Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA Rules 1010 (Electronic Filing Requirements for Uniform Forms) and 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4) in the Consolidated FINRA Rulebook, 37077-37079 [E9-17764]
Download as PDF
<![CDATA[
Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
jlentini on DSKJ8SOYB1PROD with NOTICES
report that second leg of the awaymarket transaction to clearing.5
The Exchange will provide its Routing
Services pursuant to the proposed rule
and three separate agreements, to the
extent that they are applicable to a
specific routing decision and deemed
necessary by the Exchange and/or a
third-party broker-dealer providing
connectivity to other markets. The
Exchange will provide such Routing
Services in compliance with its rules
and with the provisions of the Act and
the rules thereunder, including, but not
limited to, the requirements of Sections
6(b)(4) 6 and (5) 7 of the Act that the
rules of a national securities exchange
provide for the equitable allocation of
dues, fees and other charges among its
members and issues and other persons
using its facilities, and not be designed
to permit unfair discrimination between
customers, issuers, brokers or dealers.
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange.8 In particular, the
Commission believes that the proposed
rule change is consistent with Section
6(b)(5) of the Act,9 in that it is designed
to promote just and equitable principles
of trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Commission believes that the
proposed rule change may increase the
efficiency of Exchange Participants in
seeking to execute their customers’
orders that are ineligible for execution
or display in the Exchange’s Matching
System. In particular, odd-lot orders
5 For example, if the Exchange routes a
participant’s buy order to the participant’s chosen
destination (Router ABC) and Router ABC gets an
execution of that order in another market against
market maker XYZ, the first leg of the transaction
(ABC buying from XYZ) will be reported to clearing
by the other market. The Router ABC would send
an execution report back to the Exchange (for
routing to the original order-sending participant).
Under this proposal, if the participant and Router
ABC had requested, the Exchange would take the
execution report and create a clearing-only record,
flipping the execution from Router ABC’s account
to the account of the order-sending participant
(ABC selling to the order-sending participant).
6 15 U.S.C. 78f(b)(4)
7 15 U.S.C. 78f(b)(5)
8 In approving this rule, the Commission notes
that it has considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
9 15 U.S.C. 78f(b)(5).
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that are not immediately displayed in
the Matching System or orders that
otherwise would be cancelled back to a
participant may be sent directly to a
destination chosen by the participant for
handling. The Commission notes that
the Exchange’s proposed generic routing
rule will operate in the same manner as
its current routing rule for orders
rejected by the Exchange’s Matching
System under its NMS trade-through
validation rule,10 which was previously
approved by the Commission.11
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,12 that the
proposed rule change (SR–CHX–2009–
02) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–17766 Filed 7–24–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60348; File No. SR–FINRA–
2009–019]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Adopt
FINRA Rules 1010 (Electronic Filing
Requirements for Uniform Forms) and
2263 (Arbitration Disclosure to
Associated Persons Signing or
Acknowledging Form U4) in the
Consolidated FINRA Rulebook
July 20, 2009.
I. Introduction
On April 7, 2009, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (f/k/a ‘‘NASD’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to adopt, subject to certain
amendments, NASD Rule 1140
(Electronic Filing Rules) as new FINRA
Rule 1010 (Electronic Filing
Requirements for Uniform Forms) and
NASD Rule 3080 (Disclosure to
Associated Persons When Signing Form
10 See CHX Rules Article 20, Rule 5,
Interpretations and Policies .03.
11 See Securities Exchange Act Release No. 54963
(December 19, 2006), 71 FR 77834 (December 17,
2006) (SR–CHX–2006–30).
12 15 U.S.C. 78s(b)(2).
13 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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37077
U–4) as new FINRA Rule 2263
(Arbitration Disclosure to Associated
Persons Signing or Acknowledging
Form U4) in the consolidated FINRA
rulebook. The proposal was published
for comment in the Federal Register on
April 24, 2009.3 The Commission
received one comment letter, on May
15, 2009, on the proposal.4 FINRA
responded to the commenter on July 8,
2009.5 This order approves the
proposed rule change.
II. Description of the Proposal
Proposed FINRA Rule 1010
NASD’s Rule 1140 specifies that an
electronic initial and transfer Form U4
must be based on a signed Form U4, but
the rule does not expressly state that the
signatures must be manual. The
proposed rule would require that every
initial Form U4 and every Form U4 filed
to transfer a registered person’s
association from one firm to another
firm be based on an original, manuallysigned Form U4 provided to the member
by the person on whose behalf the Form
U4 is being filed.6
The proposed rule change also
modifies the signature requirement with
respect to amendments to disclosure
information in the Form U4. NASD’s
Rule 1140 requires the associated
person on whose behalf the filing is
made to sign amendments to Form U4
that provide disclosure information.
Proposed FINRA Rule 1010 would
permit a firm to file amendments to the
Form U4 disclosure information without
obtaining the registered person’s manual
signature if the firm uses reasonable
efforts to i) provide the registered
person with a copy of the amended
disclosure information before filing and
ii) obtain the registered person’s written
acknowledgment that the information
has been received and reviewed, which
may be accomplished electronically,
before filing.7
3 See Securities Exchange Act Release No. 59784
(April 17, 2009), 74 FR 18779 (April 24, 2009)
(‘‘Notice’’).
4 See letter to Florence E. Harmon, Deputy
Secretary, Commission, from Bari Havlik, Senior
Vice President and Chief Compliance Officer,
Charles Schwab & Co., Inc., dated May 15, 2009
(‘‘Schwab Letter’’).
5 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Patricia Albrecht, Assistant
General Counsel, FINRA, dated July 8, 2009
(‘‘Response Letter’’).
6 Member firms use the Central Registration
Depository (CRD), a Web based system, to submit
the form on behalf of the associated person by
typing the person’s name into the signature box on
the electronic form.
7 The member, as part of its recordkeeping
requirements pursuant to Rule 17a–4(e)(1) under
the Act, would be required to retain the written
acknowledgment and make it available promptly
upon request.
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Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
jlentini on DSKJ8SOYB1PROD with NOTICES
In the event the member is not able
to obtain an associated person’s manual
signature or written acknowledgement
of an amendment to disclosure
information before filing the amended
Form U4, the proposal would require
that the member file disclosure
information of which it has knowledge,
and the member would enter
‘‘Representative Refused to Sign/
Acknowledge’’ or ‘‘Representative Not
Available’’ or a substantially similar
phrase in the signature box of the
electronic form. This change codifies
the member’s obligation in Article V,
Section 2 of FINRA’s By-Laws that every
Form U4 be kept current.
Fourth, the proposed rule change
incorporates the practice in the Web
CRD of permitting administrative
information (such as the addition of
state or self-regulatory organization
registrations, exam scheduling, and
updates to residential, business, and
personal history) to be amended on
Form U4 without obtaining the
associated person’s signature.8 If that
occurs, the member must use reasonable
efforts to provide the associated person
with a copy of the amended
administrative information that was
filed.
Fifth, the proposal would permit the
registered principal(s) or corporate
officer(s) who is responsible for
supervising a firm’s electronic filings to
delegate to another associated person,
who need not be registered, the
electronic filing of the member’s forms
via Web CRD. The principal(s) or
corporate officer(s) may not, however,
delegate any of his supervision, review
or approval responsibilities and must
take reasonable and appropriate action
to ensure that all delegated electronic
filing functions are properly executed
and supervised.
member asks an associated person,
pursuant to proposed FINRA Rule 1010,
to manually sign an initial or amended
Form U4, or to otherwise provide
written acknowledgement, which may
be electronic, of an amendment to the
Form. Third, the proposed rule updates
language to reflect amendments to
FINRA’s Code of Arbitration Procedure
requiring arbitrators to provide an
explained decision to the parties in
eligible cases if there is a joint request
by all parties at least twenty days before
the first scheduled hearing date.9
Proposed FINRA Rule 2263
The proposed rule change transfers
NASD Rule 3080 into the consolidated
FINRA Rulebook as FINRA Rule 2263
with several minor changes. First, the
proposed rule change amends the
current title ‘‘Disclosure to Associated
Person When Signing Form U–4’’ to
‘‘Arbitration Disclosure to Associated
Persons Signing or Acknowledging
Form U4’’ to clarify that the rule relates
to arbitration disclosures. Second,
proposed FINRA Rule 2263 clarifies that
a member must provide the required
arbitration disclosures whenever a
Proposed FINRA Rule 1010(c)(4)
Schwab supports allowing firms to
file amendments to administrative
information without obtaining the
associated person’s signature, but it
objects to the requirement that the
member firm use reasonable efforts to
provide the associated person with a
copy of the amended administrative
information and believes that this could
cause firms to incur significant system
changes and costs.13 FINRA responded
that Web CRD is used to help protect
investors, and its effectiveness depends
8 See
Securities Exchange Act Release No. 41575
(June 29, 1999), 64 FR 36728, 36729 n.7 (July 7,
1999) (Order Approving File No. SR–NASD–99–28);
see also Securities Exchange Act Release No. 37439
(July 15, 1996), 61 FR 37950 (July 22, 1996) (Order
Approving File No. SR–NASD–96–21).
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III. Summary of Comments
Proposed FINRA Rule 1010(c)(3)
While the Schwab Letter generally
supports the proposal, it expressed
several concerns, including that the
aspect of the proposed rule that requires
the member to file amendments to U4
regarding disclosure information as to
which it has knowledge, proposed
FINRA Rule 1010(c)(3) would require a
firm to file a Form U4 disclosure
amendment when the firm may have
inaccurate or incomplete information.
Schwab also argues that the proposal
may dilute the standard that the primary
responsibility for updating and keeping
current Form U4 lies with the associated
person.10
FINRA responded that the proposal
merely codifies a member’s existing
obligation under Article V, Section 2(c)
of FINRA’s By-Laws that every U4 be
kept current, and implicit in this duty
is the expectation that the member will
seek to ensure that such information is
accurate and complete.11 FINRA noted
that the member’s obligation is in
addition to the associated person’s
obligation to keep Form U4 current,
which is set forth generally in Article V,
Section 2 of the FINRA By-Laws.12
on accurate information.14 Thus, FINRA
believes this aspect of the proposal is
appropriate in that it encourages
members to verify information with an
associated person while allowing firms
the flexibility to do so after amendments
to administrative information have been
filed.
Proposed FINRA Rule 1010(c)(1) and (2)
and FINRA Rule 2263
Schwab believes that the
requirements imposed on a firm, in
connection with filing amendments to
Form U4 disclosure information without
obtaining the associated person’s
manual signature, and providing the
written statement related to arbitration
disclosure, may prove costly and
complex for firms to implement.15
Schwab opines that the goal of having
clear evidence of the registered person’s
knowledge and acceptance of disclosure
information may be achieved using
existing procedures and electronic
systems that accomplish certain
functions.16 FINRA stated that this
concern can be addressed with
interpretive guidance and that it would
address it accordingly, assuming
approval of the proposal.17
IV. Discussion and Commission
Findings
After carefully reviewing the
proposed rule change, the Schwab
Letter, and the Response Letter, the
Commission finds that the proposal is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities association.18 In particular,
the Commission finds that the proposal
is consistent with Section 15A(b)(6) of
the Act,19 which requires, among other
things that FINRA’s rules be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
The Commission believes that the
revisions FINRA proposed in
connection with moving NASD Rule
1140 and Rule 3080 to the consolidated
FINRA Rulebook as new FINRA Rule
1010 and new FINRA Rule 2263 should,
14 See
15 See
9 See Securities Exchange Act Release No. 59358
(February 4, 2009), 74 FR 6928 (February 11, 2009)
(Order Approving File No. SR–FINRA–2008–051).
10 See Schwab Letter at 2–3.
11 See Response Letter at 2.
12 Id. at 2–3.
13 See Schwab Letter at 4.
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Response Letter at 4.
Schwab Letter at 4–5.
16 Id.
17 See
Response Letter at 4.
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78o–3(b)(6).
18 In
E:\FR\FM\27JYN1.SGM
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Federal Register / Vol. 74, No. 142 / Monday, July 27, 2009 / Notices
among other things, strike a fair balance
between providing notice to associated
persons of changes to their U4 where
obtaining a signature may prove
difficult and allowing firms to
expeditiously update information. In
addition, the Commission believes that
it is appropriate for FINRA to make
explicit in its rules a member’s
obligation to ensure that information in
Form U4 regarding its associated
persons is accurate, even though this
requirement is explicit in FINRA’s ByLaws. Ensuring that information in Web
CRD is current and accurate enhances
the usefulness of Web CRD.
The Commission believes that FINRA,
in its Response Letter, adequately
addressed the comments raised in the
Schwab Letter. The Commission
emphasizes that FINRA correctly noted
that both firms and associated persons
have a duty to keep information in Web
CRD current, and both are responsible
for ensuring that disclosure information
is accurate; this proposal merely
codifies this obligation. The
Commission also agrees with FINRA
that firms should try to ensure the
accuracy and completeness of
information submitted. This purpose
should be served by the rule requiring
a firm to use reasonable efforts to
provide the associated person with a
copy of the amended disclosure
information post-filing, since the firm
should have contact information for the
associated person, whom it is
responsible for regulating, and the
associated person can ensure that the
amended information is accurate.
For the reasons discussed above, the
Commission finds that the rule change
is consistent with the Act and the rules
and regulations thereunder.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,20 that the
proposed rule change (SR–FINRA–
2009–019), be, and hereby is, approved.
jlentini on DSKJ8SOYB1PROD with NOTICES
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–17764 Filed 7–24–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60359; File No. SR–MSRB–
2009–08]
Self-Regulatory Organizations;
Municipal Securities Rulemaking
Board; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Guidance on
Disclosure and Other Sales Practice
Obligations to Individual and Other
Retail Investors in Municipal Securities
July 21, 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 July 14,
2009, the Municipal Securities
Rulemaking Board (‘‘MSRB’’), 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 substantially prepared by the
MSRB. The MSRB has designated the
proposed rule change as constituting a
stated policy, practice, or interpretation
with respect to the meaning,
administration, or enforcement of an
existing rule of the self-regulatory
organization pursuant to Section
19(b)(3)(A)(i) of the Act,3 and Rule 19b–
4(f)(1) thereunder,4 which renders the
proposal effective upon filing with the
Commission. 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 MSRB has filed with the
Commission a proposed rule change
consisting of interpretive guidance on
disclosure and other sales practice
obligations of brokers, dealers and
municipal securities dealers (‘‘dealers’’)
relating to sales of municipal securities
to individual and other retail investors.
The text of the proposed rule change is
available on the MSRB’s Web site
(https://www.msrb.org), at the MSRB’s
principal office, 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, the
MSRB included statements concerning
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
2 17
20 15
21 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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19:02 Jul 24, 2009
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37079
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. The MSRB has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The proposed rule change provides
guidance to brokers, dealers and
municipal securities dealers (‘‘dealers’’)
of their sales practice obligations under
MSRB rules as applied specifically to
individual and other retail investors.
Among other things, the proposed rule
change updates guidance to dealers on
(i) their obligations to disclose material
information about issuers, their
securities and credit/liquidity support
for such securities in connection with
the fulfillment of their disclosure
obligations under MSRB Rule G–17, (ii)
their obligations to use such material
information in fulfilling their suitability
obligations under MSRB Rule G–19, and
(iii) their fair pricing obligations under
MSRB Rules G–18 and G–30. The
proposed rule change also applies
previous guidance on bond insurance
rating downgrades and wide-scale
auction failures for municipal auction
rate securities (‘‘ARS’’), to municipal
securities transactions in general and
specifically to transactions with
individual and other retail investors in
variable rate demand obligations
(‘‘VRDOs’’).
Disclosure
The proposed rule change makes clear
that dealers are responsible under Rule
G–17 for disclosing to their customers,
at or prior to the time of trade for any
municipal securities transaction, all
material information about the
transaction known by the dealer, as well
as material information about the
security that is reasonably accessible to
the market, including information
available from established industry
sources. Dealers must provide such
disclosures notwithstanding the
availability to investors of
comprehensive information from the
MSRB’s Electronic Municipal Market
Access system (EMMA) and other
established industry sources. Dealers are
expected to establish procedures
reasonably designed to ensure that
information known to the dealer is
communicated internally or otherwise
E:\FR\FM\27JYN1.SGM
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]]>Agencies
[Federal Register Volume 74, Number 142 (Monday, July 27, 2009)]
[Notices]
[Pages 37077-37079]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-17764]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60348; File No. SR-FINRA-2009-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA
Rules 1010 (Electronic Filing Requirements for Uniform Forms) and 2263
(Arbitration Disclosure to Associated Persons Signing or Acknowledging
Form U4) in the Consolidated FINRA Rulebook
July 20, 2009.
I. Introduction
On April 7, 2009, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a ``NASD'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt, subject to certain
amendments, NASD Rule 1140 (Electronic Filing Rules) as new FINRA Rule
1010 (Electronic Filing Requirements for Uniform Forms) and NASD Rule
3080 (Disclosure to Associated Persons When Signing Form U-4) as new
FINRA Rule 2263 (Arbitration Disclosure to Associated Persons Signing
or Acknowledging Form U4) in the consolidated FINRA rulebook. The
proposal was published for comment in the Federal Register on April 24,
2009.\3\ The Commission received one comment letter, on May 15, 2009,
on the proposal.\4\ FINRA responded to the commenter on July 8,
2009.\5\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 59784 (April 17,
2009), 74 FR 18779 (April 24, 2009) (``Notice'').
\4\ See letter to Florence E. Harmon, Deputy Secretary,
Commission, from Bari Havlik, Senior Vice President and Chief
Compliance Officer, Charles Schwab & Co., Inc., dated May 15, 2009
(``Schwab Letter'').
\5\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Patricia Albrecht, Assistant General Counsel, FINRA, dated July
8, 2009 (``Response Letter'').
---------------------------------------------------------------------------
II. Description of the Proposal
Proposed FINRA Rule 1010
NASD's Rule 1140 specifies that an electronic initial and transfer
Form U4 must be based on a signed Form U4, but the rule does not
expressly state that the signatures must be manual. The proposed rule
would require that every initial Form U4 and every Form U4 filed to
transfer a registered person's association from one firm to another
firm be based on an original, manually-signed Form U4 provided to the
member by the person on whose behalf the Form U4 is being filed.\6\
---------------------------------------------------------------------------
\6\ Member firms use the Central Registration Depository (CRD),
a Web based system, to submit the form on behalf of the associated
person by typing the person's name into the signature box on the
electronic form.
---------------------------------------------------------------------------
The proposed rule change also modifies the signature requirement
with respect to amendments to disclosure information in the Form U4.
NASD's Rule 1140 requires the associated person on whose behalf the
filing is made to sign amendments to Form U4 that provide disclosure
information. Proposed FINRA Rule 1010 would permit a firm to file
amendments to the Form U4 disclosure information without obtaining the
registered person's manual signature if the firm uses reasonable
efforts to i) provide the registered person with a copy of the amended
disclosure information before filing and ii) obtain the registered
person's written acknowledgment that the information has been received
and reviewed, which may be accomplished electronically, before
filing.\7\
---------------------------------------------------------------------------
\7\ The member, as part of its recordkeeping requirements
pursuant to Rule 17a-4(e)(1) under the Act, would be required to
retain the written acknowledgment and make it available promptly
upon request.
---------------------------------------------------------------------------
[[Page 37078]]
In the event the member is not able to obtain an associated
person's manual signature or written acknowledgement of an amendment to
disclosure information before filing the amended Form U4, the proposal
would require that the member file disclosure information of which it
has knowledge, and the member would enter ``Representative Refused to
Sign/Acknowledge'' or ``Representative Not Available'' or a
substantially similar phrase in the signature box of the electronic
form. This change codifies the member's obligation in Article V,
Section 2 of FINRA's By-Laws that every Form U4 be kept current.
Fourth, the proposed rule change incorporates the practice in the
Web CRD of permitting administrative information (such as the addition
of state or self-regulatory organization registrations, exam
scheduling, and updates to residential, business, and personal history)
to be amended on Form U4 without obtaining the associated person's
signature.\8\ If that occurs, the member must use reasonable efforts to
provide the associated person with a copy of the amended administrative
information that was filed.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 41575 (June 29,
1999), 64 FR 36728, 36729 n.7 (July 7, 1999) (Order Approving File
No. SR-NASD-99-28); see also Securities Exchange Act Release No.
37439 (July 15, 1996), 61 FR 37950 (July 22, 1996) (Order Approving
File No. SR-NASD-96-21).
---------------------------------------------------------------------------
Fifth, the proposal would permit the registered principal(s) or
corporate officer(s) who is responsible for supervising a firm's
electronic filings to delegate to another associated person, who need
not be registered, the electronic filing of the member's forms via Web
CRD. The principal(s) or corporate officer(s) may not, however,
delegate any of his supervision, review or approval responsibilities
and must take reasonable and appropriate action to ensure that all
delegated electronic filing functions are properly executed and
supervised.
Proposed FINRA Rule 2263
The proposed rule change transfers NASD Rule 3080 into the
consolidated FINRA Rulebook as FINRA Rule 2263 with several minor
changes. First, the proposed rule change amends the current title
``Disclosure to Associated Person When Signing Form U-4'' to
``Arbitration Disclosure to Associated Persons Signing or Acknowledging
Form U4'' to clarify that the rule relates to arbitration disclosures.
Second, proposed FINRA Rule 2263 clarifies that a member must provide
the required arbitration disclosures whenever a member asks an
associated person, pursuant to proposed FINRA Rule 1010, to manually
sign an initial or amended Form U4, or to otherwise provide written
acknowledgement, which may be electronic, of an amendment to the Form.
Third, the proposed rule updates language to reflect amendments to
FINRA's Code of Arbitration Procedure requiring arbitrators to provide
an explained decision to the parties in eligible cases if there is a
joint request by all parties at least twenty days before the first
scheduled hearing date.\9\
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\9\ See Securities Exchange Act Release No. 59358 (February 4,
2009), 74 FR 6928 (February 11, 2009) (Order Approving File No. SR-
FINRA-2008-051).
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III. Summary of Comments
Proposed FINRA Rule 1010(c)(3)
While the Schwab Letter generally supports the proposal, it
expressed several concerns, including that the aspect of the proposed
rule that requires the member to file amendments to U4 regarding
disclosure information as to which it has knowledge, proposed FINRA
Rule 1010(c)(3) would require a firm to file a Form U4 disclosure
amendment when the firm may have inaccurate or incomplete information.
Schwab also argues that the proposal may dilute the standard that the
primary responsibility for updating and keeping current Form U4 lies
with the associated person.\10\
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\10\ See Schwab Letter at 2-3.
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FINRA responded that the proposal merely codifies a member's
existing obligation under Article V, Section 2(c) of FINRA's By-Laws
that every U4 be kept current, and implicit in this duty is the
expectation that the member will seek to ensure that such information
is accurate and complete.\11\ FINRA noted that the member's obligation
is in addition to the associated person's obligation to keep Form U4
current, which is set forth generally in Article V, Section 2 of the
FINRA By-Laws.\12\
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\11\ See Response Letter at 2.
\12\ Id. at 2-3.
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Proposed FINRA Rule 1010(c)(4)
Schwab supports allowing firms to file amendments to administrative
information without obtaining the associated person's signature, but it
objects to the requirement that the member firm use reasonable efforts
to provide the associated person with a copy of the amended
administrative information and believes that this could cause firms to
incur significant system changes and costs.\13\ FINRA responded that
Web CRD is used to help protect investors, and its effectiveness
depends on accurate information.\14\ Thus, FINRA believes this aspect
of the proposal is appropriate in that it encourages members to verify
information with an associated person while allowing firms the
flexibility to do so after amendments to administrative information
have been filed.
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\13\ See Schwab Letter at 4.
\14\ See Response Letter at 4.
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Proposed FINRA Rule 1010(c)(1) and (2) and FINRA Rule 2263
Schwab believes that the requirements imposed on a firm, in
connection with filing amendments to Form U4 disclosure information
without obtaining the associated person's manual signature, and
providing the written statement related to arbitration disclosure, may
prove costly and complex for firms to implement.\15\ Schwab opines that
the goal of having clear evidence of the registered person's knowledge
and acceptance of disclosure information may be achieved using existing
procedures and electronic systems that accomplish certain
functions.\16\ FINRA stated that this concern can be addressed with
interpretive guidance and that it would address it accordingly,
assuming approval of the proposal.\17\
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\15\ See Schwab Letter at 4-5.
\16\ Id.
\17\ See Response Letter at 4.
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IV. Discussion and Commission Findings
After carefully reviewing the proposed rule change, the Schwab
Letter, and the Response Letter, the Commission finds that the proposal
is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
association.\18\ In particular, the Commission finds that the proposal
is consistent with Section 15A(b)(6) of the Act,\19\ which requires,
among other things that FINRA's rules be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\18\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\19\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that the revisions FINRA proposed in
connection with moving NASD Rule 1140 and Rule 3080 to the consolidated
FINRA Rulebook as new FINRA Rule 1010 and new FINRA Rule 2263 should,
[[Page 37079]]
among other things, strike a fair balance between providing notice to
associated persons of changes to their U4 where obtaining a signature
may prove difficult and allowing firms to expeditiously update
information. In addition, the Commission believes that it is
appropriate for FINRA to make explicit in its rules a member's
obligation to ensure that information in Form U4 regarding its
associated persons is accurate, even though this requirement is
explicit in FINRA's By-Laws. Ensuring that information in Web CRD is
current and accurate enhances the usefulness of Web CRD.
The Commission believes that FINRA, in its Response Letter,
adequately addressed the comments raised in the Schwab Letter. The
Commission emphasizes that FINRA correctly noted that both firms and
associated persons have a duty to keep information in Web CRD current,
and both are responsible for ensuring that disclosure information is
accurate; this proposal merely codifies this obligation. The Commission
also agrees with FINRA that firms should try to ensure the accuracy and
completeness of information submitted. This purpose should be served by
the rule requiring a firm to use reasonable efforts to provide the
associated person with a copy of the amended disclosure information
post-filing, since the firm should have contact information for the
associated person, whom it is responsible for regulating, and the
associated person can ensure that the amended information is accurate.
For the reasons discussed above, the Commission finds that the rule
change is consistent with the Act and the rules and regulations
thereunder.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-FINRA-2009-019), be, and
hereby is, approved.
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\20\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-17764 Filed 7-24-09; 8:45 am]
BILLING CODE 8010-01-P
