Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rule 2231 (Customer Account Statements) in the Consolidated FINRA Rulebook, 23912-23915 [E9-11812]

Download as PDF 23912 Federal Register / Vol. 74, No. 97 / Thursday, May 21, 2009 / Notices 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: dwashington3 on PROD1PC60 with NOTICES 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–CBOE–2009–029 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–CBOE–2009–029. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. 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–CBOE–2009–029 and VerDate Nov<24>2008 13:08 May 20, 2009 Jkt 217001 should be submitted on or before June 11, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11811 Filed 5–20–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59921; File No. SR–FINRA– 2009–028] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rule 2231 (Customer Account Statements) in the Consolidated FINRA Rulebook May 14, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘SEA’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 22, 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. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt NASD Rule 2340 (Customer Account Statements) with certain changes as FINRA Rule 2231 in the new consolidated FINRA rulebook (‘‘Consolidated FINRA Rulebook’’).3 The proposed rule change would also delete 10 17 CFR 200.30–3(a)(12). 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 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). 1 PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 NYSE Rule 409 4 (Statements of Accounts of Customers), except for paragraph (f), and certain of its related interpretations. The text of the proposed rule change is available at FINRA, the Commission’s Public Reference Room, and https:// www.finra.org. 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, FINRA is proposing to adopt NASD Rule 2340 (Customer Account Statements) with certain changes as FINRA Rule 2231 in the Consolidated FINRA Rulebook. The proposed rule change would also delete: (1) NYSE Rule 409 (Statements of Accounts to Customers), except for paragraph (f) and its related supplementary material; and (2) NYSE Rule Interpretations 409(a) and 409(b), except for paragraphs 409(a)/01 and 409(a)/03, as the rule and its related interpretations are, in main part, duplicative of NASD Rule 2340. However, as further described herein, the proposed rule change would incorporate certain provisions of NYSE Rule 409 and its interpretations into new FINRA Rule 2231. PROPOSED FINRA RULE 2231 (CUSTOMER ACCOUNT STATEMENTS) Frequency of Delivery of Account Statements and Disclosures NASD Rule 2340 generally requires each general securities member to send customers at least once each calendar quarter account statements containing a description of any securities positions, money balances or account activity in the accounts since the prior account statements were sent. NYSE Rule 409(a) 4 For convenience, the proposed rule change refers to Incorporated NYSE Rules as NYSE Rules. E:\FR\FM\21MYN1.SGM 21MYN1 dwashington3 on PROD1PC60 with NOTICES Federal Register / Vol. 74, No. 97 / Thursday, May 21, 2009 / Notices similarly requires member organizations to send customer account statements at least once each calendar quarter. In contrast, proposed FINRA Rule 2231(a) would impose an additional requirement that each general securities member send account statements at least once every calendar month to each customer whose account had account activity during the period since the last statement was sent to the customer, and continue to require that a statement be sent at least once every calendar quarter to each customer whose account had a security position or money balance during the period since the last statement was sent to the customer. Proposed FINRA Rule 2231 would adopt the definitions of the terms ‘‘general securities member’’ and ‘‘account activity’’ set forth in NASD Rule 2340. A ‘‘general securities member’’ would be any member that conducts a general securities business and is required to calculate its net capital pursuant to the provisions of SEA Rule 15c3–1(a).5 However, as is the case under NASD Rule 2340 currently, a member that does not carry customer accounts and does not hold customer funds or securities would continue to be exempt from the provisions of FINRA Rule 2231. ‘‘Account activity’’ would continue to be defined broadly and would include, but not be limited to, purchases, sales, interest credits or debits, charges or credits, dividend payments, transfer activity, securities receipts or deliveries and/or journal entries relating to securities or funds in the possession or control of the member. FINRA believes the proposed amendment better reflects current industry practice as a significant number of members already send customers monthly account statements through their clearing firms. FINRA believes that receipt of monthly statements will allow customers to review their statements in a timely manner for errors, possible identify theft or other potential problems. Proposed FINRA Rule 2231(a) would also retain the requirement in NASD Rule 2340(a) (and NYSE Rule 409(e)) to include on customer account statements a statement advising customers to report promptly any inaccuracy or discrepancy in their account to the introducing firm and clearing firm (where there are two different firms) and to re-confirm any oral communications in writing to further protect the customer’s rights, including rights under the Securities Investor Protection Act. 5 17 CFR 240.15c3–1(a). VerDate Nov<24>2008 13:08 May 20, 2009 DVP/RVP Securities on Account Statements Proposed FINRA Rule 2231(b) would incorporate without substantive change the provisions in NASD Rule 2340(b) (and NYSE Rule 409(a)) providing that account statements do not need to be sent to a customer if the customer’s account is carried solely for execution on a Delivery versus Payment/Receive versus Payment (‘‘DVP/RVP’’) basis, subject to certain specified conditions. The rule would continue to provide that it does not qualify or condition the obligations of members under SEA Rule 15c3–2 concerning quarterly notices of free credit balances on statements.6 Value of DPP/REIT Securities on Account Statements Proposed FINRA Rule 2231(c) would incorporate without substantive change the provisions in NASD Rule 2340(c) regarding the disclosure of values for unlisted or illiquid direct participation program (‘‘DPP’’) and real estate investment trust (‘‘REIT’’) securities on customer account statements. The proposed rule would require that estimated values for DPP/REIT securities must be disclosed under certain circumstances and describe how such estimated values must be determined. NYSE Rule 409 does not include the requirement regarding disclosure of values for DPPs and REITS. Definitions Proposed FINRA Rule 2231(d) would incorporate without substantive change the definitions of significant terms used in the rule, such as account activity, general securities member, direct participation program, real estate investment trust, annual report and DVP/RVP account (this last term is also defined in NYSE Rule 409(a)). Exemptions Proposed FINRA Rule 2231(e) would incorporate without substantive change the provision in NASD Rule 2340(e) authorizing FINRA to exempt members from the provisions of the rule pursuant to the Rule 9600 Series. PROPOSED SUPPLEMENTARY MATERIALS TO FINRA RULE 2231 FINRA is proposing to adopt the following provisions as supplementary materials to FINRA Rule 2231. As further described below, these provisions are adopted largely from NYSE Rule 409 and its related interpretations. 6 Jkt 217001 PO 00000 Fmt 4703 Proposed Supplementary Material .01 (Transmission of Customer Account Statements to Other Persons or Entities) This provision, which is based in part on NYSE Rule 409(b), would expressly require a firm to obtain written instructions from the customer in order to send/deliver customer statements, confirmations or other communications to other persons or entities. Proposed Supplementary Material .02 (Use of Electronic Media To Satisfy Delivery Obligations) This provision would allow a firm to satisfy its delivery obligations under the rule by using electronic media, subject to compliance with standards established by the SEC on the use of electronic media for delivery purposes. This provision is consistent with prior guidance issued by FINRA on the use of electronic media to satisfy delivery obligations.7 Proposed Supplementary Material .03 (Information To Be Disclosed on Statement) This provision, which is based on NYSE Rule Interpretation 409(a)/02, would require the following items to be prominently disclosed on the front of the statement: (i) The identity of the introducing and clearing firm (if different) and their respective contact information for customer service (though the identity of the clearing firm and its contact information may appear on the back of the statement provided such information is in ‘‘bold’’ or ‘‘highlighted’’ letters); (ii) that the clearing firm is a member of SIPC; and (iii) the opening and closing balances for the account. Proposed Supplementary Material .04 (Assets Externally Held and Included on Statements Solely as a Service to Customers) This provision, which is based on NYSE Rule Interpretation 409(a)/04, would provide that account statements must clearly indicate those instances where certain assets are externally held but included on the statement as a courtesy. Proposed Supplementary Material .05 (Use of Logos, Trademarks, etc.) This provision, which is based on NYSE Rule Interpretation 409(a)/05, would regulate the use of trademarks and logos of other persons on account statements. 7 See NASD Notice to Members 98–3 (January 1998). 17 CFR 240.15c3–2. Frm 00076 23913 Sfmt 4703 E:\FR\FM\21MYN1.SGM 21MYN1 23914 Federal Register / Vol. 74, No. 97 / Thursday, May 21, 2009 / Notices Proposed Supplementary Material .06 (Use of Summary Statements) This provision, which is based on NYSE Rule Interpretation 409(a)/06, would regulate the use of aggregated account statements for a customer who has accounts with other persons. ELIMINATED PROVISIONS OF NYSE RULE 409 FINRA is proposing to delete NYSE Rule 409 in its entirety (except for NYSE Rule 409(f) which will be reviewed as part of a later phase of the rulebook consolidation process).8 The following describes certain provisions that are found in NYSE Rule 409 and its related interpretations that would not be adopted in proposed FINRA Rule 2231: Duplicate Account Statements NYSE Rule 409(b) contains provisions prohibiting, without NYSE’s consent, the delivery of statements, confirmations or other communications to non-member customers (1) in care of a person holding power of attorney over the customer’s account unless the customer has provided written instructions to send such confirmations, statements or communications to such person, or duplicate copies are sent to the customer at some other address designated in writing; or (2) at the address of any member or in care of any partner, stockholder who is actively engaged in the member’s business or employee of the member. NYSE Rule 409(g) also provides that members carrying margin accounts for customers should send duplicate copies of monthly statements of guaranteed accounts to the respective guarantors unless such guarantors have specifically provided in writing that they do not want such statements sent to them. NASD Rule 2340 does not contain a counterpart to either provision. As noted above, proposed supplementary material .01 to proposed FINRA Rule 2231 is based in part on NYSE Rule 409(b), but eliminates the reference to non-member customers and requires that a member have written instructions from a customer to send communications relating to the customer’s account to any third parties designated by the customer. FINRA is proposing to eliminate NYSE Rule 409(g) because it believes that the provision generally advising members to send duplicate account statements to guarantors, absent contrary instructions from the guarantor, need not be incorporated into proposed FINRA Rule 2231, and the provision’s purpose is better addressed by the general requirement described above to obtain written instructions from the customer to send customer statements to any third parties. Legends on Account Statements NYSE Rule 409(e)(1) requires the inclusion of a legend on all account statements that notifies a customer that the firm’s financial statements are available for inspection at its offices or a copy can be mailed upon request. FINRA is proposing to eliminate this requirement in light of existing requirements under SEA Rule 17a-5(c),9 which generally requires broker-dealers that carry customer accounts to provide statements of the broker-dealer’s financial condition to their customers, and NASD Rule 2270 (Disclosure of Financial Condition to Customers), which requires a member to make information relative to a member’s financial condition available to inspection by customers, upon request. FINRA will consider NASD Rule 2270 as part of a later phase of the rulebook consolidation process. NYSE Supplementary Material and Interpretations To Be Deleted FINRA is proposing to eliminate NYSE Rule Interpretation 409(b)/01 (Standards for Holding Mail for Foreign Customers), which provides guidelines for holding confirmations, statements and other communications for foreign customers. FINRA is addressing members’ obligations with respect to customer mail as part of the consolidated FINRA rules governing supervision and the related proposal to adopt FINRA Rule 3150 (Holding of Customer Mail).10 TECHNICAL CHANGES In addition, the proposal reflects certain technical, non-substantive 917 CFR 240.17a–5(c). See Regulatory Notice 08–24 (May 2008). FINRA is not proposing to eliminate the following NYSE Rule Interpretations as part of this rule filing: 409(a)/01 (Applicability), which provides that the member firm carrying the account is responsible for compliance with the rule unless responsibility has been allocated to a non-member broker-dealer carrying organization pursuant to an approved carrying agreement; and 409(a)/03 (Use of Third Party Agents), which regulates the use of third party agents to prepare and/or transmit statements. These interpretations will be reviewed as part of a later phase of the rulebook consolidation process. dwashington3 on PROD1PC60 with NOTICES 10 8 NYSE Rule 409(f) states ‘‘[c]onfirmations of all transactions (including those made ‘‘over-thecounter’’ and on other exchanges) in securities admitted to dealings on the Exchange, sent by members or member organizations to their customers, shall clearly set forth with a suitable legend the settlement date of each transaction. This requirement also applies to confirmations or reports from an organization to a correspondent, but does not apply to reports made by floor brokers to the member organization from whom the orders were received. (See SEC Rule 10b–10).’’ VerDate Nov<24>2008 13:08 May 20, 2009 Jkt 217001 PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 amendments to NASD Rule 2340 to change all references to ‘‘NASD’’ to ‘‘FINRA,’’ and to change all references to ‘‘SEC’’ Rules to ‘‘SEA’’ Rules. 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,11 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 customers with critical information regarding their accounts and will allow them to review their statements in a timely manner, while also clarifying and streamlining the customer account rules for adoption as FINRA Rules in the Consolidated FINRA Rulebook. 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 11 15 U.S.C. 78o–3(b)(6). E:\FR\FM\21MYN1.SGM 21MYN1 Federal Register / Vol. 74, No. 97 / Thursday, May 21, 2009 / Notices 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 BILLING CODE 8010–01–P • 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–2009–028 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. dwashington3 on PROD1PC60 with NOTICES For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–11812 Filed 5–20–09; 8:45 am] All submissions should refer to File Number SR–FINRA–2009–028. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of 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–2009–028 and should be submitted on or before June 11, 2009. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59919; File No. SR–BX– 2009–025] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change To Retroactively Amend the Fee Schedule To Clarify and Correct References to the Volume Discount Given to Market Makers May 14, 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 May 8, 2009, NASDAQ OMX BX, Inc. (the ‘‘Exchange’’) 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 by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule change is to amend the Fee Schedule of the Boston Options Exchange Group, LLC (‘‘BOX’’) on a retroactive basis to clarify and correct references relating to the volume discount (‘‘Volume Discount’’) given to Market Makers. 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 12 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 13:08 May 20, 2009 Jkt 217001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 23915 on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend on a retroactive basis Section 3 (Market Maker Trading Fees) of the BOX Fee Schedule.3 BOX applies a Volume Discount to the fees charged to BOX Market Makers who engage in particularly active trading volume on BOX. The proposed changes will clarify and correct the Fee Schedule to reflect that trading volume in options classes included within the Liquidity Make or Take Pricing Structure (‘‘Make or Take’’), as set forth in Section 7 of the BOX Fee Schedule, is excluded when determining a Market Maker’s Volume Discount.4 The text explicitly stating this was inadvertently removed from the BOX Fee Schedule in a prior filing, SR– BSE–2007–52.5 The Exchange requests that the current proposed changes be made effective retroactive to November 30, 2007, which is the date of filing and effectiveness of SR–BSE–2007–52. The Exchange believes that the proposed changes will eliminate any gap in the treatment of Make or Take volume when calculating the Volume Discount and is consistent with previous Commission action on similar matters pertaining to the allocation of exchange member fees and dues.6 Additionally, the Exchange 3 The BOX Fee Schedule can be found on the BOX Web site at https://www.bostonoptions.com. 4 Make or Take volume is excluded when determining a Market Maker’s monthly trading volume for purposes of the Volume Discount and is not eligible to have a Volume Discount applied to it. 5 See Securities Exchange Act Release No. 56948 (December 12, 2007), 72 FR 72426 (December 20, 2007) (SR–BSE–2007–52). 6 See Securities Exchange Act Release No. 55549 (March 28, 2007), 72 FR 16837 (April 5, 2007) (SR– CHX–2007–02) (Order Granting Accelerated Approval of a Proposed Rule Change To Amend the CHX Fee Schedule on a Retroactive Basis To Clarify the Application of a Credit Against Specialist Fixed Fees). The approval order stated that the rule change clarified the application of a specialist fixed fee credit that the exchange was offering as an incentive for specialists and would reconcile the discrepancy between the manner in which the exchange intended to apply the credit and the description of the credit in a prior proposal. The order also stated that approval would clarify ambiguity about the application of the specialist fixed fee credit. The Commission believed that Continued E:\FR\FM\21MYN1.SGM 21MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 97 (Thursday, May 21, 2009)]
[Notices]
[Pages 23912-23915]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11812]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59921; File No. SR-FINRA-2009-028]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 2231 (Customer Account Statements) in the Consolidated FINRA 
Rulebook

May 14, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``SEA'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on April 22, 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. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    FINRA is proposing to adopt NASD Rule 2340 (Customer Account 
Statements) with certain changes as FINRA Rule 2231 in the new 
consolidated FINRA rulebook (``Consolidated FINRA Rulebook'').\3\ The 
proposed rule change would also delete NYSE Rule 409 \4\ (Statements of 
Accounts of Customers), except for paragraph (f), and certain of its 
related interpretations.
---------------------------------------------------------------------------

    \3\ 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).
    \4\ For convenience, the proposed rule change refers to 
Incorporated NYSE Rules as NYSE Rules.
---------------------------------------------------------------------------

    The text of the proposed rule change is available at FINRA, the 
Commission's Public Reference Room, and https://www.finra.org.

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, 
FINRA is proposing to adopt NASD Rule 2340 (Customer Account 
Statements) with certain changes as FINRA Rule 2231 in the Consolidated 
FINRA Rulebook. The proposed rule change would also delete: (1) NYSE 
Rule 409 (Statements of Accounts to Customers), except for paragraph 
(f) and its related supplementary material; and (2) NYSE Rule 
Interpretations 409(a) and 409(b), except for paragraphs 409(a)/01 and 
409(a)/03, as the rule and its related interpretations are, in main 
part, duplicative of NASD Rule 2340. However, as further described 
herein, the proposed rule change would incorporate certain provisions 
of NYSE Rule 409 and its interpretations into new FINRA Rule 2231.
PROPOSED FINRA RULE 2231 (CUSTOMER ACCOUNT STATEMENTS)
Frequency of Delivery of Account Statements and Disclosures
    NASD Rule 2340 generally requires each general securities member to 
send customers at least once each calendar quarter account statements 
containing a description of any securities positions, money balances or 
account activity in the accounts since the prior account statements 
were sent. NYSE Rule 409(a)

[[Page 23913]]

similarly requires member organizations to send customer account 
statements at least once each calendar quarter.
    In contrast, proposed FINRA Rule 2231(a) would impose an additional 
requirement that each general securities member send account statements 
at least once every calendar month to each customer whose account had 
account activity during the period since the last statement was sent to 
the customer, and continue to require that a statement be sent at least 
once every calendar quarter to each customer whose account had a 
security position or money balance during the period since the last 
statement was sent to the customer.
    Proposed FINRA Rule 2231 would adopt the definitions of the terms 
``general securities member'' and ``account activity'' set forth in 
NASD Rule 2340. A ``general securities member'' would be any member 
that conducts a general securities business and is required to 
calculate its net capital pursuant to the provisions of SEA Rule 15c3-
1(a).\5\ However, as is the case under NASD Rule 2340 currently, a 
member that does not carry customer accounts and does not hold customer 
funds or securities would continue to be exempt from the provisions of 
FINRA Rule 2231. ``Account activity'' would continue to be defined 
broadly and would include, but not be limited to, purchases, sales, 
interest credits or debits, charges or credits, dividend payments, 
transfer activity, securities receipts or deliveries and/or journal 
entries relating to securities or funds in the possession or control of 
the member.
---------------------------------------------------------------------------

    \5\ 17 CFR 240.15c3-1(a).
---------------------------------------------------------------------------

    FINRA believes the proposed amendment better reflects current 
industry practice as a significant number of members already send 
customers monthly account statements through their clearing firms. 
FINRA believes that receipt of monthly statements will allow customers 
to review their statements in a timely manner for errors, possible 
identify theft or other potential problems.
    Proposed FINRA Rule 2231(a) would also retain the requirement in 
NASD Rule 2340(a) (and NYSE Rule 409(e)) to include on customer account 
statements a statement advising customers to report promptly any 
inaccuracy or discrepancy in their account to the introducing firm and 
clearing firm (where there are two different firms) and to re-confirm 
any oral communications in writing to further protect the customer's 
rights, including rights under the Securities Investor Protection Act.
DVP/RVP Securities on Account Statements
    Proposed FINRA Rule 2231(b) would incorporate without substantive 
change the provisions in NASD Rule 2340(b) (and NYSE Rule 409(a)) 
providing that account statements do not need to be sent to a customer 
if the customer's account is carried solely for execution on a Delivery 
versus Payment/Receive versus Payment (``DVP/RVP'') basis, subject to 
certain specified conditions. The rule would continue to provide that 
it does not qualify or condition the obligations of members under SEA 
Rule 15c3-2 concerning quarterly notices of free credit balances on 
statements.\6\
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    \6\ 17 CFR 240.15c3-2.
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Value of DPP/REIT Securities on Account Statements
    Proposed FINRA Rule 2231(c) would incorporate without substantive 
change the provisions in NASD Rule 2340(c) regarding the disclosure of 
values for unlisted or illiquid direct participation program (``DPP'') 
and real estate investment trust (``REIT'') securities on customer 
account statements. The proposed rule would require that estimated 
values for DPP/REIT securities must be disclosed under certain 
circumstances and describe how such estimated values must be 
determined. NYSE Rule 409 does not include the requirement regarding 
disclosure of values for DPPs and REITS.
Definitions
    Proposed FINRA Rule 2231(d) would incorporate without substantive 
change the definitions of significant terms used in the rule, such as 
account activity, general securities member, direct participation 
program, real estate investment trust, annual report and DVP/RVP 
account (this last term is also defined in NYSE Rule 409(a)).
Exemptions
    Proposed FINRA Rule 2231(e) would incorporate without substantive 
change the provision in NASD Rule 2340(e) authorizing FINRA to exempt 
members from the provisions of the rule pursuant to the Rule 9600 
Series.
PROPOSED SUPPLEMENTARY MATERIALS TO FINRA RULE 2231
    FINRA is proposing to adopt the following provisions as 
supplementary materials to FINRA Rule 2231. As further described below, 
these provisions are adopted largely from NYSE Rule 409 and its related 
interpretations.
Proposed Supplementary Material .01 (Transmission of Customer Account 
Statements to Other Persons or Entities)
    This provision, which is based in part on NYSE Rule 409(b), would 
expressly require a firm to obtain written instructions from the 
customer in order to send/deliver customer statements, confirmations or 
other communications to other persons or entities.
Proposed Supplementary Material .02 (Use of Electronic Media To Satisfy 
Delivery Obligations)
    This provision would allow a firm to satisfy its delivery 
obligations under the rule by using electronic media, subject to 
compliance with standards established by the SEC on the use of 
electronic media for delivery purposes. This provision is consistent 
with prior guidance issued by FINRA on the use of electronic media to 
satisfy delivery obligations.\7\
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    \7\ See NASD Notice to Members 98-3 (January 1998).
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Proposed Supplementary Material .03 (Information To Be Disclosed on 
Statement)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
02, would require the following items to be prominently disclosed on 
the front of the statement: (i) The identity of the introducing and 
clearing firm (if different) and their respective contact information 
for customer service (though the identity of the clearing firm and its 
contact information may appear on the back of the statement provided 
such information is in ``bold'' or ``highlighted'' letters); (ii) that 
the clearing firm is a member of SIPC; and (iii) the opening and 
closing balances for the account.
Proposed Supplementary Material .04 (Assets Externally Held and 
Included on Statements Solely as a Service to Customers)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
04, would provide that account statements must clearly indicate those 
instances where certain assets are externally held but included on the 
statement as a courtesy.
Proposed Supplementary Material .05 (Use of Logos, Trademarks, etc.)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
05, would regulate the use of trademarks and logos of other persons on 
account statements.

[[Page 23914]]

Proposed Supplementary Material .06 (Use of Summary Statements)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
06, would regulate the use of aggregated account statements for a 
customer who has accounts with other persons.
ELIMINATED PROVISIONS OF NYSE RULE 409
    FINRA is proposing to delete NYSE Rule 409 in its entirety (except 
for NYSE Rule 409(f) which will be reviewed as part of a later phase of 
the rulebook consolidation process).\8\ The following describes certain 
provisions that are found in NYSE Rule 409 and its related 
interpretations that would not be adopted in proposed FINRA Rule 2231:
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    \8\ NYSE Rule 409(f) states ``[c]onfirmations of all 
transactions (including those made ``over-the-counter'' and on other 
exchanges) in securities admitted to dealings on the Exchange, sent 
by members or member organizations to their customers, shall clearly 
set forth with a suitable legend the settlement date of each 
transaction. This requirement also applies to confirmations or 
reports from an organization to a correspondent, but does not apply 
to reports made by floor brokers to the member organization from 
whom the orders were received. (See SEC Rule 10b-10).''
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Duplicate Account Statements
    NYSE Rule 409(b) contains provisions prohibiting, without NYSE's 
consent, the delivery of statements, confirmations or other 
communications to non-member customers (1) in care of a person holding 
power of attorney over the customer's account unless the customer has 
provided written instructions to send such confirmations, statements or 
communications to such person, or duplicate copies are sent to the 
customer at some other address designated in writing; or (2) at the 
address of any member or in care of any partner, stockholder who is 
actively engaged in the member's business or employee of the member.
    NYSE Rule 409(g) also provides that members carrying margin 
accounts for customers should send duplicate copies of monthly 
statements of guaranteed accounts to the respective guarantors unless 
such guarantors have specifically provided in writing that they do not 
want such statements sent to them.
    NASD Rule 2340 does not contain a counterpart to either provision. 
As noted above, proposed supplementary material .01 to proposed FINRA 
Rule 2231 is based in part on NYSE Rule 409(b), but eliminates the 
reference to non-member customers and requires that a member have 
written instructions from a customer to send communications relating to 
the customer's account to any third parties designated by the customer. 
FINRA is proposing to eliminate NYSE Rule 409(g) because it believes 
that the provision generally advising members to send duplicate account 
statements to guarantors, absent contrary instructions from the 
guarantor, need not be incorporated into proposed FINRA Rule 2231, and 
the provision's purpose is better addressed by the general requirement 
described above to obtain written instructions from the customer to 
send customer statements to any third parties.
Legends on Account Statements
    NYSE Rule 409(e)(1) requires the inclusion of a legend on all 
account statements that notifies a customer that the firm's financial 
statements are available for inspection at its offices or a copy can be 
mailed upon request. FINRA is proposing to eliminate this requirement 
in light of existing requirements under SEA Rule 17a-5(c),\9\ which 
generally requires broker-dealers that carry customer accounts to 
provide statements of the broker-dealer's financial condition to their 
customers, and NASD Rule 2270 (Disclosure of Financial Condition to 
Customers), which requires a member to make information relative to a 
member's financial condition available to inspection by customers, upon 
request. FINRA will consider NASD Rule 2270 as part of a later phase of 
the rulebook consolidation process.
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    \9\17 CFR 240.17a-5(c).
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NYSE Supplementary Material and Interpretations To Be Deleted
    FINRA is proposing to eliminate NYSE Rule Interpretation 409(b)/01 
(Standards for Holding Mail for Foreign Customers), which provides 
guidelines for holding confirmations, statements and other 
communications for foreign customers. FINRA is addressing members' 
obligations with respect to customer mail as part of the consolidated 
FINRA rules governing supervision and the related proposal to adopt 
FINRA Rule 3150 (Holding of Customer Mail).\10\
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    \10\ See Regulatory Notice 08-24 (May 2008). FINRA is not 
proposing to eliminate the following NYSE Rule Interpretations as 
part of this rule filing: 409(a)/01 (Applicability), which provides 
that the member firm carrying the account is responsible for 
compliance with the rule unless responsibility has been allocated to 
a non-member broker-dealer carrying organization pursuant to an 
approved carrying agreement; and 409(a)/03 (Use of Third Party 
Agents), which regulates the use of third party agents to prepare 
and/or transmit statements. These interpretations will be reviewed 
as part of a later phase of the rulebook consolidation process.
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TECHNICAL CHANGES
    In addition, the proposal reflects certain technical, non-
substantive amendments to NASD Rule 2340 to change all references to 
``NASD'' to ``FINRA,'' and to change all references to ``SEC'' Rules to 
``SEA'' Rules.
    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,\11\ 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 customers with critical information regarding their accounts 
and will allow them to review their statements in a timely manner, 
while also clarifying and streamlining the customer account rules for 
adoption as FINRA Rules in the Consolidated FINRA Rulebook.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its 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

[[Page 23915]]

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-2009-028 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-2009-028. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of 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-2009-028 and should be 
submitted on or before June 11, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11812 Filed 5-20-09; 8:45 am]
BILLING CODE 8010-01-P

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