Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, Relating to the Adoption of FINRA Rule 2080 (Obtaining an Order of Expungement of Customer Dispute Information From the Central Registration Depository (CRD System)), FINRA Rule 2310 (Direct Participation Programs), FINRA Rule 4551 (Requirements for Alternative Trading Systems To Record and Transmit Order and Execution Information for Security Futures) and FINRA Rule 2266 (SIPC Information) in the Consolidated FINRA Rulebook, 18411-18415 [E9-9157]

Download as PDF Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59771; File No. SR–FINRA– 2009–016] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, Relating to the Adoption of FINRA Rule 2080 (Obtaining an Order of Expungement of Customer Dispute Information From the Central Registration Depository (CRD System)), FINRA Rule 2310 (Direct Participation Programs), FINRA Rule 4551 (Requirements for Alternative Trading Systems To Record and Transmit Order and Execution Information for Security Futures) and FINRA Rule 2266 (SIPC Information) in the Consolidated FINRA Rulebook April 15, 2009. dwashington3 on PROD1PC60 with NOTICES 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 March 25, 2009, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. On April 14, 2009, FINRA filed Amendment No. 1 to the proposed rule change.3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to (1) adopt NASD Rules 2130 (Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD System)), 2810 (Direct Participation Programs) and 3115 (Requirements for Alternative Trading Systems to Record and Transmit Order and Execution Information for Security Futures) as FINRA rules in the consolidated FINRA rulebook without material change; and (2) adopt NASD Rule 2342 (SIPC Information) in the consolidated FINRA rulebook without material change and to delete Incorporated NYSE Rule 409A (SIPC Disclosures). The proposed rule 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 replaced and superceded the original filing. 2 17 VerDate Nov<24>2008 15:31 Apr 21, 2009 Jkt 217001 change would renumber NASD Rule 2130 as FINRA Rule 2080, NASD Rule 2810 as FINRA Rule 2310, NASD Rule 3115 as FINRA Rule 4551 and NASD Rule 2342 as FINRA Rule 2266 in the consolidated FINRA rulebook. Amendment No. 1 to SR–FINRA– 2009–016 makes minor changes to the original filing filed on March 25, 2009. The proposed rule change replaces and supercedes the proposed rule change filed on March 25, 2009 in its entirety. The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose As part of the process of developing a new consolidated rulebook (‘‘Consolidated FINRA Rulebook’’),4 FINRA is proposing to (1) adopt FINRA Rules 2080 (Obtaining an Order of Expungement of Customer Dispute Information from the Central Registration Depository (CRD) System), 2310 (Direct Participation Programs) and 4551 (Requirements for Alternative Trading Systems to Record and Transmit Order and Execution Information for Security Futures) as FINRA rules in the consolidated FINRA rulebook; and (2) adopt FINRA Rule 2266 (SIPC Information) in the 4 The current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the ‘‘Transitional Rulebook’’). 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’’). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see FINRA Information Notice, March 12, 2008 (Rulebook Consolidation Process). PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 18411 consolidated FINRA rulebook and delete the corresponding provisions in Incorporated NYSE Rule 409A. a. Proposed FINRA Rule 2080 FINRA is proposing to adopt NASD Rule 2130 without material change into the Consolidated FINRA Rulebook as FINRA Rule 2080. NASD Rule 2130 addresses the expungement of customer dispute information from the Central Registration Depository (‘‘CRD ®’’) system. The CRD system is an online registration and licensing system that is used by the securities industry, State and Federal regulators and selfregulatory organizations. It contains information regarding members and registered persons, specifically administrative information (e.g., personal, educational and employment history) and disclosure information (e.g., criminal matters, regulatory and disciplinary actions, civil judicial actions and information relating to customer disputes). Although public investors do not have access to the CRD system, much of the information in that system is available to investors through FINRA BrokerCheck and individual State disclosure programs.5 FINRA recognizes that accurate and complete reporting in the CRD system is an important component of investor protection. FINRA operates the CRD system pursuant to policies developed jointly with the North American Securities Administrators Association (‘‘NASAA’’). FINRA works with the SEC, NASAA, other members of the regulatory community and member firms to establish policies and procedures reasonably designed to ensure that information submitted to and maintained in the CRD system is accurate and complete. These procedures, among other things, cover expungement of information from the CRD system. In January 1999, after consultation with NASAA, FINRA imposed a moratorium on arbitrator-ordered expungement of customer dispute information from the CRD system.6 Under the moratorium, FINRA would expunge such information from the CRD system only when a court of competent jurisdiction confirmed an arbitrator’s directive to expunge customer dispute information. During this moratorium, however, FINRA continued to expunge information from the CRD system based 5 FINRA BrokerCheck is a free online tool to help investors check the background of current and former FINRA-registered securities firms and brokers. 6 See Notice to Members 99–09 (February 1999) and Notice to Members 99–54 (July 1999). E:\FR\FM\22APN1.SGM 22APN1 18412 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices dwashington3 on PROD1PC60 with NOTICES on expungement directives in arbitration awards rendered in disputes between firms and current or former registered persons, in which arbitrators awarded such relief based on the defamatory nature of the information. After imposing the moratorium, FINRA began considering how to craft an approach to expungement that would allow FINRA effectively to challenge expungement directives that might diminish or impair the integrity of the CRD system and to ensure the maintenance of essential information for regulators and investors. In December 2003, the SEC approved NASD Rule 2130,7 which contains additional standards and procedures for expungement of customer dispute information 8 from the CRD system. Rule 2130 continues the requirement started with the 1999 moratorium that a court of competent jurisdiction must order or confirm all expungement directives before FINRA will expunge customer dispute information from the CRD system.9 It also requires that FINRA members or associated persons name FINRA as an additional party in any court proceeding in which they seek an order to expunge customer dispute information or request confirmation of an award containing an order of expungement. Upon request, however, FINRA may waive the requirement to be named as a party if it determines that the expungement relief is based on an affirmative judicial or arbitral finding that: (1) The claim, allegation or information is factually impossible or clearly erroneous; (2) the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (3) the claim, allegation or information is false. If the expungement relief is based on judicial or arbitral findings other than those enumerated 7 See Securities Exchange Act Release No. 48933 (December 16, 2003), 68 FR 74667 (December 24, 2003). FINRA Rule 2080, as with NASD Rule 2130, would apply to any request made to a court of competent jurisdiction to expunge customer dispute information from the CRD system that has its basis in an arbitration or civil lawsuit filed on or after April 12, 2004. See Notice to Members 04–16 (March 2004). 8 For purposes of Rule 2130, ‘‘customer dispute information’’ includes customer complaints, arbitration claims and court filings made by customers, and the arbitration awards or court judgments that may result from those claims or filings. See Notice to Members 04–16 (March 2004). 9 Under Rule 2130, FINRA may continue to expunge information from the CRD system— without the need for judicial intervention—for expungement directives contained in intra-industry arbitration awards that involve registered persons and firms based on the defamatory nature of the information ordered expunged. VerDate Nov<24>2008 15:31 Apr 21, 2009 Jkt 217001 immediately above, FINRA also may waive the requirement to be named as a party if FINRA determines, in its sole discretion and under extraordinary circumstances, that the expungement relief and accompanying findings on which it is based are meritorious and the expungement relief would have no material adverse effect on investor protection, the integrity of the CRD system or regulatory requirements. Upon receipt of a waiver request, FINRA staff will notify the States (directly or through NASAA) where the individual is registered or seeking registration of the expungement notice/ waiver request. FINRA staff will then examine the basis on which the fact finder ordered expungement to determine whether the expungement was based on one or more of the standards in Rule 2130.10 If FINRA staff determines that the expungement was not based on one or more of the standards in Rule 2130, it will advise the parties that FINRA will not waive the requirement to be named as a party in the court confirmation process. The parties would then name FINRA as a party, and FINRA would have the opportunity to oppose the expungement in the court proceeding. FINRA recommends that NASD Rule 2130 be transferred without material change into the Consolidated FINRA Rulebook. NASD Rule 2130 was the product of notice and comment rulemaking. FINRA solicited comment on proposed approaches regarding expungement of information in Notices to Members issued in July 1999 and October 2001.11 FINRA staff drafted the proposed rule taking into account the comments received and following discussions with NASAA. Subsequently, the SEC published the proposal for comment in the Federal Register in March 2003, and the final rule reflects additional changes based on the comments received by the SEC. NASD Rule 2130 serves to enhance the integrity of information in the CRD system and to further ensure that investor protection is not compromised when arbitrators order expungement of 10 In October 2008, the SEC approved a FINRA rule change (File No. SR–FINRA–2008–10), which became effective January 26, 2009, establishing new procedures that arbitrators must follow when considering requests for expungement relief, including requiring arbitrators to: (1) Consider the terms of a settlement agreement in settled matters; (2) hold a recorded hearing regarding the appropriateness of expungement; and (3) provide a brief written explanation of the reason(s) for ordering expungement. See Securities Exchange Act Release No. 58886 (October 30, 2008), 73 FR 66086 (November 6, 2008). See also Regulatory Notice 08– 79 (December 2008). 11 See Notice to Members 99–54 (July 1999) and Notice to Members 01–65 (October 2001). PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 information from a CRD record. Moreover, the new procedures that arbitrators must follow when considering requests for expungement will add transparency and procedural safeguards designed to ensure that the extraordinary relief of expungement is granted only under appropriate circumstances. b. Proposed FINRA Rule 2310 FINRA is proposing to adopt NASD Rule 2810 without material change into the Consolidated FINRA Rulebook as FINRA Rule 2310. NASD Rule 2810 addresses underwriting terms and arrangements in public offerings of direct participation programs (‘‘DPPs’’) and unlisted real estate investment trusts (‘‘REITs’’) (collectively, ‘‘Investment Programs’’). A DPP is a business venture designed to let investors participate directly in the cash flow and tax benefits of an underlying investment. REITs are investment vehicles for income-generating real estate that benefit from the tax advantages of a trust if they satisfy certain criteria in the Internal Revenue Code. Rule 2810 requires that members participating in a public offering of an Investment Program meet certain requirements regarding underwriting compensation, fees and expenses, perform due diligence on the Investment Program, follow specific guidelines on suitability, and adhere to limits on non-cash compensation. NASD Rule 2810 requires that, prior to participating in a public offering of an Investment Program, a member or a participating firm on its behalf must file information regarding the offering with the FINRA Corporate Financing Department and receive an opinion from the Department that it has no objections to the proposed underwriting terms and arrangements (a ‘‘no objections’’ opinion). Among the terms and arrangements that are reviewed by FINRA staff are the level of organization and offering expenses (‘‘O&O expenses’’). Rule 2810 limits the amount of O&O expenses for an Investment Program (which includes issuer expenses, underwriting compensation and due diligence expenses) to 15 percent of the gross proceeds of the offering. The rule also requires a member to perform due diligence about an Investment Program prior to participating in a public offering. The member must have reasonable grounds to believe, based on information in the prospectus, that all material facts, including those regarding compensation, physical properties, tax, financial stability and experience of the sponsor, and conflicts, are adequately E:\FR\FM\22APN1.SGM 22APN1 dwashington3 on PROD1PC60 with NOTICES Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices and accurately disclosed and provide a basis for evaluating the Investment Program. In addition, NASD Rule 2810 contains an exception from the disclosure requirements for offerings of certain Investment Programs that are listed, or approved for listing, on a national securities exchange. This exception, currently in paragraph (b)(1), would be relocated to paragraph (b)(3)(D) of the new rule, the section of the rule addressing disclosures. In this regard, the proposed rule change would return the exception to its original location in the rule. Prior to 2008, the exception was located in paragraph (b)(3)(D) of the rule; however, as part of a larger effort to streamline the rule in SR–NASD– 2005–114, it was moved to paragraph (b)(1).12 The proposed rule change would enhance the clarity of the rule by re-locating the exception to the section addressing disclosures at paragraph (b)(3)(D). The rule also imposes specific suitability standards on recommended transactions to take account of the risks and lack of liquidity of Investment Programs. Further, it requires members and associated persons to ensure, prior to participating in a public offering of an Investment Program, that all material facts are adequately and accurately disclosed, including pertinent facts relating to the liquidity and marketability of the Investment Program. In addition, under Rule 2810, members cannot accept or make noncash gifts in connection with the sale or distribution of an Investment Program in excess of $100 per year, nor can any non-cash entertainment (such as an occasional meal) raise any question of propriety or be conditioned on the achievement of a sales target. Finally, the non-cash provisions of the rule prohibit payments for an associated person to attend training or educational meetings unless the associated person obtains the member’s prior approval and such training and entertainment is not based upon the associated person achieving a sales target. Collectively, these non-cash provisions are aimed at preventing Investment Program sponsors from using non-cash compensation as a means to circumvent the limits on underwriting compensation. NASD Rule 2810 was adopted in 1980 to address issues arising from members’ participation in oil and gas programs and real estate syndications in the 12 See Securities Exchange Act Release No. 57803 (May 8, 2008), 73 FR 27869 (May 14, 2008). VerDate Nov<24>2008 15:31 Apr 21, 2009 Jkt 217001 1970s.13 It has been amended periodically to include additional programs and procedures,14 including greater limitations on sales incentive compensation and members’ participation in limited partnership rollup transactions.15 These amendments were adopted to address new developments regarding members’ participation in Investment Programs, and were the product of extensive notice and comment rulemaking over a period of several years.16 The most recent amendments to the rule, which became effective on August 6, 2008, address O&O expenses and enhanced investor disclosures regarding the liquidity of Investment Programs.17 FINRA believes that the rule as currently drafted is well-understood by the sponsors of Investment Programs and the broker-dealers that sell them, and is providing significant investor protections. As a result, FINRA recommends that NASD Rule 2810 be transferred without material change into the Consolidated FINRA Rulebook as FINRA Rule 2310. c. Proposed FINRA Rule 4551 FINRA is proposing to adopt NASD Rule 3115 without material change into the Consolidated FINRA Rulebook as FINRA Rule 4551. NASD Rule 3115 (Requirements for Alternative Trading Systems to Record and Transmit Order and Execution Information for Security Futures) requires alternative trading systems (‘‘ATSs’’) 18 that accept orders 13 See Securities Exchange Act Release No. 16967 (July 8, 1980), 45 FR 47294 (July 14, 1980). 14 For example, some significant amendments to Rule 2810 include the following: in 1982, amendments to include suitability, due diligence and disclosure requirements; see Securities Exchange Act Release No. 19054 (September 16, 1982), 47 FR 42226 (September 24, 1982); in 1984, to require that sales incentives be in cash; see Securities Exchange Act Release No. 20844 (April 11, 1984), 49 FR 15041 (April 16, 1984); in 1986, to exempt certain secondary offerings; see Securities Exchange Act Release No. 23619 (September 15, 1986), 51 FR 33968 (September 24, 1986); in 1994, to apply to limited partnership rollup transactions; see Securities Exchange Act Release No. 34533 (August 15, 1994), 59 FR 43147 (August 22, 1994); and in 2003, to modify the noncash compensation provisions; see Securities Exchange Act Release No. 47697 (April 18, 2003), 68 FR 20191 (April 24, 2003). 15 A limited partnership rollup transaction either reorganizes an existing limited partnership or combines multiple limited partnerships into a new entity to take advantage of larger asset pools and economies of scale. 16 See supra note 14. 17 See Securities Exchange Act Release No. 57803 (May 8, 2008), 73 FR 27869 (May 14, 2008). 18 ATSs generally are registered broker-dealers that provide or maintain a marketplace for bringing together purchasers and sellers of securities or otherwise perform the functions commonly performed by a securities exchange but do not perform self-regulatory functions. PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 18413 for security futures 19 to record and report to FINRA certain information regarding those orders, including the date and time the order was received, the security future product name and symbol, the details of the order, and the date and time that the order was executed. The rule thus provides FINRA with an audit trail of orders for security futures placed on an ATS. NASD Rule 3115 was adopted in 2003 following the amendments to the Act included in the Commodity Futures Modernization Act of 2000.20 Section 6(h)(5) of the Act, which was added as part of those amendments, prohibits a person other than a national securities association or national securities exchange from maintaining or providing a marketplace or facilities for bringing together purchasers and sellers of security futures products unless it is a member of a national securities association or national securities exchange that has: (1) Procedures for coordinated surveillance; (2) rules to require an audit trail necessary or appropriate to facilitate coordinated surveillance; and (3) rules to require such person to coordinate trading halts with markets trading the securities underlying the security futures products and other markets trading related securities.21 FINRA adopted NASD Rule 3115 as part of a package of rules to meet these requirements and thus allow ATSs that are FINRA members to provide a marketplace for security futures. Specifically, NASD Rule 3115 satisfies the requirement that a national securities association have ‘‘rules to require an audit trail necessary or appropriate to facilitate coordinated surveillance.’’ 22 Because NASD Rule 3115 is necessary to allow ATSs to provide trading facilities for security futures, the proposed rule change would transfer NASD Rule 3115 into the Consolidated FINRA Rulebook as FINRA Rule 4551 19 A security future is a contract of sale for future delivery of a single security or of a narrow-based security index. Security futures are defined as ‘‘securities’’ under the Act; consequently, the federal securities laws are generally applicable to security futures. See 15 U.S.C. 78c(a)(10). 20 See Securities Exchange Act Release No. 47259 (January 27, 2003), 68 FR 5319 (February 3, 2003). 21 15 U.S.C. 78f(h)(5). 22 In the same rule filing adopting NASD Rule 3115, FINRA also amended NASD Rule 3340 (Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts) to satisfy the requirement that a national securities association have ‘‘rules to require such person to coordinate trading halts with markets trading the securities underlying the security futures products and other markets trading related securities.’’ See Securities Exchange Act Release No. 47259 (January 27, 2003), 68 FR 5319 (February 3, 2003). The proposed rule change does not address NASD Rule 3340. E:\FR\FM\22APN1.SGM 22APN1 18414 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices without material change. This would allow ATSs to continue to provide trading facilities for security futures and would ensure FINRA receives information to maintain an audit trail regarding the trading of security futures. dwashington3 on PROD1PC60 with NOTICES d. Proposed FINRA Rule 2266 FINRA is proposing to adopt NASD Rule 2342 without material change into the Consolidated FINRA Rulebook as FINRA Rule 2266 and to delete comparable Incorporated NYSE Rule 409A. NASD Rule 2342 and Incorporated NYSE Rule 409A were adopted in response to a May 2001 report issued by the Government Accountability Office (‘‘GAO’’), entitled ‘‘Securities Investor Protection: Steps Needed to Better Disclose SIPC Policies to Investors.’’ 23 In that report, the GAO made recommendations to the SEC and the Securities Investor Protection Corporation (‘‘SIPC’’) about ways to improve the information available to the public about SIPC and the Securities Investor Protection Act of 1970 (‘‘SIPA’’). Among other things, the GAO recommended that self-regulatory organizations explore ways to encourage broader dissemination of the SIPC brochure to customers so that they can become more aware of the scope of coverage of SIPA. In May 2007, the SEC approved NASD Rule 2342 setting forth requirements for providing SIPC information to customers. Rule 2342 requires all FINRA members, except those members (1) that are excluded from membership in SIPC and are not SIPC members; or (2) whose business consists exclusively of the sale of investments that are ineligible for SIPC protection, to advise all new customers that they may obtain information about SIPC, including the SIPC brochure, by contacting SIPC. Such members also must provide SIPC’s Web site address and telephone number. Members must provide this disclosure to new customers, in writing, at the opening of an account and also must provide customers with the same information, in writing, at least once each year. In cases where both an introducing firm and clearing firm service an account, the firms may assign these requirements to one of the firms. Incorporated NYSE Rule 409A is substantially similar to NASD Rule 2342; however, the Incorporated NYSE rule does not contain the exclusions set forth in NASD Rule 2342 because NYSE 23 See U.S. Government Accountability Office, ‘‘Securities Investor Protection: Steps Needed to Better Disclose SIPC Policies to Investors,’’ Publication GAO–01–653 (May 25, 2001). VerDate Nov<24>2008 15:31 Apr 21, 2009 Jkt 217001 member organizations generally would not qualify for those exclusions. FINRA believes that the approach in NASD Rule 2342, which excludes nonSIPC members and members that sell exclusively non-SIPC eligible securities from the rule’s requirements, is the more appropriate rule for the FINRA membership. Accordingly, the proposed rule change would transfer NASD Rule 2342 without material change into the Consolidated FINRA Rulebook as FINRA Rule 2266 and delete Incorporated NYSE Rule 409A. As noted above, FINRA will announce the implementation date of the proposed rule change in a Regulatory Notice to be published no later than 90 days following 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,24 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 transferring NASD Rule 2130 into the Consolidated FINRA Rulebook will ensure that its standards and procedures regarding expungement of customer dispute information from the CRD system continue to be reasonably designed to ensure that information submitted to and maintained in the CRD system is accurate and complete. FINRA believes that transferring NASD Rule 2810 into the Consolidated FINRA Rulebook will ensure that policies and procedures regarding members’ participation in public offerings of Investment Programs continue to meet statutory mandates. FINRA believes that transferring NASD Rule 3115 into the Consolidated FINRA Rulebook will continue to allow ATSs to provide trading facilities for security futures while also ensuring that FINRA will receive sufficient information to maintain an audit trail regarding the trading of security futures on ATSs. Finally, FINRA believes that transferring NASD Rule 2342 into the Consolidated FINRA Rulebook will continue to ensure that SIPC information is provided to customers effectively. The proposed rule change makes nonmaterial changes to rules that have proven effective in meeting the statutory mandates. 24 15 PO 00000 U.S.C. 78o–3(b)(6). Frm 00067 Fmt 4703 Sfmt 4703 B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–FINRA–2009–016 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–2009–016. 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 E:\FR\FM\22APN1.SGM 22APN1 Federal Register / Vol. 74, No. 76 / Wednesday, April 22, 2009 / Notices amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–FINRA– 2009–016 and should be submitted on or before May 13, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–9157 Filed 4–21–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59774; File No. SR–DTC– 2009–08] Self-Regulatory Organizations; the Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Settlement Service Guide and Settlement Progress Payments dwashington3 on PROD1PC60 with NOTICES April 15, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on April 3, 2009, the Depository Trust Company (‘‘DTC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by DTC. DTC filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 2 and Rule 19b–4(f)(4) thereunder 3 so that the proposal was effective upon filing with the Commission. The Commission is 25 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78s(b)(3)(A)(iii). 3 17 CFR 240.19b–4(f)(4). 1 15 VerDate Nov<24>2008 15:31 Apr 21, 2009 Jkt 217001 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 proposed rule change will (i) amend DTC’s Settlement Service Guide’s instructions regarding withdrawals of intraday principal and income payments for non-money market instrument issues and (ii) update certain aspects of DTC’s Settlement Progress Payments (‘‘SPP’’) procedures. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC 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. DTC 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 DTC is amending the procedures governing a participant’s withdraw of principal and income (‘‘P&I’’) payments for non-money market instrument issues that DTC has received from paying agents and allocated to a participant’s settlement account. The changes include the address and fax number to which a participant must send the wire instruction form to and the information that must be included in that form as well as a clarification that the funds must be wired to the participant’s DTC settlement bank.4 DTC is also amending its SPP procedures. As background, an SPP is a payment sent from a DTC participant to DTC through Fedwire when a DTC participant has insufficient collateral 5 or is at its net debit cap.6 The SPP creates a credit to the participant’s settlement account thereby reducing 4 The rule change does not change the option for a participant to submit P&I withdrawal requests electronically. 5 ‘‘Collateral’’ is defined in DTC’s rules as the sum of (i) the participant’s Actual Fund Deposit, (ii) the participant’s Actual Preferred Stock Investment, (iii) the participant’s Net Additions, and (iv) any SPPs wired by the participant to DTC’s account at the Federal Reserve Bank of New York. 6 A net debit cap helps ensure that DTC can complete settlement, even if a participant fails to settle. PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 18415 their net debit and allowing the participant to continue to receive deliveries into their participant account. Under this rule change, DTC will implement a new automated SPP return functionality that will permit participants to request that DTC return all or a portion of an SPP and to have these payments wired to the participant’s settlement bank account 7 intraday and before the settlement period. DTC states that these changes should simplify the SPP return process and should allow participants to maximize the early return of available liquidity.8 Prior to this rule change, DTC would return only the full amount of a SPP provided that returning the SPP would not result in a negative collateral monitor 9 or cause the participant’s net settlement debit to exceed its net debit cap.10 DTC would debit the full amount of the SPP from the participant’s settlement account and return the funds through Fedwire to the participant’s original sending bank. If a participant only had sufficient collateral or debit cap to return a portion of the SPP, DTC would not process the request until the full amount of the SPP could be returned. Furthermore, return requests required manual approval from DTC’s Settlement Operations. The changes to DTC’s SPP function also include new wire instructions and parameters for using the new automated SPP Return function.11 DTC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 12 and the rules and regulations thereunder applicable to DTC. The proposed rule change will not affect the 7 Under DTC’s rules, a settling bank is a participant that is a bank or trust company subject to supervision or regulation pursuant to Federal or State banking laws and a party to an effective ‘‘Settling Bank Agreement.’’ 8 The upcoming reduction in debit caps for ‘‘families’’ will likely cause increased volume in SPPs. See Securities Exchange Act Release No. 59148 (Dec. 23, 2008), 73 FR 80481 (Dec. 31, 2008). 9 DTC tracks collateral in a participant’s account through the Collateral Monitor (‘‘CM’’). The CM reflects the amount that the collateral in the account exceeds the net debit in the account. When processing a transaction, DTC verifies that the participant’s CM would not become negative when the transaction completes. If the transaction would cause the participant to have a negative CM, the transaction will recycle until the participant has sufficient collateral to complete. 10 Withdrawals that are blocked as a result of insufficient collateral or net debit cap will recycle until enough collateral or settlement credits are generated to satisfy the collateral or net debit cap deficiency or until the end of the recycle period when transactions that have not successfully completed are dropped by the system. 11 The updated wire instructions are attached as Exhibit 5 to DTC’s rule filing. 12 15 U.S.C. 78q–1. E:\FR\FM\22APN1.SGM 22APN1

Agencies

[Federal Register Volume 74, Number 76 (Wednesday, April 22, 2009)]
[Notices]
[Pages 18411-18415]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9157]



[[Page 18411]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59771; File No. SR-FINRA-2009-016]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change, and 
Amendment No. 1 Thereto, Relating to the Adoption of FINRA Rule 2080 
(Obtaining an Order of Expungement of Customer Dispute Information From 
the Central Registration Depository (CRD System)), FINRA Rule 2310 
(Direct Participation Programs), FINRA Rule 4551 (Requirements for 
Alternative Trading Systems To Record and Transmit Order and Execution 
Information for Security Futures) and FINRA Rule 2266 (SIPC 
Information) in the Consolidated FINRA Rulebook

April 15, 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 March 25, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by FINRA. On April 
14, 2009, FINRA filed Amendment No. 1 to the proposed rule change.\3\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superceded the original filing.
---------------------------------------------------------------------------

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

    FINRA is proposing to (1) adopt NASD Rules 2130 (Obtaining an Order 
of Expungement of Customer Dispute Information from the Central 
Registration Depository (CRD System)), 2810 (Direct Participation 
Programs) and 3115 (Requirements for Alternative Trading Systems to 
Record and Transmit Order and Execution Information for Security 
Futures) as FINRA rules in the consolidated FINRA rulebook without 
material change; and (2) adopt NASD Rule 2342 (SIPC Information) in the 
consolidated FINRA rulebook without material change and to delete 
Incorporated NYSE Rule 409A (SIPC Disclosures). The proposed rule 
change would renumber NASD Rule 2130 as FINRA Rule 2080, NASD Rule 2810 
as FINRA Rule 2310, NASD Rule 3115 as FINRA Rule 4551 and NASD Rule 
2342 as FINRA Rule 2266 in the consolidated FINRA rulebook.
    Amendment No. 1 to SR-FINRA-2009-016 makes minor changes to the 
original filing filed on March 25, 2009. The proposed rule change 
replaces and supercedes the proposed rule change filed on March 25, 
2009 in its entirety.
    The text of the proposed rule change is available on FINRA's Web 
site at https://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\4\ FINRA is proposing to (1) adopt 
FINRA Rules 2080 (Obtaining an Order of Expungement of Customer Dispute 
Information from the Central Registration Depository (CRD) System), 
2310 (Direct Participation Programs) and 4551 (Requirements for 
Alternative Trading Systems to Record and Transmit Order and Execution 
Information for Security Futures) as FINRA rules in the consolidated 
FINRA rulebook; and (2) adopt FINRA Rule 2266 (SIPC Information) in the 
consolidated FINRA rulebook and delete the corresponding provisions in 
Incorporated NYSE Rule 409A.
---------------------------------------------------------------------------

    \4\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). 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''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
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a. Proposed FINRA Rule 2080
    FINRA is proposing to adopt NASD Rule 2130 without material change 
into the Consolidated FINRA Rulebook as FINRA Rule 2080. NASD Rule 2130 
addresses the expungement of customer dispute information from the 
Central Registration Depository (``CRD [reg]'') system. The 
CRD system is an online registration and licensing system that is used 
by the securities industry, State and Federal regulators and self-
regulatory organizations. It contains information regarding members and 
registered persons, specifically administrative information (e.g., 
personal, educational and employment history) and disclosure 
information (e.g., criminal matters, regulatory and disciplinary 
actions, civil judicial actions and information relating to customer 
disputes). Although public investors do not have access to the CRD 
system, much of the information in that system is available to 
investors through FINRA BrokerCheck and individual State disclosure 
programs.\5\ FINRA recognizes that accurate and complete reporting in 
the CRD system is an important component of investor protection.
---------------------------------------------------------------------------

    \5\ FINRA BrokerCheck is a free online tool to help investors 
check the background of current and former FINRA-registered 
securities firms and brokers.
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    FINRA operates the CRD system pursuant to policies developed 
jointly with the North American Securities Administrators Association 
(``NASAA''). FINRA works with the SEC, NASAA, other members of the 
regulatory community and member firms to establish policies and 
procedures reasonably designed to ensure that information submitted to 
and maintained in the CRD system is accurate and complete. These 
procedures, among other things, cover expungement of information from 
the CRD system.
    In January 1999, after consultation with NASAA, FINRA imposed a 
moratorium on arbitrator-ordered expungement of customer dispute 
information from the CRD system.\6\ Under the moratorium, FINRA would 
expunge such information from the CRD system only when a court of 
competent jurisdiction confirmed an arbitrator's directive to expunge 
customer dispute information. During this moratorium, however, FINRA 
continued to expunge information from the CRD system based

[[Page 18412]]

on expungement directives in arbitration awards rendered in disputes 
between firms and current or former registered persons, in which 
arbitrators awarded such relief based on the defamatory nature of the 
information.
---------------------------------------------------------------------------

    \6\ See Notice to Members 99-09 (February 1999) and Notice to 
Members 99-54 (July 1999).
---------------------------------------------------------------------------

    After imposing the moratorium, FINRA began considering how to craft 
an approach to expungement that would allow FINRA effectively to 
challenge expungement directives that might diminish or impair the 
integrity of the CRD system and to ensure the maintenance of essential 
information for regulators and investors. In December 2003, the SEC 
approved NASD Rule 2130,\7\ which contains additional standards and 
procedures for expungement of customer dispute information \8\ from the 
CRD system. Rule 2130 continues the requirement started with the 1999 
moratorium that a court of competent jurisdiction must order or confirm 
all expungement directives before FINRA will expunge customer dispute 
information from the CRD system.\9\ It also requires that FINRA members 
or associated persons name FINRA as an additional party in any court 
proceeding in which they seek an order to expunge customer dispute 
information or request confirmation of an award containing an order of 
expungement.
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    \7\ See Securities Exchange Act Release No. 48933 (December 16, 
2003), 68 FR 74667 (December 24, 2003). FINRA Rule 2080, as with 
NASD Rule 2130, would apply to any request made to a court of 
competent jurisdiction to expunge customer dispute information from 
the CRD system that has its basis in an arbitration or civil lawsuit 
filed on or after April 12, 2004. See Notice to Members 04-16 (March 
2004).
    \8\ For purposes of Rule 2130, ``customer dispute information'' 
includes customer complaints, arbitration claims and court filings 
made by customers, and the arbitration awards or court judgments 
that may result from those claims or filings. See Notice to Members 
04-16 (March 2004).
    \9\ Under Rule 2130, FINRA may continue to expunge information 
from the CRD system--without the need for judicial intervention--for 
expungement directives contained in intra-industry arbitration 
awards that involve registered persons and firms based on the 
defamatory nature of the information ordered expunged.
---------------------------------------------------------------------------

    Upon request, however, FINRA may waive the requirement to be named 
as a party if it determines that the expungement relief is based on an 
affirmative judicial or arbitral finding that: (1) The claim, 
allegation or information is factually impossible or clearly erroneous; 
(2) the registered person was not involved in the alleged investment-
related sales practice violation, forgery, theft, misappropriation or 
conversion of funds; or (3) the claim, allegation or information is 
false. If the expungement relief is based on judicial or arbitral 
findings other than those enumerated immediately above, FINRA also may 
waive the requirement to be named as a party if FINRA determines, in 
its sole discretion and under extraordinary circumstances, that the 
expungement relief and accompanying findings on which it is based are 
meritorious and the expungement relief would have no material adverse 
effect on investor protection, the integrity of the CRD system or 
regulatory requirements.
    Upon receipt of a waiver request, FINRA staff will notify the 
States (directly or through NASAA) where the individual is registered 
or seeking registration of the expungement notice/waiver request. FINRA 
staff will then examine the basis on which the fact finder ordered 
expungement to determine whether the expungement was based on one or 
more of the standards in Rule 2130.\10\ If FINRA staff determines that 
the expungement was not based on one or more of the standards in Rule 
2130, it will advise the parties that FINRA will not waive the 
requirement to be named as a party in the court confirmation process. 
The parties would then name FINRA as a party, and FINRA would have the 
opportunity to oppose the expungement in the court proceeding.
---------------------------------------------------------------------------

    \10\ In October 2008, the SEC approved a FINRA rule change (File 
No. SR-FINRA-2008-10), which became effective January 26, 2009, 
establishing new procedures that arbitrators must follow when 
considering requests for expungement relief, including requiring 
arbitrators to: (1) Consider the terms of a settlement agreement in 
settled matters; (2) hold a recorded hearing regarding the 
appropriateness of expungement; and (3) provide a brief written 
explanation of the reason(s) for ordering expungement. See 
Securities Exchange Act Release No. 58886 (October 30, 2008), 73 FR 
66086 (November 6, 2008). See also Regulatory Notice 08-79 (December 
2008).
---------------------------------------------------------------------------

    FINRA recommends that NASD Rule 2130 be transferred without 
material change into the Consolidated FINRA Rulebook. NASD Rule 2130 
was the product of notice and comment rulemaking. FINRA solicited 
comment on proposed approaches regarding expungement of information in 
Notices to Members issued in July 1999 and October 2001.\11\ FINRA 
staff drafted the proposed rule taking into account the comments 
received and following discussions with NASAA. Subsequently, the SEC 
published the proposal for comment in the Federal Register in March 
2003, and the final rule reflects additional changes based on the 
comments received by the SEC. NASD Rule 2130 serves to enhance the 
integrity of information in the CRD system and to further ensure that 
investor protection is not compromised when arbitrators order 
expungement of information from a CRD record. Moreover, the new 
procedures that arbitrators must follow when considering requests for 
expungement will add transparency and procedural safeguards designed to 
ensure that the extraordinary relief of expungement is granted only 
under appropriate circumstances.
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    \11\ See Notice to Members 99-54 (July 1999) and Notice to 
Members 01-65 (October 2001).
---------------------------------------------------------------------------

b. Proposed FINRA Rule 2310
    FINRA is proposing to adopt NASD Rule 2810 without material change 
into the Consolidated FINRA Rulebook as FINRA Rule 2310. NASD Rule 2810 
addresses underwriting terms and arrangements in public offerings of 
direct participation programs (``DPPs'') and unlisted real estate 
investment trusts (``REITs'') (collectively, ``Investment Programs''). 
A DPP is a business venture designed to let investors participate 
directly in the cash flow and tax benefits of an underlying investment. 
REITs are investment vehicles for income-generating real estate that 
benefit from the tax advantages of a trust if they satisfy certain 
criteria in the Internal Revenue Code. Rule 2810 requires that members 
participating in a public offering of an Investment Program meet 
certain requirements regarding underwriting compensation, fees and 
expenses, perform due diligence on the Investment Program, follow 
specific guidelines on suitability, and adhere to limits on non-cash 
compensation.
    NASD Rule 2810 requires that, prior to participating in a public 
offering of an Investment Program, a member or a participating firm on 
its behalf must file information regarding the offering with the FINRA 
Corporate Financing Department and receive an opinion from the 
Department that it has no objections to the proposed underwriting terms 
and arrangements (a ``no objections'' opinion). Among the terms and 
arrangements that are reviewed by FINRA staff are the level of 
organization and offering expenses (``O&O expenses''). Rule 2810 limits 
the amount of O&O expenses for an Investment Program (which includes 
issuer expenses, underwriting compensation and due diligence expenses) 
to 15 percent of the gross proceeds of the offering. The rule also 
requires a member to perform due diligence about an Investment Program 
prior to participating in a public offering. The member must have 
reasonable grounds to believe, based on information in the prospectus, 
that all material facts, including those regarding compensation, 
physical properties, tax, financial stability and experience of the 
sponsor, and conflicts, are adequately

[[Page 18413]]

and accurately disclosed and provide a basis for evaluating the 
Investment Program.
    In addition, NASD Rule 2810 contains an exception from the 
disclosure requirements for offerings of certain Investment Programs 
that are listed, or approved for listing, on a national securities 
exchange. This exception, currently in paragraph (b)(1), would be 
relocated to paragraph (b)(3)(D) of the new rule, the section of the 
rule addressing disclosures. In this regard, the proposed rule change 
would return the exception to its original location in the rule. Prior 
to 2008, the exception was located in paragraph (b)(3)(D) of the rule; 
however, as part of a larger effort to streamline the rule in SR-NASD-
2005-114, it was moved to paragraph (b)(1).\12\ The proposed rule 
change would enhance the clarity of the rule by re-locating the 
exception to the section addressing disclosures at paragraph (b)(3)(D).
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 57803 (May 8, 
2008), 73 FR 27869 (May 14, 2008).
---------------------------------------------------------------------------

    The rule also imposes specific suitability standards on recommended 
transactions to take account of the risks and lack of liquidity of 
Investment Programs. Further, it requires members and associated 
persons to ensure, prior to participating in a public offering of an 
Investment Program, that all material facts are adequately and 
accurately disclosed, including pertinent facts relating to the 
liquidity and marketability of the Investment Program. In addition, 
under Rule 2810, members cannot accept or make non-cash gifts in 
connection with the sale or distribution of an Investment Program in 
excess of $100 per year, nor can any non-cash entertainment (such as an 
occasional meal) raise any question of propriety or be conditioned on 
the achievement of a sales target. Finally, the non-cash provisions of 
the rule prohibit payments for an associated person to attend training 
or educational meetings unless the associated person obtains the 
member's prior approval and such training and entertainment is not 
based upon the associated person achieving a sales target. 
Collectively, these non-cash provisions are aimed at preventing 
Investment Program sponsors from using non-cash compensation as a means 
to circumvent the limits on underwriting compensation.
    NASD Rule 2810 was adopted in 1980 to address issues arising from 
members' participation in oil and gas programs and real estate 
syndications in the 1970s.\13\ It has been amended periodically to 
include additional programs and procedures,\14\ including greater 
limitations on sales incentive compensation and members' participation 
in limited partnership rollup transactions.\15\ These amendments were 
adopted to address new developments regarding members' participation in 
Investment Programs, and were the product of extensive notice and 
comment rulemaking over a period of several years.\16\ The most recent 
amendments to the rule, which became effective on August 6, 2008, 
address O&O expenses and enhanced investor disclosures regarding the 
liquidity of Investment Programs.\17\
---------------------------------------------------------------------------

    \13\ See Securities Exchange Act Release No. 16967 (July 8, 
1980), 45 FR 47294 (July 14, 1980).
    \14\ For example, some significant amendments to Rule 2810 
include the following: in 1982, amendments to include suitability, 
due diligence and disclosure requirements; see Securities Exchange 
Act Release No. 19054 (September 16, 1982), 47 FR 42226 (September 
24, 1982); in 1984, to require that sales incentives be in cash; see 
Securities Exchange Act Release No. 20844 (April 11, 1984), 49 FR 
15041 (April 16, 1984); in 1986, to exempt certain secondary 
offerings; see Securities Exchange Act Release No. 23619 (September 
15, 1986), 51 FR 33968 (September 24, 1986); in 1994, to apply to 
limited partnership rollup transactions; see Securities Exchange Act 
Release No. 34533 (August 15, 1994), 59 FR 43147 (August 22, 1994); 
and in 2003, to modify the non-cash compensation provisions; see 
Securities Exchange Act Release No. 47697 (April 18, 2003), 68 FR 
20191 (April 24, 2003).
    \15\ A limited partnership rollup transaction either reorganizes 
an existing limited partnership or combines multiple limited 
partnerships into a new entity to take advantage of larger asset 
pools and economies of scale.
    \16\ See supra note 14.
    \17\ See Securities Exchange Act Release No. 57803 (May 8, 
2008), 73 FR 27869 (May 14, 2008).
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    FINRA believes that the rule as currently drafted is well-
understood by the sponsors of Investment Programs and the broker-
dealers that sell them, and is providing significant investor 
protections. As a result, FINRA recommends that NASD Rule 2810 be 
transferred without material change into the Consolidated FINRA 
Rulebook as FINRA Rule 2310.
c. Proposed FINRA Rule 4551
    FINRA is proposing to adopt NASD Rule 3115 without material change 
into the Consolidated FINRA Rulebook as FINRA Rule 4551. NASD Rule 3115 
(Requirements for Alternative Trading Systems to Record and Transmit 
Order and Execution Information for Security Futures) requires 
alternative trading systems (``ATSs'') \18\ that accept orders for 
security futures \19\ to record and report to FINRA certain information 
regarding those orders, including the date and time the order was 
received, the security future product name and symbol, the details of 
the order, and the date and time that the order was executed. The rule 
thus provides FINRA with an audit trail of orders for security futures 
placed on an ATS.
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    \18\ ATSs generally are registered broker-dealers that provide 
or maintain a marketplace for bringing together purchasers and 
sellers of securities or otherwise perform the functions commonly 
performed by a securities exchange but do not perform self-
regulatory functions.
    \19\ A security future is a contract of sale for future delivery 
of a single security or of a narrow-based security index. Security 
futures are defined as ``securities'' under the Act; consequently, 
the federal securities laws are generally applicable to security 
futures. See 15 U.S.C. 78c(a)(10).
---------------------------------------------------------------------------

    NASD Rule 3115 was adopted in 2003 following the amendments to the 
Act included in the Commodity Futures Modernization Act of 2000.\20\ 
Section 6(h)(5) of the Act, which was added as part of those 
amendments, prohibits a person other than a national securities 
association or national securities exchange from maintaining or 
providing a marketplace or facilities for bringing together purchasers 
and sellers of security futures products unless it is a member of a 
national securities association or national securities exchange that 
has: (1) Procedures for coordinated surveillance; (2) rules to require 
an audit trail necessary or appropriate to facilitate coordinated 
surveillance; and (3) rules to require such person to coordinate 
trading halts with markets trading the securities underlying the 
security futures products and other markets trading related 
securities.\21\ FINRA adopted NASD Rule 3115 as part of a package of 
rules to meet these requirements and thus allow ATSs that are FINRA 
members to provide a marketplace for security futures. Specifically, 
NASD Rule 3115 satisfies the requirement that a national securities 
association have ``rules to require an audit trail necessary or 
appropriate to facilitate coordinated surveillance.'' \22\
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    \20\ See Securities Exchange Act Release No. 47259 (January 27, 
2003), 68 FR 5319 (February 3, 2003).
    \21\ 15 U.S.C. 78f(h)(5).
    \22\ In the same rule filing adopting NASD Rule 3115, FINRA also 
amended NASD Rule 3340 (Prohibition on Transactions, Publication of 
Quotations, or Publication of Indications of Interest During Trading 
Halts) to satisfy the requirement that a national securities 
association have ``rules to require such person to coordinate 
trading halts with markets trading the securities underlying the 
security futures products and other markets trading related 
securities.'' See Securities Exchange Act Release No. 47259 (January 
27, 2003), 68 FR 5319 (February 3, 2003). The proposed rule change 
does not address NASD Rule 3340.
---------------------------------------------------------------------------

    Because NASD Rule 3115 is necessary to allow ATSs to provide 
trading facilities for security futures, the proposed rule change would 
transfer NASD Rule 3115 into the Consolidated FINRA Rulebook as FINRA 
Rule 4551

[[Page 18414]]

without material change. This would allow ATSs to continue to provide 
trading facilities for security futures and would ensure FINRA receives 
information to maintain an audit trail regarding the trading of 
security futures.
d. Proposed FINRA Rule 2266
    FINRA is proposing to adopt NASD Rule 2342 without material change 
into the Consolidated FINRA Rulebook as FINRA Rule 2266 and to delete 
comparable Incorporated NYSE Rule 409A. NASD Rule 2342 and Incorporated 
NYSE Rule 409A were adopted in response to a May 2001 report issued by 
the Government Accountability Office (``GAO''), entitled ``Securities 
Investor Protection: Steps Needed to Better Disclose SIPC Policies to 
Investors.'' \23\ In that report, the GAO made recommendations to the 
SEC and the Securities Investor Protection Corporation (``SIPC'') about 
ways to improve the information available to the public about SIPC and 
the Securities Investor Protection Act of 1970 (``SIPA''). Among other 
things, the GAO recommended that self-regulatory organizations explore 
ways to encourage broader dissemination of the SIPC brochure to 
customers so that they can become more aware of the scope of coverage 
of SIPA.
---------------------------------------------------------------------------

    \23\ See U.S. Government Accountability Office, ``Securities 
Investor Protection: Steps Needed to Better Disclose SIPC Policies 
to Investors,'' Publication GAO-01-653 (May 25, 2001).
---------------------------------------------------------------------------

    In May 2007, the SEC approved NASD Rule 2342 setting forth 
requirements for providing SIPC information to customers. Rule 2342 
requires all FINRA members, except those members (1) that are excluded 
from membership in SIPC and are not SIPC members; or (2) whose business 
consists exclusively of the sale of investments that are ineligible for 
SIPC protection, to advise all new customers that they may obtain 
information about SIPC, including the SIPC brochure, by contacting 
SIPC. Such members also must provide SIPC's Web site address and 
telephone number. Members must provide this disclosure to new 
customers, in writing, at the opening of an account and also must 
provide customers with the same information, in writing, at least once 
each year. In cases where both an introducing firm and clearing firm 
service an account, the firms may assign these requirements to one of 
the firms.
    Incorporated NYSE Rule 409A is substantially similar to NASD Rule 
2342; however, the Incorporated NYSE rule does not contain the 
exclusions set forth in NASD Rule 2342 because NYSE member 
organizations generally would not qualify for those exclusions.
    FINRA believes that the approach in NASD Rule 2342, which excludes 
non-SIPC members and members that sell exclusively non-SIPC eligible 
securities from the rule's requirements, is the more appropriate rule 
for the FINRA membership. Accordingly, the proposed rule change would 
transfer NASD Rule 2342 without material change into the Consolidated 
FINRA Rulebook as FINRA Rule 2266 and delete Incorporated NYSE Rule 
409A.
    As noted above, FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following 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,\24\ 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 transferring NASD Rule 2130 into 
the Consolidated FINRA Rulebook will ensure that its standards and 
procedures regarding expungement of customer dispute information from 
the CRD system continue to be reasonably designed to ensure that 
information submitted to and maintained in the CRD system is accurate 
and complete. FINRA believes that transferring NASD Rule 2810 into the 
Consolidated FINRA Rulebook will ensure that policies and procedures 
regarding members' participation in public offerings of Investment 
Programs continue to meet statutory mandates. FINRA believes that 
transferring NASD Rule 3115 into the Consolidated FINRA Rulebook will 
continue to allow ATSs to provide trading facilities for security 
futures while also ensuring that FINRA will receive sufficient 
information to maintain an audit trail regarding the trading of 
security futures on ATSs. Finally, FINRA believes that transferring 
NASD Rule 2342 into the Consolidated FINRA Rulebook will continue to 
ensure that SIPC information is provided to customers effectively. The 
proposed rule change makes non-material changes to rules that have 
proven effective in meeting the statutory mandates.
---------------------------------------------------------------------------

    \24\ 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 will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-016 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-2009-016. 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

[[Page 18415]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of FINRA. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-FINRA-2009-016 and should be submitted on or before May 13, 2009.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9157 Filed 4-21-09; 8:45 am]
BILLING CODE 8010-01-P
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