another member in connection with a customer
request. FINRA intends to review NASD Rule 11870
and related interpretive materials as part of a later
phase in the rulebook consolidation process. Note
that the Commission has approved FINRA’s
proposed rule change to rescind, as duplicative of
Rule 11870 Incorporated NYSE Rule 412 and its
Interpretation. See Securities Exchange Act Release
VerDate Nov<24>2008
17:01 Mar 10, 2009
Jkt 217001
10633
FINRA adopted IM–2110–7 to address
the practice of delaying customer
account transfers.6 In adopting IM–
2110–7, FINRA noted in a Notice to
Members that, when a registered
representative leaves his or her firm for
a position at a different firm, clients
serviced by the registered representative
may decide to continue their
relationship with the registered
representative by transferring their
accounts to the registered
representative’s new firm. FINRA
expressed concern that the registered
representative’s former firm, concerned
that its former employee may have
breached his or her employment
contract by sharing client information
with the new firm or by soliciting
clients to transfer their accounts to the
new firm, sometimes would seek a court
order to prevent the transfer of accounts.
FINRA noted that in a prior Notice to
Members it had already alerted
members that unnecessary delays in
transferring customer accounts,
including delays accompanied by
attempts to persuade customers not to
transfer their accounts, are inconsistent
with just and equitable principles of
trade.7 FINRA stated that obtaining
court orders to prevent customers from
following a registered representative to
a different firm is similar to the unfair
practice of delaying transfers that the
prior Notice had warned about.
In adopting IM–2110–7, FINRA
further stated that the Interpretive
Material does not affect the ability of
member firms to use employment
agreements to prevent former
representatives from soliciting firm
customers. Members are not prevented
from pursuing other remedies they may
have arising from employment disputes
with former registered representatives.
Rather, IM–2110–7 is limited to
restricting a member from interfering
with a customer’s right to transfer his or
her account once the customer has
asked the firm to move the account.
NASD IM–2110–7 with only minor
changes into the Consolidated FINRA
Rulebook. Specifically, IM–2110–7
would be recodified with conforming
revisions as a stand-alone FINRA rule
rather than as interpretive material to
NASD Rule 2110 (Standards of
Commercial Honor and Principles of
Trade).8
FINRA will announce the
implementation date of the proposed
rule change in a Regulatory Notice to be
published no later than ninety days
following Commission approval.
(B) Proposal
FINRA believes that NASD IM–2110–
7 is consistent with the goal of investor
protection and serves the public
interest. FINRA proposes to transfer
IV. Conclusion
No. 58533 (September 12, 2008), 73 FR 54652
(September 22, 2008) [File No. SR–FINRA–2008–
036].
6 See NASD Notice to Members 02–07 (January
2002) (Interfering With Customer Account
Transfers); see also Securities Exchange Act Release
No. 45239 (January 4, 2002), 67 FR 1790 (January
14, 2002) [File No. SR-NASD–2001–95].
7 NASD Notice to Members 79–7 (February 1979)
(Fair Treatment of Customer Accounts); see also
Securities Exchange Act Release No. 15194
(September 28, 1978) (Notice to Broker-Dealers
Concerning Fair Treatment of Customer Accounts).
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Frm 00106
Fmt 4703
Sfmt 4703
III. Discussion
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 applicable to a national
securities association. In particular, the
Commission finds that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,9 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 rule change is an
interpretation to an existing rule of
NASD that is being adopted without
material change to the FINRA rulebook.
The proposed rule change should
continue to protect investors and the
public interest by addressing
interference with the transfer of
customer accounts in the context of
employment disputes between
registered representatives and their
former firms. For these reasons, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular Section 15A(b)(6) of the Act
and the rules and regulations
thereunder.10
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
8 The exact revised text of IM–2100–8 is attached
as Exhibit 5 to the proposed rule change and is
available at https://www.finra.org/Industry/
Regulation/RuleFilings/2008/P117330. Similarly,
FINRA has transferred NASD Rule 2110 to the
Consolidated FINRA Rulebook without change as
FINRA Rule 2010. Securities Exchange Act Release
No. 58643 (September 25, 2008), 73 FR 57174
(October 1, 2008) [File No. SR–FINRA–2008–028].
9 15 U.S.C. 78o–3(b)(6).
10 In approving the proposed rule change, the
Commission considered the proposal’s impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
E:\FR\FM\11MRN1.SGM
11MRN1
10634
Federal Register / Vol. 74, No. 46 / Wednesday, March 11, 2009 / Notices
FINRA–2008–052) be and hereby is
approved.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–5212 Filed 3–10–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59497; File No. SR–BX–
2009–015]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
of Proposed Rule Change Relating to
Order Handling and Exposure Periods
on the Boston Options Exchange
Facility
March 4, 2009.
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 February
27, 2009, NASDAQ OMX BX, Inc. (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
rwilkins on PROD1PC63 with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
certain Rules of the Boston Options
Exchange (‘‘BOX’’) to reduce the order
handling and exposure periods
contained within the BOX Rules from
three seconds to one second. The text of
the proposed rule change is available
from the principal office of the
Exchange, at the Commission’s Public
Reference Room and also on the
Exchange’s Internet Web site at https://
nasdaqomxbx.cchwallstreet.com/
NASDAQOMXBX/Filings/.
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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Nov<24>2008
17:01 Mar 10, 2009
Jkt 217001
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization 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
The purpose of the proposed rule
change is to reduce the order handling
and exposure periods from three
seconds to one second in the
Supplementary Material to Section 17
(Customer Orders and Order Flow
Providers) and in Section 18 (The Price
Improvement Period (‘‘PIP’’)) of Chapter
V (Doing Business on BOX) of the BOX
Rules. These sections require that orders
entered into the BOX limit order book
(‘‘BOX Book’’), or the PIP, respectively,
are currently exposed to all market
participants for three seconds before the
orders are automatically executed,
giving Options Participants
(‘‘Participants’’) an opportunity to enter
additional trading interests.
Chapter V of the BOX Rules outlines
certain requirements related to order
handling by BOX Options Participants
and Market Makers. A Participant may
not execute an order it represents as
agent with a facilitation or a solicited
order unless it complies with the order
exposure requirements contained in
Chapter V, Section 17, Supplementary
Materials .02 and .03. Specifically,
Supplementary Material .02 to Section
17 provides that an Options Participant
may not cause the execution of an order
it represents as agent on BOX through
the use of orders it solicited unless the
agency order is first exposed to the BOX
Book for at least three seconds.
Furthermore, Supplementary Material
.03 to Section 17 provides that an order
flow provider (‘‘OFP’’) may not execute
as principal an order it represents as
agent unless the OFP (i) exposes the
order to the BOX Book for three
seconds; (ii) has been bidding or
offering on BOX for at least three
seconds prior to receiving an agency
order that is executable against such bid
or offer; or (iii) sends the agency order
to the PIP or Universal Price
Improvement Period (‘‘UPIP’’). Under
the proposal, these time periods would
be reduced to one second.
The Exchange is also proposing to
reduce the PIP in Section 18 of Chapter
V from three seconds to one second.
Currently the PIP allows Participants to
designate certain customer orders for
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Frm 00107
Fmt 4703
Sfmt 4703
price improvement and submit such
orders to the PIP with a matching contra
order (‘‘Primary Improvement Order’’).
Once an order is submitted to the PIP,
BOX broadcasts a message to Options
Participants that commences the PIP
and (1) states that a Primary
Improvement Order has been processed;
(2) contains information concerning
series, size, price and side of the market
of the order; and (3) states when the PIP
will conclude. This proposal would
reduce the PIP to one second.
When approving the existing three
second order handling and exposure
periods, the Commission concluded
that, in the electronic environment of
BOX, reducing these time periods to
three seconds was fully consistent with
the electronic nature of the BOX
market.3 BOX recognized that three
seconds would not be long enough to
allow human interaction with orders.
Rather, Participants have been operating
with sufficiently automated electronic
systems so that they can react and
respond to orders in a meaningful way
within three seconds and BOX fully
anticipates that this will continue
within the proposed one second time
frame. BOX believes that further
reducing its order handling and
exposure periods from three seconds to
one second will benefit all market
participants. BOX believes it is in all
participants’ best interests to minimize
the time of the exposure period while
continuing to allow Participants
adequate time to electronically respond,
as both the order being exposed and
Participants responding are subject to
market risk during the exposure period.
Indeed, most participants wait until the
end of the last second of the current
three second period before responding
to exposed orders so as to minimize
market risk. BOX believes that one
second will continue to provide market
participants with sufficient time to
respond, compete, and provide price
improvement for orders and will
provide investors and other market
participants with more timely
executions, thereby reducing their
market risk.
Recently, BOX distributed a survey to
Participants that regularly participate in
the PIP or would otherwise be affected
by this proposal. To substantiate that its
Participants could receive, process, and
communicate a response back to BOX
within one second, the survey asked
Participants to identify (i)
approximately how many milliseconds
it takes for an order broadcast from BOX
3 See Securities Exchange Act Release No. 53854;
(May 24, 2006), 71 FR 30975 (May 31, 2006) (SR–
BSE–2006–23).
E:\FR\FM\11MRN1.SGM
11MRN1
]]>Agencies
[Federal Register Volume 74, Number 46 (Wednesday, March 11, 2009)]
[Notices]
[Pages 10632-10634]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-5212]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59495; File No. SR-FINRA-2008-052]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Approval of a Proposed Rule Change
Relating to the Adoption of FINRA Rule 2140 (Interfering With the
Transfer of Customer Accounts in the Context of Employment Disputes) in
the Consolidated FINRA Rulebook
March 3, 2009.
I. Introduction
On October 29, 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'') proposed rule change SR-FINRA-2008-052 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
Notice of the proposal was published in the Federal Register on January
27, 2009.\2\ No comment letters were received. For the reasons
discussed below, the Commission is
[[Page 10633]]
granting approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 59253 (January 15,
2009), 74 FR 4792.
---------------------------------------------------------------------------
II. Description
The proposed rule change adopts without material change NASD
Interpretive Material 2110-7 (IM-2110-7) (Interfering With the Transfer
of Customer Accounts in the Context of Employment Disputes) as a FINRA
rule in the consolidated FINRA rulebook.
(1) Purpose
As part of the process of developing the new consolidated rulebook
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt
without material change NASD IM-2110-7 as a FINRA rule in the
Consolidated FINRA Rulebook. The proposed rule change would renumber
NASD IM-2110-7 as FINRA Rule 2140 in the Consolidated FINRA Rulebook.
---------------------------------------------------------------------------
\3\ The current Consolidated FINRA Rulebook includes, in
addition to FINRA Rules, (1) NASD Rules and (2) rules incorporated
from NYSE (``Incorporated NYSE Rules'') (until the completion of the
rulebook consolidation process, the FINRA rulebook includes NASD
Rules and Incorporated NYSE Rules, together referred to as the
``Transitional Rulebook''), in addition to the new consolidated
FINRA Rules). While the NASD Rules generally apply to all FINRA
members, the Incorporated NYSE Rules apply only to those members of
FINRA that are also members of the NYSE (``Dual Members''). For more
information about the rulebook consolidation process, see FINRA
Information Notice, March 12, 2008 (Rulebook Consolidation Process).
---------------------------------------------------------------------------
(A) Background
NASD IM-2110-7 provides that it shall be inconsistent with just and
equitable principles of trade for a member or person associated with a
member \4\ to interfere with a customer's request to transfer his or
her account in connection with the change in employment of the
customer's registered representative provided that the account is not
subject to any lien for monies owed by the customer or other bona fide
claim. Prohibited interference includes, but is not limited to, seeking
a judicial order or decree that would bar or restrict the submission,
delivery, or acceptance of a written request from a customer to
transfer his or her account.\5\
---------------------------------------------------------------------------
\4\ The term ``person associated with a member'' includes, among
others, registered representatives. See FINRA By-Laws, Article I,
Paragraph (rr).
\5\ IM-2110-7 further states that nothing in the Interpretation
shall affect the operation of NASD Rule 11870 (Customer Account
Transfer Contracts). Generally, Rule 11870 addresses the transfer of
securities account assets from one member to another member in
connection with a customer request. FINRA intends to review NASD
Rule 11870 and related interpretive materials as part of a later
phase in the rulebook consolidation process. Note that the
Commission has approved FINRA's proposed rule change to rescind, as
duplicative of Rule 11870 Incorporated NYSE Rule 412 and its
Interpretation. See Securities Exchange Act Release No. 58533
(September 12, 2008), 73 FR 54652 (September 22, 2008) [File No. SR-
FINRA-2008-036].
---------------------------------------------------------------------------
FINRA adopted IM-2110-7 to address the practice of delaying
customer account transfers.\6\ In adopting IM-2110-7, FINRA noted in a
Notice to Members that, when a registered representative leaves his or
her firm for a position at a different firm, clients serviced by the
registered representative may decide to continue their relationship
with the registered representative by transferring their accounts to
the registered representative's new firm. FINRA expressed concern that
the registered representative's former firm, concerned that its former
employee may have breached his or her employment contract by sharing
client information with the new firm or by soliciting clients to
transfer their accounts to the new firm, sometimes would seek a court
order to prevent the transfer of accounts. FINRA noted that in a prior
Notice to Members it had already alerted members that unnecessary
delays in transferring customer accounts, including delays accompanied
by attempts to persuade customers not to transfer their accounts, are
inconsistent with just and equitable principles of trade.\7\ FINRA
stated that obtaining court orders to prevent customers from following
a registered representative to a different firm is similar to the
unfair practice of delaying transfers that the prior Notice had warned
about.
---------------------------------------------------------------------------
\6\ See NASD Notice to Members 02-07 (January 2002) (Interfering
With Customer Account Transfers); see also Securities Exchange Act
Release No. 45239 (January 4, 2002), 67 FR 1790 (January 14, 2002)
[File No. SR-NASD-2001-95].
\7\ NASD Notice to Members 79-7 (February 1979) (Fair Treatment
of Customer Accounts); see also Securities Exchange Act Release No.
15194 (September 28, 1978) (Notice to Broker-Dealers Concerning Fair
Treatment of Customer Accounts).
---------------------------------------------------------------------------
In adopting IM-2110-7, FINRA further stated that the Interpretive
Material does not affect the ability of member firms to use employment
agreements to prevent former representatives from soliciting firm
customers. Members are not prevented from pursuing other remedies they
may have arising from employment disputes with former registered
representatives. Rather, IM-2110-7 is limited to restricting a member
from interfering with a customer's right to transfer his or her account
once the customer has asked the firm to move the account.
(B) Proposal
FINRA believes that NASD IM-2110-7 is consistent with the goal of
investor protection and serves the public interest. FINRA proposes to
transfer NASD IM-2110-7 with only minor changes into the Consolidated
FINRA Rulebook. Specifically, IM-2110-7 would be recodified with
conforming revisions as a stand-alone FINRA rule rather than as
interpretive material to NASD Rule 2110 (Standards of Commercial Honor
and Principles of Trade).\8\
---------------------------------------------------------------------------
\8\ The exact revised text of IM-2100-8 is attached as Exhibit 5
to the proposed rule change and is available at https://
www.finra.org/Industry/Regulation/RuleFilings/2008/P117330.
Similarly, FINRA has transferred NASD Rule 2110 to the Consolidated
FINRA Rulebook without change as FINRA Rule 2010. Securities
Exchange Act Release No. 58643 (September 25, 2008), 73 FR 57174
(October 1, 2008) [File No. SR-FINRA-2008-028].
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FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than ninety days
following Commission approval.
III. Discussion
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 applicable to a national securities association.
In particular, the Commission finds that the proposed rule change is
consistent with the provisions of Section 15A(b)(6) of the Act,\9\
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 rule change is an
interpretation to an existing rule of NASD that is being adopted
without material change to the FINRA rulebook. The proposed rule change
should continue to protect investors and the public interest by
addressing interference with the transfer of customer accounts in the
context of employment disputes between registered representatives and
their former firms. For these reasons, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 15A(b)(6) of the Act and the rules and
regulations thereunder.\10\
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\9\ 15 U.S.C. 78o-3(b)(6).
\10\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-
[[Page 10634]]
FINRA-2008-052) be and hereby is approved.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-5212 Filed 3-10-09; 8:45 am]
BILLING CODE 8011-01-P
