Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend the By-Laws of NASD Dispute Resolution, 30453-30457 [2010-13005]

Download as PDF Federal Register / Vol. 75, No. 104 / Tuesday, June 1, 2010 / Notices Trading Permit Applications where the initial application was submitted prior to the close of business on May 21, 2010. The existing CBOE Membership application fees are set forth in Section 11 of the CBOE Fees Schedule as well as in a regulatory circular (‘‘Membership Fees Circular’’). The Exchange proposes to add the Post-Demutualization Trading Permit Application Fee to Section 11 of the CBOE Fees Schedule and to revise the Membership Fees Circular. The proposed changes to the CBOE Fees Schedule are included as part of Exhibit 5 to the 19b–4. The proposed changes to the Membership Fees Circular are included as Exhibit 2 to the 19b–4. CBOE proposes to add a new Section 8 to the CBSX Fees Schedule for Membership Fees that includes the PostDemutualization Trading Permit Application Fee. The proposed changes to the CBSX Fees Schedule are included as part of Exhibit 5 to the 19b–4. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (‘‘Act’’) 6, in general, and furthers the objectives of Section 6(b)(4) 7 of the Act in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among its members and other persons using its facilities. In particular, the proposed fee would be assessed to all members in a consistent manner and encourage the submission of PostDemutualization Trading Permit Applications with sufficient time to allow for the efficient processing of these applications. CBOE believes this fee is reasonable as compared to other application fees assessed by the Exchange and is reflective of the amount of work necessary to process the applications. erowe on DSK5CLS3C1PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose 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 No written comments were solicited or received with respect to the proposed rule change. 6 15 7 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). VerDate Mar<15>2010 15:41 May 28, 2010 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A) of the Act 8 and subparagraph (f)(2) of Rule 19b–4 9 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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: 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 No. SR–CBOE– 2010–045 and should be submitted on or before June 22, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–13038 Filed 5–28–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION 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–2010–045 on the subject line. [Release No. 34–62156; File No. SR–FINRA– 2010–007] 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–2010–045. 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 Web site viewing and printing in the Commission’s Public May 24, 2010. 8 15 9 17 Jkt 220001 30453 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(2). Frm 00090 Fmt 4703 Sfmt 4703 Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend the By-Laws of NASD Dispute Resolution On January 22, 2010, 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’’), 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 amend the bylaws of NASD Dispute Resolution. The proposed rule change was published for comment in the Federal Register on March 2, 2010.3 The Commission received one comment on the proposed rule change.4 This order approves the proposed rule change. I. Description of Proposed Rule Change FINRA proposed to amend the NASD Dispute Resolution By-Laws to: (1) Modify the composition of the FINRA Dispute Resolution Board; (2) adopt changes to conform the NASD Dispute 10 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Exchange Act Release No. 34–61575 (Feb. 23, 2010); 75 FR 9459 (Mar. 2, 2010). 4 See letter from Barry D. Estell, Esq., dated March 24, 2010 (‘‘Estell Letter’’). 1 15 E:\FR\FM\01JNN1.SGM 01JNN1 30454 Federal Register / Vol. 75, No. 104 / Tuesday, June 1, 2010 / Notices Resolution By-Laws to the FINRA ByLaws; and (3) implement other conforming changes to reflect the corporate name change and other similar matters. The proposed amendments to the NASD Dispute Resolution By-Laws are modeled on those of the FINRA and FINRA Regulation By-Laws (which were both previously approved by the Commission), with modifications as appropriate to the particular functions of FINRA Dispute Resolution. The following discussion addresses the proposed amendments to NASD Dispute Resolution’s By-Laws under the article of the By-Laws of NASD Dispute Resolution in which the amendments would first appear. Amendments to Article I—Definitions Article I contains definitions of terms used in the By-Laws. FINRA proposed to add to or amend some of these definitions. Broker and Dealer FINRA proposed to amend the definitions of ‘‘broker’’ and ‘‘dealer’’ in Article I to conform them to the definitions of ‘‘broker’’ and ‘‘dealer’’ in the Act, as amended by the GrammLeach-Bliley Act of 1999.5 As proposed, FINRA would incorporate by reference the definitions of the terms ‘‘broker’’ and ‘‘dealer’’ as set forth in Sections 3(a)(4) and 3(a)(5), respectively, of the Act.6 The Commission approved the same change to definitions of the terms ‘‘broker’’ and ‘‘dealer’’ in the then-NASD Regulation’s By-Laws in March 2001.7 Corporation FINRA proposed to add the term ‘‘Corporation’’ to Article I to reflect the change of the Corporation’s name from ‘‘NASD’’ to ‘‘FINRA.’’ Proposed Article I(e) would define Corporation to mean the National Association of Securities Dealers, Inc., the Financial Industry Regulatory Authority, Inc., or any future name of the entity. erowe on DSK5CLS3C1PROD with NOTICES Electronic Transmission FINRA proposed to add the term ‘‘electronic transmission’’ to Article I to reflect the common usage of electronic transmission as a means of communication.8 The term ‘‘electronic transmission’’ would be defined to mean communicating or disseminating L. 106–102, 113 Stat. 1338 (1999). U.S.C. 78c(a)(4) and (a)(5). 7 See Securities Exchange Act Rel. No. 44052 (March 8, 2001), 66 FR 15157 (March 15, 2001) (File No. SR–NASD–01–13). 8 The new term ‘‘electronic transmission’’ would be added as proposed Article I(k) of the By-Laws of NASD Dispute Resolution. information or documents to individuals or entities by telegraph, telefax, cable, radio, wireless or other device or method. FINRA intends ‘‘other device or method’’ to include email, text messages, and related technologies, for example. FINRA Member FINRA proposed to add the term ‘‘FINRA member’’ to Article I.9 As proposed, the term ‘‘FINRA member’’ would mean ‘‘any broker or dealer admitted to membership in FINRA, whether or not the membership has been terminated or cancelled; and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’) or the Code of Arbitration Procedure for Industry Disputes (‘‘Industry Code’’, and together with the Customer Code, ‘‘Codes’’) and/ or to be treated as members of FINRA for purposes of the Codes, whether or not the membership has been terminated or cancelled.’’ Industry Director or Industry Member and Public Director or Public Member FINRA proposed to modify the terms ‘‘Industry Director’’ or ‘‘Industry member’’ and ‘‘Public Director’’ or ‘‘Public member’’ in Articles I(k) and I(t), respectively. With regard to the term ‘‘Industry Director’’ or ‘‘Industry member’’, the proposed rule change would amend the NASD Dispute Resolution’s By-Laws by separating these definitions into two definitions for ease of reference.10 FINRA also proposed to amend the revised terms ‘‘Industry Director’’ and ‘‘Industry Member’’ to limit the lookback test that characterizes committee members as industry if they have served as an officer, director, or employee of a broker or dealer, among other reasons, to the past twelve months. The current provision uses a three-year look-back test. The proposed change would make the definitions of ‘‘Industry Director’’ and ‘‘Industry Member’’ under the NASD Dispute Resolution By-Laws consistent with the definitions of ‘‘Industry Director’’, ‘‘Industry Governor’’, and ‘‘Industry committee member’’ in the FINRA By-Laws.11 5 Pub. 6 15 VerDate Mar<15>2010 15:41 May 28, 2010 Jkt 220001 9 The new term ‘‘FINRA member’’ would be added as proposed Article I(o) of the By-Laws of NASD Dispute Resolution. 10 The term ‘‘Industry Director’’ will be defined in proposed Article I(r); ‘‘Industry Member’’ in proposed Article I(s). 11 See FINRA By-Laws, Article I(s) and I(t). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 The proposal would also add the term ‘‘independent director’’ to the portion of the definitions of ‘‘Industry Director’’ and ‘‘Industry Member’’ that excludes outside directors of a broker or dealer. The term ‘‘independent director’’ is synonymous with outside director, but FINRA proposed to add it to the exclusionary clause to harmonize the NASD Dispute Resolution By-Laws with the definition of ‘‘Industry Governor’’ in the FINRA By-Laws.12 Similarly, FINRA proposed to modify the term ‘‘Public Director’’ or ‘‘Public member’’ by separating it into two definitions for ease of reference.13 FINRA would also amend the proposed terms ‘‘Public Director’’ or ‘‘Public Member’’ to clarify that an individual’s service as a public director of a self regulatory organization does not disqualify that person from serving as a Pubic Director or Public Member under NASD Dispute Resolution’s By-Laws. Person Associated With a Member or Associated Person of a Member On June 5, 2009, FINRA filed a proposed rule change to amend Rules 12100(r), 12506(a), and 12902(a) of the Customer Code and Rule 13100(r) of the Industry Code to amend the definition of ‘‘associated person,’’ streamline a case administration procedure, and clarify that customers could be assessed hearing session fees based on their own claims for relief in connection with an industry claim.14 The Commission approved the proposal on October 26, 2009.15 Under that proposal, FINRA amended the definition of associated person under the Codes 16 to match the 12 See FINRA By-Laws, Article I(t). term ‘‘Public Director’’ will be defined in proposed Article I(w); ‘‘Public Member’’ in proposed Article I(x). 14 See Securities Exchange Act Rel. No. 60159 (June 22, 2009), 74 FR 31779 (July 2, 2009) (File No. SR–FINRA–2009–041). 15 See Securities Exchange Act Rel. No. 60878, 74 FR 56679 (Nov. 2, 2009) (Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of SR–2009–041, as Modified by Amendment No. 1). 16 Rule 12100(r) of the Customer Code and Rule 13100(r) of the Industry Code define ‘‘person associated with a member’’ to mean: (1) A natural person registered under the Rules of FINRA; or (2) A sole proprietor, partner, officer, director, or branch manager of a member, or a natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA. For purposes of the Code, a person formerly associated with a member is a person associated with a member. 13 The E:\FR\FM\01JNN1.SGM 01JNN1 Federal Register / Vol. 75, No. 104 / Tuesday, June 1, 2010 / Notices definition in FINRA’s By-Laws.17 The proposal amended the definition of ‘‘person associated with a member’’ in the Codes in two ways: (1) by inserting the word ‘‘other’’ before the second reference to ‘‘natural person’’ to clarify that the definition does not include corporate entities; and (2) by inserting the criterion that a natural person includes someone who has applied for registration. FINRA proposed to implement the same changes to the definition of associated person of a member in the NASD Dispute Resolution By-Laws, as have been approved recently by the Commission to same definitions under the Codes. Amendments to Article IV—Board of Directors FINRA proposed to make limited conforming changes to Article IV to parallel more closely the governance structure of the FINRA Board. Section 4.3—Qualifications erowe on DSK5CLS3C1PROD with NOTICES The proposed rule change would amend Article IV, section 4.3(a) to reflect FINRA’s current governance structure by establishing that NASD Dispute Resolution Board members would be drawn exclusively from the FINRA Board. The proposed rule change would also amend section 4.3(a) to streamline the composition of NASD Dispute Resolution’s Board and implement a requirement that it contain more Public Directors than Industry Directors. Thus, section 4.3(a) would be amended to state that ‘‘the number of Public Directors shall exceed the number of Industry Directors.’’ FINRA’s By-Laws contain a similar requirement.18 The proposal would make other changes to Article IV, section 4.3 as follows: • Re-structure the Board to remove the President of NASD Dispute Resolution. The President would not be deemed a Director, and therefore, the 17 FINRA’s By-Laws define ‘‘person associated with a member or associated person of a member’’ as (1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member. See By-Laws of the Corporation, Article I, Definitions (rr). 18 See By-Laws of the Corporation, Article VII (Board of Governors), section 4(a). VerDate Mar<15>2010 15:41 May 28, 2010 Jkt 220001 proposed rule change would delete several references to the President of NASD Dispute Resolution; 19 • Clarify that the Chair of the FINRA Board and the Chief Executive Officer of FINRA shall be ex-officio non-voting members of the Board; • Transfer the task of selecting the Chair of the NASD Dispute Resolution Board from the Board members to NASD Dispute Resolution’s stockholder;20 • Eliminate the requirement that the Board select a Vice Chair; and • State that the stockholder will designate the Chair at the same time that the Directors are elected. Section 4.4—Election The proposed rule change would eliminate as unnecessary the reference to the first meeting of NASD Regulation at which Directors initially were elected. Section 4.5—Resignation The proposal would remove the requirement that Directors submit written notice of resignation to the President. Under the proposal, such notice would be submitted to the Chair of the Board, instead of the President. Section 4.6—Removal The proposed rule change would transfer the authority to remove Directors from a majority vote of the FINRA Board to the stockholder of FINRA Regulation.21 The proposed amendment would reflect Delaware law, which requires that a stock corporation vest the power to remove directors with the stockholder.22 19 See NASD Dispute Resolution By-Laws, Article IV, Sections 4.3(a) (Qualifications), 4.5 (Resignation), 4.11(c) (Meetings), 4.13(f) (Executive Committee), and 4.13(g) (Finance Committee). Section 141(c)(2) of the General Corporation Law of the State of Delaware provides that ‘‘[t]he board of directors may designate 1 or more committees, each committee to consist of 1 or more directors of the corporation.’’ (Emphasis added). Committees of the board, therefore, may be comprised exclusively of board members. In addition, any committee of the board that is delegated any power and authority of the board, such as the Executive Committee, must be comprised exclusively of board members. See Delaware General Corporation Law, section 141(c)(2). 20 See Delaware General Corporation Law section 142, which allows the sole stockholder to make this selection if expressly provided for in the By-Laws. 21 The sole stockholder of the capital stock of FINRA Dispute Resolution, Inc. is FINRA, Inc. See Article VIII, section 8.1 (Sole Stockholder). 22 See Delaware General Corporation Law, section 141(k). As a practical matter, the FINRA Board generally would be asked to pass a resolution authorizing an officer of FINRA to execute a sole stockholder consent on behalf of FINRA (who is the sole stockholder of FINRA Dispute Resolution) before such a consent is executed. As such, the FINRA Board would have a voice in the matter, but as a matter of Delaware law, the consent authorizing the removal must be executed by a duly authorized PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 30455 Section 4.7—Disqualification In connection with the proposed change to section 4.3(a), which would require the number of Public Directors to exceed the number of Industry Directors, the proposal would also amend section 4.7 to clarify that when a Director is disqualified from Board service and the Director’s remaining term is not more than six months, the Board may continue to operate and will not violate any compositional requirements if it does not replace the disqualified Director. Section 4.8—Filling of Vacancies Currently, Directors of FINRA Dispute Resolution are elected annually at the meeting of FINRA Dispute Resolution’s stockholder meeting or at a special meeting dedicated to Board elections.23 When the annual election of Directors is not held on the designated date, the NASD Dispute Resolution By-Laws charge the Directors to ‘‘cause such election’’ to be held.24 The proposed rule change would confirm that the same process should be used by the FINRA Dispute Resolution Board when filling vacancies among its ranks. Thus, the proposal would amend section 4.8 to provide that the FINRA Board shall ‘‘cause the election’’ of a qualified Director to fill the vacant position.25 Section 4.9—Quorum and Voting The proposed rule change would remove a cross-reference to section 4.14(b) in the quorum provision, and also amend the provision to clarify that, when there is a quorum, a majority vote of the Directors present at a meeting constitutes action of the Board. Section 4.12—Notice of Meetings; Waiver of Notice The proposal would clarify the conditions under which the NASD Dispute Resolution Board may meet. The current NASD Dispute Resolution By-Laws provide that a Director may waive notice of a Board meeting by being present at the meeting, so long as officer of FINRA in FINRA’s capacity as sole stockholder. 23 See current NASD Dispute Resolution By-Laws, Article IV, section 4.4 (Election). 24 Id. 25 Pursuant to Delaware law, FINRA, as the sole stockholder of FINRA Dispute Resolution, has the authority to execute a stockholder consent electing an individual to the fill the vacancy pursuant to directions of the FINRA Board. Alternatively, the FINRA Board may pass a resolution making it known who they would like appointed to fill the vacancy. Under this scenario, it is likely that the remaining members of the FINRA Dispute Resolution Board will follow the advice of its controlling stockholder and elect the recommended individual. See Delaware General Corporation Law, section 223. E:\FR\FM\01JNN1.SGM 01JNN1 30456 Federal Register / Vol. 75, No. 104 / Tuesday, June 1, 2010 / Notices the Director did not attend the meeting solely to object to the meeting taking place.26 FINRA proposed to amend section 4.12(c) to clarify that a Board meeting is a legal meeting if all Directors are present and no Director is present solely for the purpose of objecting to the meeting taking place. The proposed rule change also would amend section 4.12(a) and (b) to replace the phrase ‘‘telegraph, telefax, cable, radio, or wireless’’ with the new term ‘‘electronic transmission.’’ 27 For an explanation of the term ‘‘electronic transmission,’’ see the discussion under ‘‘Amendments to Article I—Definitions’’ above. Section 4.13—Committees As explained under the discussion of section 4.3(a), the proposal would implement a requirement that the FINRA Dispute Resolution Board contain more Public Directors than Industry Directors.28 In furtherance of this change, references throughout Article IV to balancing ‘‘Industry’’ and ‘‘Non-Industry’’ Board members would be replaced with references to balancing ‘‘Industry’’ and ‘‘Public’’ Board members. Similarly, the proposal would remove the requirement that the Executive Committee include at least one NonIndustry Member and institute the requirement that Public Directors shall exceed Industry Directors on FINRA Dispute Resolution’s Executive Committee of the Board.29 Section 4.15—Action Without Meeting The proposal would make a related change to section 4.15 to eliminate the requirement that unanimous consent for taking action without a meeting specifically be in writing and filed with the minutes of the meeting. Instead, the proposal would require the consent to be ‘‘in accordance with applicable law,’’ which in the instance of FINRA Dispute Resolution, would be Delaware law. erowe on DSK5CLS3C1PROD with NOTICES 26 See current NASD Dispute Resolution By-Laws, Article IV, section 4.12(b) (Notice of Meeting; Waiver of Notice) and Article IX, section 9.3(b) (Waiver of Notice). 27 FINRA proposed similar changes to Article IV, Section 4.12 (Notice of Meeting; Waiver of Notice) and Article XII, Section 12.3 (Waiver of Notice) of the FINRA Regulation By-Laws. See Securities Exchange Act Rel. No. 59696 (April 2, 2009), 74 FR 16020 (April 8, 2009) (File No. SR–FINRA–2009– 020). 28 See also proposed Article I(r) (Industry Director); proposed Article I(s) (Industry Member); proposed Article I(w) (Public Director); and proposed Article I(x) (Public Member). 29 See Article IV, section 4.12(f) (Executive Committee). VerDate Mar<15>2010 15:41 May 28, 2010 Jkt 220001 Amendment to Article V—Officers, Agents, and Employees Section 5.1—Officers As explained under the discussion of Article IV, section 4.3, the proposed rule change would re-structure the Board to remove the President of FINRA Dispute Resolution as a Director of the Board.30 In connection with this change, the proposal would remove a reference to the President from section 5.1, so that the amended language would state, in relevant part, that none of the officers need to be Directors of FINRA Dispute Resolution. Amendments to Article VIII—Capital Stock Section 8.3—Signatures The proposed rule change would amend several provisions regarding FINRA Dispute Resolution’s capital stock. Currently, under section 8.3(a), FINRA’s approach to the corporate law issue of signing certificates representing shares of FINRA Dispute Resolution capital stock is to have these shares signed by FINRA Dispute Resolution officers. Under the proposed restructuring of the Board, FINRA Dispute Resolution would not have an officer as Chair of the Board. Thus, FINRA proposed to remove the provision that permits the Chair of the Board to sign stock certificates, and limit the authority to sign such certificates to the President, Vice President, Secretary or Treasurer of FINRA Dispute Resolution. FINRA proposed to amend section 8.3(b) to remove the limitations on the type of signatures required on certificates of capital stock. The current provision states, in relevant part, that ‘‘if any such certificates are countersigned by a transfer agent other than NASD Dispute Resolution or its employee, or by a registrar other than NASD Dispute Resolution or its employee, any other signature on the certificate may be a facsimile.’’ The proposed amendment would eliminate limitations on when signatures on certificates representing shares of FINRA Dispute Resolution’s capital stock may be facsimiles and permit any signature to be a facsimile. Thus, under the proposal, the provision would be amended to state that ‘‘any signature on the stock certificate may be a facsimile.’’ Section 8.4—Stock Ledger Currently, section 8.4(a) of the NASD Dispute Resolution By-Laws requires that the FINRA Dispute Resolution Secretary, or another officer, employee, or agent, keep a record of FINRA 30 Supra PO 00000 note 18. Frm 00093 Fmt 4703 Sfmt 4703 Dispute Resolution’s capital stock ownership and ‘‘the number of shares represented by each such certificate.’’ FINRA proposed to change several references to ‘‘capital stock’’ to ‘‘certificates representing shares of capital stock’’ or similar constructions, instead of ‘‘certificates for shares of capital stock.’’ 31 Amendments to Article IX— Miscellaneous Provisions Section 9.3—Waiver of Notice FINRA proposed to amend section 9.3(a) of the NASD Dispute Resolution By-Laws to replace the phrase ‘‘telegraph, telefax, cable, radio, or wireless’’ with the new term ‘‘electronic transmission.’’ 32 Conforming Changes Relating to the New FINRA Name and Other Technical Changes FINRA proposed to implement certain other non-substantive changes to all articles of the NASD Dispute Resolution By-Laws, as follows: • ‘‘The NASD’’ or ‘‘NASD’’ would be replaced with ‘‘FINRA’’ or ‘‘the Corporation;’’ • ‘‘NASD Dispute Resolution’’ would be changed to ‘‘FINRA Dispute Resolution;’’ • ‘‘The Rules of the Association’’ would be replaced with ‘‘the Rules of the Corporation;’’ • ‘‘National Nominating Committee’’ would be replaced with ‘‘Nominating Committee;’’ • A reference to ‘‘FINRA Regulation’’ would be added; and • ‘‘Association’’ would be replaced with ‘‘Corporation.’’ FINRA also proposed to amend Article II, section 2.1 to change the name and address of the registered agent from The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801 to Corporation Creations Network Inc., 1308 Delaware Avenue, Wilmington, DE 19806. II. Comments The Commission received one comment on the proposed rule change,33 as well as FINRA’s response 31 The proposal would delete as imprecise the words ‘‘certificates for’’ in the discussion of potential registration of shares of capital stock. See proposed NASD Dispute Resolution By-Laws, Article VIII, section 8.4(b) (Stock Ledger), 8.5 (Transfers of Stock), 8.6 (Cancellation), and 8.7 (Lost, Stolen, Destroyed, and Mutilated Certificates). 32 See supra note 26, and the explanation of the term ‘‘electronic transmission’’ under ‘‘Amendments to Article I—Definitions.’’ 33 See supra, note 4. E:\FR\FM\01JNN1.SGM 01JNN1 Federal Register / Vol. 75, No. 104 / Tuesday, June 1, 2010 / Notices erowe on DSK5CLS3C1PROD with NOTICES to the comment.34 The commenter opposed the rule filing arguing that the proposed rule change would not ‘‘redound to the benefit of investors’’ because: (1) The Chair of the FINRA Dispute Resolution Board would be selected by FINRA; (2) FINRA, by selecting the Chair of the FINRA Dispute Resolution Board, may prevent a director of FINRA Dispute Resolution from ‘‘suggesting a measure that might bring some element of fairness to the dispute resolution process’’; and (3) FINRA would have the power to remove directors of FINRA Dispute Resolution.35 FINRA responded to the commenter’s concern regarding the selection of the Chair of the FINRA Dispute Resolution Board by stating that since the FINRA Board is comprised of a majority of public governors, ‘‘the majority will be able to represent the interests of the investing public regarding the selection of the [Chair of the FINRA Dispute Resolution Board]’’.36 FINRA also noted that, ‘‘as the proposed FINRA Dispute Resolution By-Laws require that the number of Public Directors exceeds the number of Industry Directors, matters affecting the dispute resolution process also would be controlled by a majority of Public Directors’’.37 With respect to the commenter’s concern that the proposed rule change would provide the Chair with the authority to prevent matters from being raised at a meeting, FINRA stated that the Chair cannot prevent an item from being raised at a meeting. FINRA also noted that any member of the Board may raise a matter for consideration and that the Chair may influence when the matter is heard, but cannot prevent it from being heard.38 In response to the commenter’s concern regarding FINRA’s power to remove directors of FINRA Dispute Resolution with or without cause, FINRA reiterated that Delaware law requires that the stockholder have the power to remove directors. Since FINRA is the stockholder of FINRA Dispute Resolution, the removal of a Director from FINRA Dispute Resolution’s Board is also a function that is controlled by FINRA’s Board. FINRA also stated that since the FINRA Board is comprised of a majority of public governors, that majority would consider the public interests and market implications in determining whether to remove a 34 See letter from Mignon McLemore, Assistant Chief Counsel, FINRA Dispute Resolution, dated May 5, 2010 (‘‘FINRA Letter’’). 35 See Estell Letter. 36 See FINRA Letter at page 1. 37 Id. 38 See FINRA Letter at page 2. VerDate Mar<15>2010 15:41 May 28, 2010 Jkt 220001 Director from FINRA Dispute Resolution’s Board.39 III. Discussion and Findings After careful review of the proposed rule change, the comment received, and FINRA’s response to the comment, the Commission finds the proposed rule change to be consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.40 In particular, the Commission finds that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act.41, 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; 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 is consistent with FINRA’s obligations under the Act. In particular, the proposed rule change will conform definitions in the By-Laws with definitions in the Act, as well as to the By-Laws of FINRA and FINRA Regulation. The proposed rule change will also conform other provisions of the By-Laws with the FINRA and FINRA Regulation By-Laws and be consistent with Delaware law, under which all the entities are organized. In addition, the proposed rule change would clarify that FINRA members remain subject to the requirements of the Codes after their membership has been terminated or cancelled. IV. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities association. It is therefore ordered, pursuant to Section 19(b)(2) of the Act,42 that the proposed rule change (SR–FINRA– 2010–007) be and hereby is approved. 39 Id. 40 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). 41 15 U.S.C. 78o–3(b)(6). 42 15 U.S.C. 78s(b)(2). PO 00000 Frm 00094 Fmt 4703 Sfmt 4703 30457 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.43 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–13005 Filed 5–28–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62160; File No. SR–FINRA– 2010–027] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to the Restated Certificate of Incorporation of Financial Industry Regulatory Authority, Inc. May 24, 2010. 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 21, 2010, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) 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 amend the Restated Certificate of Incorporation of FINRA (the ‘‘Certificate of Incorporation’’) to specify the quorum requirements for a meeting of FINRA members, in anticipation of amendments to the General Corporation Law of the State of Delaware (the ‘‘General Corporation Law’’). The proposed rule change would serve to maintain the status quo with respect to the quorum requirements for meetings of members. The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, on the Commission’s Web site at https:// www.sec.gov, at the principal office of FINRA and at the Commission’s Public Reference Room. 43 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\01JNN1.SGM 01JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 104 (Tuesday, June 1, 2010)]
[Notices]
[Pages 30453-30457]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-13005]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62156; File No. SR-FINRA-2010-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend the By-
Laws of NASD Dispute Resolution

May 24, 2010.
    On January 22, 2010, 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''), 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 amend the by-laws of NASD Dispute Resolution. 
The proposed rule change was published for comment in the Federal 
Register on March 2, 2010.\3\ The Commission received one comment on 
the proposed rule change.\4\ This order approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Act Release No. 34-61575 (Feb. 23, 2010); 75 FR 
9459 (Mar. 2, 2010).
    \4\ See letter from Barry D. Estell, Esq., dated March 24, 2010 
(``Estell Letter'').
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I. Description of Proposed Rule Change

    FINRA proposed to amend the NASD Dispute Resolution By-Laws to: (1) 
Modify the composition of the FINRA Dispute Resolution Board; (2) adopt 
changes to conform the NASD Dispute

[[Page 30454]]

Resolution By-Laws to the FINRA By-Laws; and (3) implement other 
conforming changes to reflect the corporate name change and other 
similar matters. The proposed amendments to the NASD Dispute Resolution 
By-Laws are modeled on those of the FINRA and FINRA Regulation By-Laws 
(which were both previously approved by the Commission), with 
modifications as appropriate to the particular functions of FINRA 
Dispute Resolution.
    The following discussion addresses the proposed amendments to NASD 
Dispute Resolution's By-Laws under the article of the By-Laws of NASD 
Dispute Resolution in which the amendments would first appear.

Amendments to Article I--Definitions

    Article I contains definitions of terms used in the By-Laws. FINRA 
proposed to add to or amend some of these definitions.
Broker and Dealer
    FINRA proposed to amend the definitions of ``broker'' and 
``dealer'' in Article I to conform them to the definitions of 
``broker'' and ``dealer'' in the Act, as amended by the Gramm-Leach-
Bliley Act of 1999.\5\ As proposed, FINRA would incorporate by 
reference the definitions of the terms ``broker'' and ``dealer'' as set 
forth in Sections 3(a)(4) and 3(a)(5), respectively, of the Act.\6\ The 
Commission approved the same change to definitions of the terms 
``broker'' and ``dealer'' in the then-NASD Regulation's By-Laws in 
March 2001.\7\
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    \5\ Pub. L. 106-102, 113 Stat. 1338 (1999).
    \6\ 15 U.S.C. 78c(a)(4) and (a)(5).
    \7\ See Securities Exchange Act Rel. No. 44052 (March 8, 2001), 
66 FR 15157 (March 15, 2001) (File No. SR-NASD-01-13).
---------------------------------------------------------------------------

Corporation
    FINRA proposed to add the term ``Corporation'' to Article I to 
reflect the change of the Corporation's name from ``NASD'' to 
``FINRA.'' Proposed Article I(e) would define Corporation to mean the 
National Association of Securities Dealers, Inc., the Financial 
Industry Regulatory Authority, Inc., or any future name of the entity.
Electronic Transmission
    FINRA proposed to add the term ``electronic transmission'' to 
Article I to reflect the common usage of electronic transmission as a 
means of communication.\8\ The term ``electronic transmission'' would 
be defined to mean communicating or disseminating information or 
documents to individuals or entities by telegraph, telefax, cable, 
radio, wireless or other device or method. FINRA intends ``other device 
or method'' to include email, text messages, and related technologies, 
for example.
---------------------------------------------------------------------------

    \8\ The new term ``electronic transmission'' would be added as 
proposed Article I(k) of the By-Laws of NASD Dispute Resolution.
---------------------------------------------------------------------------

FINRA Member
    FINRA proposed to add the term ``FINRA member'' to Article I.\9\ As 
proposed, the term ``FINRA member'' would mean ``any broker or dealer 
admitted to membership in FINRA, whether or not the membership has been 
terminated or cancelled; and any broker or dealer admitted to 
membership in a self-regulatory organization that, with FINRA consent, 
has required its members to arbitrate pursuant to the Code of 
Arbitration Procedure for Customer Disputes (``Customer Code'') or the 
Code of Arbitration Procedure for Industry Disputes (``Industry Code'', 
and together with the Customer Code, ``Codes'') and/or to be treated as 
members of FINRA for purposes of the Codes, whether or not the 
membership has been terminated or cancelled.''
---------------------------------------------------------------------------

    \9\ The new term ``FINRA member'' would be added as proposed 
Article I(o) of the By-Laws of NASD Dispute Resolution.
---------------------------------------------------------------------------

Industry Director or Industry Member and Public Director or Public 
Member
    FINRA proposed to modify the terms ``Industry Director'' or 
``Industry member'' and ``Public Director'' or ``Public member'' in 
Articles I(k) and I(t), respectively. With regard to the term 
``Industry Director'' or ``Industry member'', the proposed rule change 
would amend the NASD Dispute Resolution's By-Laws by separating these 
definitions into two definitions for ease of reference.\10\
---------------------------------------------------------------------------

    \10\ The term ``Industry Director'' will be defined in proposed 
Article I(r); ``Industry Member'' in proposed Article I(s).
---------------------------------------------------------------------------

    FINRA also proposed to amend the revised terms ``Industry 
Director'' and ``Industry Member'' to limit the look-back test that 
characterizes committee members as industry if they have served as an 
officer, director, or employee of a broker or dealer, among other 
reasons, to the past twelve months. The current provision uses a three-
year look-back test. The proposed change would make the definitions of 
``Industry Director'' and ``Industry Member'' under the NASD Dispute 
Resolution By-Laws consistent with the definitions of ``Industry 
Director'', ``Industry Governor'', and ``Industry committee member'' in 
the FINRA By-Laws.\11\
---------------------------------------------------------------------------

    \11\ See FINRA By-Laws, Article I(s) and I(t).
---------------------------------------------------------------------------

    The proposal would also add the term ``independent director'' to 
the portion of the definitions of ``Industry Director'' and ``Industry 
Member'' that excludes outside directors of a broker or dealer. The 
term ``independent director'' is synonymous with outside director, but 
FINRA proposed to add it to the exclusionary clause to harmonize the 
NASD Dispute Resolution By-Laws with the definition of ``Industry 
Governor'' in the FINRA By-Laws.\12\
---------------------------------------------------------------------------

    \12\ See FINRA By-Laws, Article I(t).
---------------------------------------------------------------------------

    Similarly, FINRA proposed to modify the term ``Public Director'' or 
``Public member'' by separating it into two definitions for ease of 
reference.\13\ FINRA would also amend the proposed terms ``Public 
Director'' or ``Public Member'' to clarify that an individual's service 
as a public director of a self regulatory organization does not 
disqualify that person from serving as a Pubic Director or Public 
Member under NASD Dispute Resolution's By-Laws.
---------------------------------------------------------------------------

    \13\ The term ``Public Director'' will be defined in proposed 
Article I(w); ``Public Member'' in proposed Article I(x).
---------------------------------------------------------------------------

Person Associated With a Member or Associated Person of a Member
    On June 5, 2009, FINRA filed a proposed rule change to amend Rules 
12100(r), 12506(a), and 12902(a) of the Customer Code and Rule 13100(r) 
of the Industry Code to amend the definition of ``associated person,'' 
streamline a case administration procedure, and clarify that customers 
could be assessed hearing session fees based on their own claims for 
relief in connection with an industry claim.\14\ The Commission 
approved the proposal on October 26, 2009.\15\
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    \14\ See Securities Exchange Act Rel. No. 60159 (June 22, 2009), 
74 FR 31779 (July 2, 2009) (File No. SR-FINRA-2009-041).
    \15\ See Securities Exchange Act Rel. No. 60878, 74 FR 56679 
(Nov. 2, 2009) (Notice of Filing of Amendment No. 1 and Order 
Granting Accelerated Approval of SR-2009-041, as Modified by 
Amendment No. 1).
---------------------------------------------------------------------------

    Under that proposal, FINRA amended the definition of associated 
person under the Codes \16\ to match the

[[Page 30455]]

definition in FINRA's By-Laws.\17\ The proposal amended the definition 
of ``person associated with a member'' in the Codes in two ways: (1) by 
inserting the word ``other'' before the second reference to ``natural 
person'' to clarify that the definition does not include corporate 
entities; and (2) by inserting the criterion that a natural person 
includes someone who has applied for registration.
---------------------------------------------------------------------------

    \16\ Rule 12100(r) of the Customer Code and Rule 13100(r) of the 
Industry Code define ``person associated with a member'' to mean: 
(1) A natural person registered under the Rules of FINRA; or (2) A 
sole proprietor, partner, officer, director, or branch manager of a 
member, or a natural person occupying a similar status or performing 
similar functions, or a natural person engaged in the investment 
banking or securities business who is directly or indirectly 
controlling or controlled by a member, whether or not any such 
person is registered or exempt from registration with FINRA under 
the By-Laws or the Rules of FINRA.
    For purposes of the Code, a person formerly associated with a 
member is a person associated with a member.
    \17\ FINRA's By-Laws define ``person associated with a member or 
associated person of a member'' as (1) a natural person who is 
registered or has applied for registration under the Rules of the 
Corporation; (2) a sole proprietor, partner, officer, director, or 
branch manager of a member, or other natural person occupying a 
similar status or performing similar functions, or a natural person 
engaged in the investment banking or securities business who is 
directly or indirectly controlling or controlled by a member, 
whether or not any such person is registered or exempt from 
registration with the Corporation under these By-Laws or the Rules 
of the Corporation; and (3) for purposes of Rule 8210, any other 
person listed in Schedule A of Form BD of a member. See By-Laws of 
the Corporation, Article I, Definitions (rr).
---------------------------------------------------------------------------

    FINRA proposed to implement the same changes to the definition of 
associated person of a member in the NASD Dispute Resolution By-Laws, 
as have been approved recently by the Commission to same definitions 
under the Codes.

Amendments to Article IV--Board of Directors

    FINRA proposed to make limited conforming changes to Article IV to 
parallel more closely the governance structure of the FINRA Board.
Section 4.3--Qualifications
    The proposed rule change would amend Article IV, section 4.3(a) to 
reflect FINRA's current governance structure by establishing that NASD 
Dispute Resolution Board members would be drawn exclusively from the 
FINRA Board. The proposed rule change would also amend section 4.3(a) 
to streamline the composition of NASD Dispute Resolution's Board and 
implement a requirement that it contain more Public Directors than 
Industry Directors. Thus, section 4.3(a) would be amended to state that 
``the number of Public Directors shall exceed the number of Industry 
Directors.'' FINRA's By-Laws contain a similar requirement.\18\
---------------------------------------------------------------------------

    \18\ See By-Laws of the Corporation, Article VII (Board of 
Governors), section 4(a).
---------------------------------------------------------------------------

    The proposal would make other changes to Article IV, section 4.3 as 
follows:
     Re-structure the Board to remove the President of NASD 
Dispute Resolution. The President would not be deemed a Director, and 
therefore, the proposed rule change would delete several references to 
the President of NASD Dispute Resolution; \19\
---------------------------------------------------------------------------

    \19\ See NASD Dispute Resolution By-Laws, Article IV, Sections 
4.3(a) (Qualifications), 4.5 (Resignation), 4.11(c) (Meetings), 
4.13(f) (Executive Committee), and 4.13(g) (Finance Committee). 
Section 141(c)(2) of the General Corporation Law of the State of 
Delaware provides that ``[t]he board of directors may designate 1 or 
more committees, each committee to consist of 1 or more directors of 
the corporation.'' (Emphasis added). Committees of the board, 
therefore, may be comprised exclusively of board members. In 
addition, any committee of the board that is delegated any power and 
authority of the board, such as the Executive Committee, must be 
comprised exclusively of board members. See Delaware General 
Corporation Law, section 141(c)(2).
---------------------------------------------------------------------------

     Clarify that the Chair of the FINRA Board and the Chief 
Executive Officer of FINRA shall be ex-officio non-voting members of 
the Board;
     Transfer the task of selecting the Chair of the NASD 
Dispute Resolution Board from the Board members to NASD Dispute 
Resolution's stockholder;\20\
---------------------------------------------------------------------------

    \20\ See Delaware General Corporation Law section 142, which 
allows the sole stockholder to make this selection if expressly 
provided for in the By-Laws.
---------------------------------------------------------------------------

     Eliminate the requirement that the Board select a Vice 
Chair; and
     State that the stockholder will designate the Chair at the 
same time that the Directors are elected.
Section 4.4--Election
    The proposed rule change would eliminate as unnecessary the 
reference to the first meeting of NASD Regulation at which Directors 
initially were elected.
Section 4.5--Resignation
    The proposal would remove the requirement that Directors submit 
written notice of resignation to the President. Under the proposal, 
such notice would be submitted to the Chair of the Board, instead of 
the President.
Section 4.6--Removal
    The proposed rule change would transfer the authority to remove 
Directors from a majority vote of the FINRA Board to the stockholder of 
FINRA Regulation.\21\ The proposed amendment would reflect Delaware 
law, which requires that a stock corporation vest the power to remove 
directors with the stockholder.\22\
---------------------------------------------------------------------------

    \21\ The sole stockholder of the capital stock of FINRA Dispute 
Resolution, Inc. is FINRA, Inc. See Article VIII, section 8.1 (Sole 
Stockholder).
    \22\ See Delaware General Corporation Law, section 141(k). As a 
practical matter, the FINRA Board generally would be asked to pass a 
resolution authorizing an officer of FINRA to execute a sole 
stockholder consent on behalf of FINRA (who is the sole stockholder 
of FINRA Dispute Resolution) before such a consent is executed. As 
such, the FINRA Board would have a voice in the matter, but as a 
matter of Delaware law, the consent authorizing the removal must be 
executed by a duly authorized officer of FINRA in FINRA's capacity 
as sole stockholder.
---------------------------------------------------------------------------

Section 4.7--Disqualification
    In connection with the proposed change to section 4.3(a), which 
would require the number of Public Directors to exceed the number of 
Industry Directors, the proposal would also amend section 4.7 to 
clarify that when a Director is disqualified from Board service and the 
Director's remaining term is not more than six months, the Board may 
continue to operate and will not violate any compositional requirements 
if it does not replace the disqualified Director.
Section 4.8--Filling of Vacancies
    Currently, Directors of FINRA Dispute Resolution are elected 
annually at the meeting of FINRA Dispute Resolution's stockholder 
meeting or at a special meeting dedicated to Board elections.\23\ When 
the annual election of Directors is not held on the designated date, 
the NASD Dispute Resolution By-Laws charge the Directors to ``cause 
such election'' to be held.\24\ The proposed rule change would confirm 
that the same process should be used by the FINRA Dispute Resolution 
Board when filling vacancies among its ranks. Thus, the proposal would 
amend section 4.8 to provide that the FINRA Board shall ``cause the 
election'' of a qualified Director to fill the vacant position.\25\
---------------------------------------------------------------------------

    \23\ See current NASD Dispute Resolution By-Laws, Article IV, 
section 4.4 (Election).
    \24\ Id.
    \25\ Pursuant to Delaware law, FINRA, as the sole stockholder of 
FINRA Dispute Resolution, has the authority to execute a stockholder 
consent electing an individual to the fill the vacancy pursuant to 
directions of the FINRA Board. Alternatively, the FINRA Board may 
pass a resolution making it known who they would like appointed to 
fill the vacancy. Under this scenario, it is likely that the 
remaining members of the FINRA Dispute Resolution Board will follow 
the advice of its controlling stockholder and elect the recommended 
individual. See Delaware General Corporation Law, section 223.
---------------------------------------------------------------------------

Section 4.9--Quorum and Voting
    The proposed rule change would remove a cross-reference to section 
4.14(b) in the quorum provision, and also amend the provision to 
clarify that, when there is a quorum, a majority vote of the Directors 
present at a meeting constitutes action of the Board.
Section 4.12--Notice of Meetings; Waiver of Notice
    The proposal would clarify the conditions under which the NASD 
Dispute Resolution Board may meet. The current NASD Dispute Resolution 
By-Laws provide that a Director may waive notice of a Board meeting by 
being present at the meeting, so long as

[[Page 30456]]

the Director did not attend the meeting solely to object to the meeting 
taking place.\26\ FINRA proposed to amend section 4.12(c) to clarify 
that a Board meeting is a legal meeting if all Directors are present 
and no Director is present solely for the purpose of objecting to the 
meeting taking place.
---------------------------------------------------------------------------

    \26\ See current NASD Dispute Resolution By-Laws, Article IV, 
section 4.12(b) (Notice of Meeting; Waiver of Notice) and Article 
IX, section 9.3(b) (Waiver of Notice).
---------------------------------------------------------------------------

    The proposed rule change also would amend section 4.12(a) and (b) 
to replace the phrase ``telegraph, telefax, cable, radio, or wireless'' 
with the new term ``electronic transmission.'' \27\ For an explanation 
of the term ``electronic transmission,'' see the discussion under 
``Amendments to Article I--Definitions'' above.
---------------------------------------------------------------------------

    \27\ FINRA proposed similar changes to Article IV, Section 4.12 
(Notice of Meeting; Waiver of Notice) and Article XII, Section 12.3 
(Waiver of Notice) of the FINRA Regulation By-Laws. See Securities 
Exchange Act Rel. No. 59696 (April 2, 2009), 74 FR 16020 (April 8, 
2009) (File No. SR-FINRA-2009-020).
---------------------------------------------------------------------------

Section 4.13--Committees
    As explained under the discussion of section 4.3(a), the proposal 
would implement a requirement that the FINRA Dispute Resolution Board 
contain more Public Directors than Industry Directors.\28\ In 
furtherance of this change, references throughout Article IV to 
balancing ``Industry'' and ``Non-Industry'' Board members would be 
replaced with references to balancing ``Industry'' and ``Public'' Board 
members. Similarly, the proposal would remove the requirement that the 
Executive Committee include at least one Non-Industry Member and 
institute the requirement that Public Directors shall exceed Industry 
Directors on FINRA Dispute Resolution's Executive Committee of the 
Board.\29\
---------------------------------------------------------------------------

    \28\ See also proposed Article I(r) (Industry Director); 
proposed Article I(s) (Industry Member); proposed Article I(w) 
(Public Director); and proposed Article I(x) (Public Member).
    \29\ See Article IV, section 4.12(f) (Executive Committee).
---------------------------------------------------------------------------

Section 4.15--Action Without Meeting
    The proposal would make a related change to section 4.15 to 
eliminate the requirement that unanimous consent for taking action 
without a meeting specifically be in writing and filed with the minutes 
of the meeting. Instead, the proposal would require the consent to be 
``in accordance with applicable law,'' which in the instance of FINRA 
Dispute Resolution, would be Delaware law.

Amendment to Article V--Officers, Agents, and Employees

Section 5.1--Officers
    As explained under the discussion of Article IV, section 4.3, the 
proposed rule change would re-structure the Board to remove the 
President of FINRA Dispute Resolution as a Director of the Board.\30\ 
In connection with this change, the proposal would remove a reference 
to the President from section 5.1, so that the amended language would 
state, in relevant part, that none of the officers need to be Directors 
of FINRA Dispute Resolution.
---------------------------------------------------------------------------

    \30\ Supra note 18.
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Amendments to Article VIII--Capital Stock

Section 8.3--Signatures
    The proposed rule change would amend several provisions regarding 
FINRA Dispute Resolution's capital stock. Currently, under section 
8.3(a), FINRA's approach to the corporate law issue of signing 
certificates representing shares of FINRA Dispute Resolution capital 
stock is to have these shares signed by FINRA Dispute Resolution 
officers. Under the proposed re-structuring of the Board, FINRA Dispute 
Resolution would not have an officer as Chair of the Board. Thus, FINRA 
proposed to remove the provision that permits the Chair of the Board to 
sign stock certificates, and limit the authority to sign such 
certificates to the President, Vice President, Secretary or Treasurer 
of FINRA Dispute Resolution.
    FINRA proposed to amend section 8.3(b) to remove the limitations on 
the type of signatures required on certificates of capital stock. The 
current provision states, in relevant part, that ``if any such 
certificates are countersigned by a transfer agent other than NASD 
Dispute Resolution or its employee, or by a registrar other than NASD 
Dispute Resolution or its employee, any other signature on the 
certificate may be a facsimile.'' The proposed amendment would 
eliminate limitations on when signatures on certificates representing 
shares of FINRA Dispute Resolution's capital stock may be facsimiles 
and permit any signature to be a facsimile. Thus, under the proposal, 
the provision would be amended to state that ``any signature on the 
stock certificate may be a facsimile.''
Section 8.4--Stock Ledger
    Currently, section 8.4(a) of the NASD Dispute Resolution By-Laws 
requires that the FINRA Dispute Resolution Secretary, or another 
officer, employee, or agent, keep a record of FINRA Dispute 
Resolution's capital stock ownership and ``the number of shares 
represented by each such certificate.'' FINRA proposed to change 
several references to ``capital stock'' to ``certificates representing 
shares of capital stock'' or similar constructions, instead of 
``certificates for shares of capital stock.'' \31\
---------------------------------------------------------------------------

    \31\ The proposal would delete as imprecise the words 
``certificates for'' in the discussion of potential registration of 
shares of capital stock. See proposed NASD Dispute Resolution By-
Laws, Article VIII, section 8.4(b) (Stock Ledger), 8.5 (Transfers of 
Stock), 8.6 (Cancellation), and 8.7 (Lost, Stolen, Destroyed, and 
Mutilated Certificates).
---------------------------------------------------------------------------

Amendments to Article IX--Miscellaneous Provisions

Section 9.3--Waiver of Notice
    FINRA proposed to amend section 9.3(a) of the NASD Dispute 
Resolution By-Laws to replace the phrase ``telegraph, telefax, cable, 
radio, or wireless'' with the new term ``electronic transmission.'' 
\32\
---------------------------------------------------------------------------

    \32\ See supra note 26, and the explanation of the term 
``electronic transmission'' under ``Amendments to Article I--
Definitions.''
---------------------------------------------------------------------------

Conforming Changes Relating to the New FINRA Name and Other Technical 
Changes

    FINRA proposed to implement certain other non-substantive changes 
to all articles of the NASD Dispute Resolution By-Laws, as follows:
     ``The NASD'' or ``NASD'' would be replaced with ``FINRA'' 
or ``the Corporation;''
     ``NASD Dispute Resolution'' would be changed to ``FINRA 
Dispute Resolution;''
     ``The Rules of the Association'' would be replaced with 
``the Rules of the Corporation;''
     ``National Nominating Committee'' would be replaced with 
``Nominating Committee;''
     A reference to ``FINRA Regulation'' would be added; and
     ``Association'' would be replaced with ``Corporation.''
    FINRA also proposed to amend Article II, section 2.1 to change the 
name and address of the registered agent from The Corporation Trust 
Company, 1209 Orange Street, Wilmington, DE 19801 to Corporation 
Creations Network Inc., 1308 Delaware Avenue, Wilmington, DE 19806.

II. Comments

    The Commission received one comment on the proposed rule 
change,\33\ as well as FINRA's response

[[Page 30457]]

to the comment.\34\ The commenter opposed the rule filing arguing that 
the proposed rule change would not ``redound to the benefit of 
investors'' because: (1) The Chair of the FINRA Dispute Resolution 
Board would be selected by FINRA; (2) FINRA, by selecting the Chair of 
the FINRA Dispute Resolution Board, may prevent a director of FINRA 
Dispute Resolution from ``suggesting a measure that might bring some 
element of fairness to the dispute resolution process''; and (3) FINRA 
would have the power to remove directors of FINRA Dispute 
Resolution.\35\
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    \33\ See supra, note 4.
    \34\ See letter from Mignon McLemore, Assistant Chief Counsel, 
FINRA Dispute Resolution, dated May 5, 2010 (``FINRA Letter'').
    \35\ See Estell Letter.
---------------------------------------------------------------------------

    FINRA responded to the commenter's concern regarding the selection 
of the Chair of the FINRA Dispute Resolution Board by stating that 
since the FINRA Board is comprised of a majority of public governors, 
``the majority will be able to represent the interests of the investing 
public regarding the selection of the [Chair of the FINRA Dispute 
Resolution Board]''.\36\ FINRA also noted that, ``as the proposed FINRA 
Dispute Resolution By-Laws require that the number of Public Directors 
exceeds the number of Industry Directors, matters affecting the dispute 
resolution process also would be controlled by a majority of Public 
Directors''.\37\
---------------------------------------------------------------------------

    \36\ See FINRA Letter at page 1.
    \37\ Id.
---------------------------------------------------------------------------

    With respect to the commenter's concern that the proposed rule 
change would provide the Chair with the authority to prevent matters 
from being raised at a meeting, FINRA stated that the Chair cannot 
prevent an item from being raised at a meeting. FINRA also noted that 
any member of the Board may raise a matter for consideration and that 
the Chair may influence when the matter is heard, but cannot prevent it 
from being heard.\38\
---------------------------------------------------------------------------

    \38\ See FINRA Letter at page 2.
---------------------------------------------------------------------------

    In response to the commenter's concern regarding FINRA's power to 
remove directors of FINRA Dispute Resolution with or without cause, 
FINRA reiterated that Delaware law requires that the stockholder have 
the power to remove directors. Since FINRA is the stockholder of FINRA 
Dispute Resolution, the removal of a Director from FINRA Dispute 
Resolution's Board is also a function that is controlled by FINRA's 
Board. FINRA also stated that since the FINRA Board is comprised of a 
majority of public governors, that majority would consider the public 
interests and market implications in determining whether to remove a 
Director from FINRA Dispute Resolution's Board.\39\
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    \39\ Id.
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III. Discussion and Findings

    After careful review of the proposed rule change, the comment 
received, and FINRA's response to the comment, the Commission finds the 
proposed rule change to be consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities association.\40\ In particular, the Commission finds that 
the proposed rule change is consistent with the provisions of Section 
15A(b)(6) of the Act.\41\, 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; 
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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    \40\ 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).
    \41\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change is consistent 
with FINRA's obligations under the Act. In particular, the proposed 
rule change will conform definitions in the By-Laws with definitions in 
the Act, as well as to the By-Laws of FINRA and FINRA Regulation. The 
proposed rule change will also conform other provisions of the By-Laws 
with the FINRA and FINRA Regulation By-Laws and be consistent with 
Delaware law, under which all the entities are organized. In addition, 
the proposed rule change would clarify that FINRA members remain 
subject to the requirements of the Codes after their membership has 
been terminated or cancelled.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\42\ that the proposed rule change (SR-FINRA-2010-007) be and 
hereby is approved.
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    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13005 Filed 5-28-10; 8:45 am]
BILLING CODE 8011-01-P

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