Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA Rule 2150 (Improper Use of Customers' Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts) in the Consolidated FINRA Rulebook, 49425-49426 [E9-23307]

Download as PDF Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Notices submissions should refer to File No. SR–NYSEArca-2009–44 and should be submitted on or before October 19, 2009. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,63 that the proposed rule change (SR–NYSEArca– 2009–44) as modified by Amendment Nos. 1 and 3 thereto, be, and hereby is, partially approved on an accelerated basis, as discussed above. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.64 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–23374 Filed 9–25–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60701; File No. SR–FINRA– 2009–014] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA Rule 2150 (Improper Use of Customers’ Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts) in the Consolidated FINRA Rulebook September 21, 2009. I. Introduction On March 24, 2009, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’ or ‘‘Exchange’’) 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 as part of the process of developing a new consolidated rulebook (the ‘‘Consolidated FINRA Rulebook’’).3 FINRA proposed to adopt NASD Rules srobinson on DSKHWCL6B1PROD with NOTICES 63 15 U.S.C. 78s(b)(2). 64 17 CFR 200.30–3(a)(12). 1 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). VerDate Nov<24>2008 16:33 Sep 25, 2009 Jkt 217001 2330(a), 2330(e) and 2330(f) as FINRA Rules 2150(a), 2150(b) and 2150(c), respectively, in the Consolidated FINRA Rulebook, with certain changes as described below.4 Proposed FINRA Rule 2150 also would take into account certain provisions of NYSE Rule 352. In addition, proposed FINRA Rule 2150 includes a ‘‘Supplementary Material’’ section that contains certain clarifications and codifications of existing staff guidance. FINRA further proposed to delete NYSE Rule 352 (with the exception of paragraphs (e), (f) and (g)) 5 from the Transitional Rulebook. The proposed rule change was published for public comment in the Federal Register on June 24, 2009.6 The Commission received no comment letters regarding proposed rule change. This order approves the proposed rule change. II. Description of the Proposal FINRA proposed to adopt certain paragraphs, as specified below, of NASD Rule 2330 (Customers’ Securities or Funds) as FINRA Rule 2150 (Improper Use of Customers’ Securities or Funds; Prohibition Against Guarantees and Sharing in Accounts) in the Consolidated FINRA Rulebook taking into account certain provisions of Incorporated NYSE Rule 352 (Guarantees, Sharing in Accounts, and Loan Arrangements) 7 and to delete NYSE Rule 352, with the exception of NYSE Rules 352(e) (Limitations on Borrowing From or Lending to Customers), 352(f) (Loan Procedures) and 352(g). The proposed rule change would renumber NASD Rule 2330(a) (Improper Use) as FINRA Rule 2150(a) (Improper Use), NASD Rule 2330(e) (Prohibition Against Guarantees) as FINRA Rule 2150(b) (Prohibition Against Guarantees) and NASD Rule 2330(f) (Sharing in Accounts; Extent Permissible) as FINRA Rule 2150(c) 4 Other provisions that set forth certain financial and operational requirements, including, NASD Rules 2330(b) (General Provisions), 2330(c) (Authorization to Lend), 2330(d) (Segregation and Identification of Securities) and Interpretive Material 2330 (Segregation of Customers’ Securities) would remain in the Transitional Rulebook to be addressed as part of a later phase of the consolidation process. 5 NYSE Rules 352(e), 352(f) and 352(g) govern borrowing from or lending to customers. These provisions generally are equivalent to the provisions of NASD Rule 2370 (Borrowing From or Lending to Customers). NASD Rule 2370 and the corresponding NYSE provisions would remain in the Transitional Rulebook to be addressed as part of a later phase of the rulebook consolidation process. 6 Securities Exchange Act Release No. 60135 (June 18, 2009), 74 FR 30198 (‘‘Notice’’). 7 For convenience, Incorporated NYSE Rule 352 is hereinafter referred to as ‘‘NYSE Rule 352.’’ PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 49425 (Sharing in Accounts; Extent Permissible) in the consolidated FINRA rulebook. The proposed rule change also would add a ‘‘Supplementary Material’’ section to proposed FINRA Rule 2150 that contains certain clarifications and codifications of existing staff guidance. A. Improper Use of Customers’ Securities or Funds (Proposed FINRA Rule 2150(a)) NASD Rule 2330(a) prohibits members and associated persons from making improper use of a customer’s securities or funds. The improper use of customer securities or funds threatens the fundamental relationship between a broker and a customer and undermines the integrity of the securities industry. FINRA proposed to adopt NASD Rule 2330(a) as FINRA Rule 2150(a) in the Consolidated FINRA Rulebook without changes. B. Prohibition Against Guarantees (Proposed FINRA Rule 2150(b)) NASD Rule 2330(e) prohibits members and their associated persons from guaranteeing a customer against loss in connection with any securities transaction or in any securities account of the customer. The reason for the prohibition is that such guarantees create the expectation that the customer is insulated from market risk intrinsic in securities ownership and may induce the customer to engage in a securities transaction that is not otherwise appropriate for the customer. FINRA proposed to adopt NASD Rule 2330(e) as FINRA Rule 2150(b) in the Consolidated FINRA Rulebook without changes and delete NYSE Rule 352(a) (Prohibitions Against Guarantees) because its provisions are substantially similar to proposed FINRA Rule 2150(b). C. Sharing in Accounts (Proposed FINRA Rule 2150(c)) NASD Rule 2330(f) prohibits members and associated persons from sharing in the profits or losses in a customer’s account except under certain limited conditions specified in the Rule. FINRA proposed to adopt NASD Rule 2330(f) as FINRA Rule 2150(c) in the Consolidated FINRA Rulebook, with only minor changes. FINRA proposed to delete NYSE Rules 352(b), (c) and (d) as they are substantially similar to proposed FINRA Rule 2150(c) or are otherwise incorporated as part of the supplementary material to proposed FINRA Rule 2150. E:\FR\FM\28SEN1.SGM 28SEN1 49426 Federal Register / Vol. 74, No. 186 / Monday, September 28, 2009 / Notices D. Proposed Supplementary Material In addition, FINRA proposed to add a ‘‘Supplementary Material’’ section to proposed FINRA Rule 2150 that would: • Codify existing staff guidance clarifying that a ‘‘guarantee’’ extended to all holders of a particular security by an issuer as part of that security generally would not be subject to the prohibition against guarantees and that a permissible sharing arrangement remains subject to other applicable FINRA rules; • Clarify that the rule does not preclude a member from determining on an after-the-fact basis, to reimburse a customer for transaction losses, provided however that the member shall comply with all reporting requirements that may be applicable to such payment; 8 • Consistent with NYSE Rule 352(c), clarify that the rule does not preclude a member from correcting a bona fide error; and • Clarify that the required written authorization(s) shall be preserved for a period of at least six years after the date the account is closed, which is consistent with the retention period under the SEA for similar records. FINRA stated in its proposal that it intends to announce the implementation date of the proposed rule change in a Regulatory Notice to be published no later than 90 days following Commission approval. srobinson on DSKHWCL6B1PROD with NOTICES III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.9 In particular, the Commission believes the proposal is consistent with the requirements of Section 15A(b)(6) of the Act,10 which requires, among other things, that the Association’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. Further, the Commission believes it is appropriate to transfer these NASD Rules into the FINRA Consolidated Rulebook, with the changes specified, and to delete the noted NYSE Rules as proposed because 8 Associated persons would not similarly be permitted to reimburse their customers for losses under the rule given the concern that such payments may conceal individual misconduct. 9 In approving this rule proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 10 15 U.S.C. 78o–3(b)(6). VerDate Nov<24>2008 16:33 Sep 25, 2009 Jkt 217001 the proposal will protect investors against potential misconduct. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (SR–FINRA– 2009–014) is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–23307 Filed 9–25–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60698; File No. SR– NYSEAmex–2009–61] Self-Regulatory Organizations; NYSE Amex, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change, as Modified by Amendment No. 1, Implementing a Fee for Complex Orders to Its Schedule of Fees and Charges for Exchange Services September 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 September 9, 2009, NYSE Amex, LLC (the ‘‘Exchange’’ or ‘‘NYSE Amex’’) 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 NYSE Amex. NYSE Amex filed Amendment No. 1 to the proposal on September 18, 2009.3 NYSE Amex filed the proposed rule change, as amended, pursuant to Section 19(b)(3)(A) of the Act 4 and Rule 19b–4(f)(2) thereunder,5 which renders the proposed rule change, as amended, effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 11 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Amendment No. 1 revises the proposal to: (1) Correct an example in the purpose section of the proposal of the fee applicable when one firm represents both sides of a transaction; and (2) provide additional discussion of the statutory basis for the proposal. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 19b–4(f)(2). 12 17 PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the section of its Schedule of Fees and Charges for Exchange Services (the ‘‘Schedule’’). While changes to the Schedule pursuant to this proposal will be effective upon filing, the changes will become operative on September 9, 2009. The amended section of the Schedule is included as Exhibit 5 hereto. A copy of this filing is available on the Exchange’s Web site at https://www.nyse.com, at the Exchange’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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Pursuant to a recent rule filing 6 the Exchange will be introducing automated complex order trading for all market participants on NYSE Amex. In conjunction with this new functionality, the Exchange proposes to introduce two new transaction fees specific to Complex Order executions. Complex Orders that are executed against other similar Complex Orders will be subject to a transaction fee of $0.10 per contract. For example, if a Complex Order, comprised of two legs, executes against a similar two-legged Complex Order, each market participant will be charged $0.20 ($0.10 per contract). To expand on this example, if the same strategy is executed a total of ten (10) times, each participant would be charged $2.00. If a Complex Order comprised of three legs executes against a similar three-legged Complex Order then each participant would be charged $0.30, for the transaction. To expand on this example, if the same three-legged 6 See Securities and Exchange Act Release No. 60554 (August 21, 2009) 74 FR 43737 (August 27, 2009) (Order granting accelerated approval of NYSEAmex–2009–42). E:\FR\FM\28SEN1.SGM 28SEN1

Agencies

[Federal Register Volume 74, Number 186 (Monday, September 28, 2009)]
[Notices]
[Pages 49425-49426]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23307]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60701; File No. SR-FINRA-2009-014]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA 
Rule 2150 (Improper Use of Customers' Securities or Funds; Prohibition 
Against Guarantees and Sharing in Accounts) in the Consolidated FINRA 
Rulebook

September 21, 2009.

I. Introduction

    On March 24, 2009, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'' or ``Exchange'') 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 as part of the process of 
developing a new consolidated rulebook (the ``Consolidated FINRA 
Rulebook'').\3\ FINRA proposed to adopt NASD Rules 2330(a), 2330(e) and 
2330(f) as FINRA Rules 2150(a), 2150(b) and 2150(c), respectively, in 
the Consolidated FINRA Rulebook, with certain changes as described 
below.\4\ Proposed FINRA Rule 2150 also would take into account certain 
provisions of NYSE Rule 352. In addition, proposed FINRA Rule 2150 
includes a ``Supplementary Material'' section that contains certain 
clarifications and codifications of existing staff guidance. FINRA 
further proposed to delete NYSE Rule 352 (with the exception of 
paragraphs (e), (f) and (g)) \5\ from the Transitional Rulebook. The 
proposed rule change was published for public comment in the Federal 
Register on June 24, 2009.\6\ The Commission received no comment 
letters regarding proposed rule change. This order approves the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 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).
    \4\ Other provisions that set forth certain financial and 
operational requirements, including, NASD Rules 2330(b) (General 
Provisions), 2330(c) (Authorization to Lend), 2330(d) (Segregation 
and Identification of Securities) and Interpretive Material 2330 
(Segregation of Customers' Securities) would remain in the 
Transitional Rulebook to be addressed as part of a later phase of 
the consolidation process.
    \5\ NYSE Rules 352(e), 352(f) and 352(g) govern borrowing from 
or lending to customers. These provisions generally are equivalent 
to the provisions of NASD Rule 2370 (Borrowing From or Lending to 
Customers). NASD Rule 2370 and the corresponding NYSE provisions 
would remain in the Transitional Rulebook to be addressed as part of 
a later phase of the rulebook consolidation process.
    \6\ Securities Exchange Act Release No. 60135 (June 18, 2009), 
74 FR 30198 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    FINRA proposed to adopt certain paragraphs, as specified below, of 
NASD Rule 2330 (Customers' Securities or Funds) as FINRA Rule 2150 
(Improper Use of Customers' Securities or Funds; Prohibition Against 
Guarantees and Sharing in Accounts) in the Consolidated FINRA Rulebook 
taking into account certain provisions of Incorporated NYSE Rule 352 
(Guarantees, Sharing in Accounts, and Loan Arrangements) \7\ and to 
delete NYSE Rule 352, with the exception of NYSE Rules 352(e) 
(Limitations on Borrowing From or Lending to Customers), 352(f) (Loan 
Procedures) and 352(g).
---------------------------------------------------------------------------

    \7\ For convenience, Incorporated NYSE Rule 352 is hereinafter 
referred to as ``NYSE Rule 352.''
---------------------------------------------------------------------------

    The proposed rule change would renumber NASD Rule 2330(a) (Improper 
Use) as FINRA Rule 2150(a) (Improper Use), NASD Rule 2330(e) 
(Prohibition Against Guarantees) as FINRA Rule 2150(b) (Prohibition 
Against Guarantees) and NASD Rule 2330(f) (Sharing in Accounts; Extent 
Permissible) as FINRA Rule 2150(c) (Sharing in Accounts; Extent 
Permissible) in the consolidated FINRA rulebook. The proposed rule 
change also would add a ``Supplementary Material'' section to proposed 
FINRA Rule 2150 that contains certain clarifications and codifications 
of existing staff guidance.

A. Improper Use of Customers' Securities or Funds (Proposed FINRA Rule 
2150(a))

    NASD Rule 2330(a) prohibits members and associated persons from 
making improper use of a customer's securities or funds. The improper 
use of customer securities or funds threatens the fundamental 
relationship between a broker and a customer and undermines the 
integrity of the securities industry. FINRA proposed to adopt NASD Rule 
2330(a) as FINRA Rule 2150(a) in the Consolidated FINRA Rulebook 
without changes.

B. Prohibition Against Guarantees (Proposed FINRA Rule 2150(b))

    NASD Rule 2330(e) prohibits members and their associated persons 
from guaranteeing a customer against loss in connection with any 
securities transaction or in any securities account of the customer. 
The reason for the prohibition is that such guarantees create the 
expectation that the customer is insulated from market risk intrinsic 
in securities ownership and may induce the customer to engage in a 
securities transaction that is not otherwise appropriate for the 
customer.
    FINRA proposed to adopt NASD Rule 2330(e) as FINRA Rule 2150(b) in 
the Consolidated FINRA Rulebook without changes and delete NYSE Rule 
352(a) (Prohibitions Against Guarantees) because its provisions are 
substantially similar to proposed FINRA Rule 2150(b).

C. Sharing in Accounts (Proposed FINRA Rule 2150(c))

    NASD Rule 2330(f) prohibits members and associated persons from 
sharing in the profits or losses in a customer's account except under 
certain limited conditions specified in the Rule.
    FINRA proposed to adopt NASD Rule 2330(f) as FINRA Rule 2150(c) in 
the Consolidated FINRA Rulebook, with only minor changes.
    FINRA proposed to delete NYSE Rules 352(b), (c) and (d) as they are 
substantially similar to proposed FINRA Rule 2150(c) or are otherwise 
incorporated as part of the supplementary material to proposed FINRA 
Rule 2150.

[[Page 49426]]

D. Proposed Supplementary Material

    In addition, FINRA proposed to add a ``Supplementary Material'' 
section to proposed FINRA Rule 2150 that would:
     Codify existing staff guidance clarifying that a 
``guarantee'' extended to all holders of a particular security by an 
issuer as part of that security generally would not be subject to the 
prohibition against guarantees and that a permissible sharing 
arrangement remains subject to other applicable FINRA rules;
     Clarify that the rule does not preclude a member from 
determining on an after-the-fact basis, to reimburse a customer for 
transaction losses, provided however that the member shall comply with 
all reporting requirements that may be applicable to such payment; \8\
---------------------------------------------------------------------------

    \8\ Associated persons would not similarly be permitted to 
reimburse their customers for losses under the rule given the 
concern that such payments may conceal individual misconduct.
---------------------------------------------------------------------------

     Consistent with NYSE Rule 352(c), clarify that the rule 
does not preclude a member from correcting a bona fide error; and
     Clarify that the required written authorization(s) shall 
be preserved for a period of at least six years after the date the 
account is closed, which is consistent with the retention period under 
the SEA for similar records.
    FINRA stated in its proposal that it intends to announce the 
implementation date of the proposed rule change in a Regulatory Notice 
to be published no later than 90 days following Commission approval.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\9\ In particular, the Commission believes the proposal is 
consistent with the requirements of Section 15A(b)(6) of the Act,\10\ 
which requires, among other things, that the Association's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest. Further, the Commission 
believes it is appropriate to transfer these NASD Rules into the FINRA 
Consolidated Rulebook, with the changes specified, and to delete the 
noted NYSE Rules as proposed because the proposal will protect 
investors against potential misconduct.
---------------------------------------------------------------------------

    \9\ In approving this rule proposal, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-FINRA-2009-014) is approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23307 Filed 9-25-09; 8:45 am]
BILLING CODE 8010-01-P
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