Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rule 1113 (Restriction Pertaining to New Member Applications) and To Amend the FINRA Rule 9520 Series (Eligibility Proceedings), 71166-71168 [2010-29281]
Download as PDF
71166
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices
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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Florence E. Harmon,
Deputy Secretary.
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:
[FR Doc. 2010–29395 Filed 11–19–10; 8:45 am]
jlentini on DSKJ8SOYB1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2010–060 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2010–060. 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
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2010–060 and
should be submitted on or before
December 13, 2010.
VerDate Mar<15>2010
17:49 Nov 19, 2010
Jkt 223001
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63316; File No. SR–FINRA–
2010–056]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Adopt
FINRA Rule 1113 (Restriction
Pertaining to New Member
Applications) and To Amend the FINRA
Rule 9520 Series (Eligibility
Proceedings)
November 15, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that on November 1, 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’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to adopt new
FINRA Rule 1113 (Restriction Pertaining
to New Member Applications) and to
amend the FINRA Rule 9520 Series
(Eligibility Proceedings) to restrict new
member applicants’ and certain
members’ association with disqualified
persons.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA is proposing a rule change to
adopt new FINRA Rule 1113
(Restriction Pertaining to New Member
Applications) and to amend the FINRA
Rule 9520 Series (Eligibility
Proceedings) to restrict new member
applicants’ and certain members’
association with disqualified persons.
The details of the proposed rule change
are described below.
Background
Article III, Section 3(b) of the FINRA
By-Laws provides that no person shall
be associated with a member, continue
to be associated with a member, or
transfer association to another member
if such person is or becomes subject to
disqualification; and that no firm shall
be admitted to membership, and no
member shall be continued in
membership, if any person associated
with it is subject to a disqualification.
Pursuant to Article III, Section 4 of the
FINRA By-Laws, a person is subject to
a ‘‘disqualification’’ with respect to
membership, or association with a
member, if such person is subject to any
‘‘statutory disqualification’’ as such term
is defined in Exchange Act Section
3(a)(39).3
3 See 15 U.S.C. 78c(a)(39). Pursuant to Exchange
Act Section 3(a)(39), a person is subject to a
‘‘statutory disqualification’’ with respect to
membership or participation in, or association with
a member of, a self-regulatory organization (‘‘SRO’’)
if such person, among other things: Has been
convicted of certain misdemeanor and all felony
criminal convictions for a period of ten years from
the date of the filing of an application for
membership or participation in, or to become
associated with a member of, such SRO; is subject
to a temporary or permanent injunction (regardless
of its age) issued by a court of competent
jurisdiction involving a broad range of unlawful
investment activities; has been expelled or
suspended from membership or participation in an
SRO; or is subject to an SEC order denying,
suspending, or revoking broker-dealer registration.
E:\FR\FM\22NON1.SGM
22NON1
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices
The FINRA Rule 9520 Series sets forth
procedures for a person to become or
remain associated with a member,
notwithstanding the existence of a
statutory disqualification, and for a
current member or person associated
with a member to obtain relief from the
eligibility or qualification requirements
of the FINRA By-Laws and rules. The
FINRA Rule 9520 Series also
contemplates that a new member
applicant may sponsor a proposed
associated person or itself for relief from
the eligibility or qualification
requirements. A member (or new
member applicant) seeking to associate
with a person subject to a
disqualification must seek approval
from FINRA by filing a Form MC–400
application, pursuant to the FINRA Rule
9520 Series. Members (and new member
applicants) that are themselves subject
to a disqualification that wish to obtain
relief from the eligibility requirements
are required to submit a Form MC–400A
application.
jlentini on DSKJ8SOYB1PROD with NOTICES
New Membership Application Rule
FINRA is proposing to adopt new
FINRA Rule 1113 providing that the
Department of Member Regulation
(‘‘Department’’) shall reject an
application for FINRA membership 4 in
which either the applicant or an
associated person, as defined in Article
I of the FINRA By-Laws,5 of the
applicant is subject to a statutory
disqualification, as defined in Article
III, Section 4 of the FINRA By-Laws.6
The proposed rule also provides that
any new member application that the
Department approves by virtue of
Department or applicant error
(including, but not limited to, an
inadvertent or intentional misstatement
or omission by the applicant or
associated person) shall be subject to
4 Proposed FINRA Rule 1113, by its terms, will
not apply to a member submitting a continuing
membership application pursuant to NASD Rule
1017 (Application for Approval of Change in
Ownership, Control, or Business Operations).
5 Article I of the FINRA By-Laws defines an
associated person as a: (1) A natural person who is
registered or has applied for registration under
FINRA rules; (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 FINRA under its By-Laws or rules; and (3) for
purposes of FINRA Rule 8210, any other person
listed in Schedule A of Form BD of a member. See
FINRA By-Laws, Article I (rr) (definition of ‘‘person
associated with a member’’ or ‘‘associated person of
a member’’).
6 As previously noted, Article III, Section 4 of the
FINRA By-Laws incorporates the definition of
‘‘statutory disqualification’’ as such term is defined
in Exchange Act Section 3(a)(39).
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17:49 Nov 19, 2010
Jkt 223001
membership cancellation in accordance
with FINRA Rule 9555 (Failure to Meet
the Eligibility or Qualification
Standards or Prerequisites for Access to
Services).
FINRA believes that a new member
applicant should enter the membership
application process free of the concerns
and issues that can arise from either
being associated with a disqualified
person or being itself subject to a
statutory disqualification. Also, a new
member applicant has no prior
operating or supervisory history, and
therefore, would not be able to
demonstrate adequately its ability to
supervise a disqualified person.
FINRA Rule 9520 Series Amendments
FINRA also is proposing several
amendments to the FINRA Rule 9520
Series, which, as noted above, set forth
the eligibility proceedings. First, the
proposed rule change would amend the
FINRA Rule 9520 Series definition of
‘‘sponsoring member’’ 7 to eliminate the
reference to new member applicants. As
stated above, FINRA is concerned about
the ability of new member applicants to
supervise adequately a disqualified
person, as such new member applicants
generally would not have any prior
operating or supervisory history that
would indicate the necessary experience
to supervise disqualified persons. Thus,
this amendment conforms to the
proposed new membership application
rule discussed above by precluding new
member applicants from being able to
sponsor disqualified persons.8
Second, the proposed rule change
would amend the definition of
‘‘disqualified member’’ 9 in the FINRA
Rule 9520 Series to clarify that a new
member applicant is not eligible to
submit an application for relief under
the FINRA Rule 9520 Series where the
new member applicant itself is subject
to a disqualification.
Lastly, the proposed rule change
would further amend the definition of
‘‘sponsoring member’’ to preclude any
member from sponsoring the association
or continued association of a
disqualified person to be admitted,
readmitted, or permitted to continue in
association that is directly or indirectly
a beneficial owner of more than five
percent of the sponsoring member. This
proposed change reflects FINRA’s belief
that a member cannot effectively
supervise such a disqualified person in
7 FINRA
Rule 9521(b)(4).
proposed rule change also would make
conforming amendments throughout the FINRA
Rule 9520 Series to reflect the proposed amendment
discussed above that a new member applicant may
not sponsor a person subject to a disqualification.
9 FINRA Rule 9521(b)(2).
8 The
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
71167
light of the inherent conflict of interest
resulting from the ownership interest. In
FINRA’s experience, a member’s
decision to sponsor such a person is
nearly always influenced more by that
person’s beneficial ownership interest
in the firm, rather than by objective
considerations, such as the person’s
work experience, the length of time
since the disqualifying event, the
person’s professional activities since the
time of the disqualifying event, or
subsequent lack of disciplinary
history.10
FINRA notes that the proposed rule
change is not designed to apply in
several situations. Proposed new FINRA
Rule 1113 would not apply to a new
member applicant that itself is subject to
a statutory disqualification solely due to
its association with a non-natural
person that is subject to a statutory
disqualification.11 Also, in such
situations, notwithstanding the
proposed rule change to the FINRA Rule
9520 Series that would preclude a new
member applicant from submitting an
application for relief under the FINRA
Rule 9520 Series, the new member
applicant would be permitted to file an
MC–400A application on behalf of itself.
Moreover, the proposed amendments
to the FINRA Rule 9520 Series that
would preclude any member from
sponsoring a disqualified person that is
directly or indirectly a beneficial owner
of more than five percent of the
sponsoring member would not preclude
a member from filing an MC–400A
application to sponsor itself where
needed (e.g., a member whose majority
owner is subject to a 30-day principal
suspension for failure to supervise a
books and records violation may seek to
sponsor itself for continued membership
rather than having to cease business for
the period of its owner’s suspension).
FINRA will announce the effective
date of the proposed rule change in a
10 See The Ass’n of X as a Gen. Secs.
Representative, Chairman, CEO, and owner,
Redacted Decision No. SD99013 (NASD NAC 1999)
at 9 (the National Adjudicatory Council denied a
sponsoring firm’s statutory disqualification
application, finding that the proposed supervisor
would not adequately supervise a disqualified
individual who would be 100 percent owner of the
firm).
11 Exchange Act Section 3(a)(39)(E) subjects a
person to a statutory disqualification if the person
is associated with any person who is known, or in
the exercise of reasonable care should be known, by
him to be subject to any statutory disqualification
described in Exchange Act Sections 3(a)(39)(A)
through (D). Because the applicable definition of
‘‘associated person’’ (set forth in Exchange Act
Section 3(a)(21)) includes non-natural persons, a
member may find itself subject to a statutory
disqualification solely because it is associated with
a person who is subject to a statutory
disqualification pursuant to Exchange Act Section
3(a)(39)(A) through (D). For additional information,
see Regulatory Notice 09–19 (April 2009).
E:\FR\FM\22NON1.SGM
22NON1
71168
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Notices
Regulatory Notice to be published no
later than 60 days following
Commission approval. The effective
date will be no later than 90 days
following publication of the Regulatory
Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,12 which
requires, among other things, that
FINRA rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. The proposed rule
change will further these purposes by
restricting certain members and new
member applicants from being able to
associate with statutorily disqualified
persons in light of the concerns to
investor protection raised by such
associations.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
jlentini on DSKJ8SOYB1PROD with NOTICES
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.
12 15
U.S.C. 78o–3(b)(6).
VerDate Mar<15>2010
17:49 Nov 19, 2010
Comments may be submitted by any of
the following methods:
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–FINRA–2010–056 on the
subject line.
[Release No. 34–63322; File No. SR–BATS–
2010–032]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Establish a $0.50
Strike Program
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
• Send paper comments in triplicate
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
to Elizabeth M. Murphy, Secretary,
notice is hereby given that, on
Securities and Exchange Commission,
November 10, 2010, BATS Exchange,
100 F Street, NE., Washington, DC
Inc. (the ‘‘Exchange’’ or ‘‘BATS’’) filed
20549–1090.
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
All submissions should refer to File
the proposed rule change as described
Number SR–FINRA–2010–056. This file
in Items I and II below, which Items
number should be included on the
have been prepared by the Exchange.
subject line if e-mail is used. To help the
The Exchange has designated this
Commission process and review your
proposal as a ‘‘non-controversial’’
comments more efficiently, please use
proposed rule change pursuant to
only one method. The Commission will
Section 19(b)(3)(A) of the Act 3 and Rule
post all comments on the Commission’s
19b–4(f)(6)(iii) thereunder,4 which
Internet Web site (https://www.sec.gov/
renders it effective upon filing with the
rules/sro.shtml). Copies of the
Commission. The Commission is
submission, all subsequent
publishing this notice to solicit
amendments, all written statements
comments on the proposed rule change
with respect to the proposed rule
from interested persons.
change that are filed with the
Commission, and all written
I. Self-Regulatory Organization’s
communications relating to the
Statement of the Terms of Substance of
proposed rule change between the
the Proposed Rule Change
Commission and any person, other than
The Exchange is proposing to amend
those that may be withheld from the
Rule 19.6 (Series of Options Contracts
public in accordance with the
Open for Trading) to adopt a $0.50
provisions of 5 U.S.C. 552, will be
Strike Program consistent with
available for Web site viewing and
analogous programs offered by other
printing in the Commission’s Public
options exchanges.
Reference Room, 100 F Street, NE.,
The text of the proposed rule change
Washington, DC 20549, on official
is available at the Exchange’s Web site
business days between the hours of 10
at https://www.batstrading.com, at the
a.m. and 3 p.m. Copies of such filing
principal office of the Exchange, on the
also will be available for inspection and Commission’s Web site at https://
copying at the principal office of
www.sec.gov, and at the Commission’s
FINRA. All comments received will be
Public Reference Room.
posted without change; the Commission
II. Self-Regulatory Organization’s
does not edit personal identifying
Statement of the Purpose of, and
information from submissions. You
Statutory Basis for, the Proposed Rule
should submit only information that
you wish to make available publicly. All Change
submissions should refer to File
In its filing with the Commission, the
Number SR–FINRA–2010–056 and
Exchange included statements
should be submitted on or before
concerning the purpose of and basis for
December 13, 2010.
the proposed rule change and discussed
any comments it received on the
For the Commission, by the Division of
proposed rule change. The text of these
Trading and Markets, pursuant to delegated
statements may be examined at the
authority.13
places specified in Item IV below. The
Florence E. Harmon,
Exchange has prepared summaries, set
Deputy Secretary.
Paper Comments
[FR Doc. 2010–29281 Filed 11–19–10; 8:45 am]
BILLING CODE 8011–01–P
13 17
Jkt 223001
November 16, 2010.
PO 00000
Fmt 4703
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 17
CFR 200.30–3(a)(12).
Frm 00102
1 15
Sfmt 4703
E:\FR\FM\22NON1.SGM
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Agencies
[Federal Register Volume 75, Number 224 (Monday, November 22, 2010)]
[Notices]
[Pages 71166-71168]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29281]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63316; File No. SR-FINRA-2010-056]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rule 1113 (Restriction Pertaining to New Member Applications) and
To Amend the FINRA Rule 9520 Series (Eligibility Proceedings)
November 15, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on November 1, 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'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by FINRA. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt new FINRA Rule 1113 (Restriction
Pertaining to New Member Applications) and to amend the FINRA Rule 9520
Series (Eligibility Proceedings) to restrict new member applicants' and
certain members' association with disqualified persons.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is proposing a rule change to adopt new FINRA Rule 1113
(Restriction Pertaining to New Member Applications) and to amend the
FINRA Rule 9520 Series (Eligibility Proceedings) to restrict new member
applicants' and certain members' association with disqualified persons.
The details of the proposed rule change are described below.
Background
Article III, Section 3(b) of the FINRA By-Laws provides that no
person shall be associated with a member, continue to be associated
with a member, or transfer association to another member if such person
is or becomes subject to disqualification; and that no firm shall be
admitted to membership, and no member shall be continued in membership,
if any person associated with it is subject to a disqualification.
Pursuant to Article III, Section 4 of the FINRA By-Laws, a person is
subject to a ``disqualification'' with respect to membership, or
association with a member, if such person is subject to any ``statutory
disqualification'' as such term is defined in Exchange Act Section
3(a)(39).\3\
---------------------------------------------------------------------------
\3\ See 15 U.S.C. 78c(a)(39). Pursuant to Exchange Act Section
3(a)(39), a person is subject to a ``statutory disqualification''
with respect to membership or participation in, or association with
a member of, a self-regulatory organization (``SRO'') if such
person, among other things: Has been convicted of certain
misdemeanor and all felony criminal convictions for a period of ten
years from the date of the filing of an application for membership
or participation in, or to become associated with a member of, such
SRO; is subject to a temporary or permanent injunction (regardless
of its age) issued by a court of competent jurisdiction involving a
broad range of unlawful investment activities; has been expelled or
suspended from membership or participation in an SRO; or is subject
to an SEC order denying, suspending, or revoking broker-dealer
registration.
---------------------------------------------------------------------------
[[Page 71167]]
The FINRA Rule 9520 Series sets forth procedures for a person to
become or remain associated with a member, notwithstanding the
existence of a statutory disqualification, and for a current member or
person associated with a member to obtain relief from the eligibility
or qualification requirements of the FINRA By-Laws and rules. The FINRA
Rule 9520 Series also contemplates that a new member applicant may
sponsor a proposed associated person or itself for relief from the
eligibility or qualification requirements. A member (or new member
applicant) seeking to associate with a person subject to a
disqualification must seek approval from FINRA by filing a Form MC-400
application, pursuant to the FINRA Rule 9520 Series. Members (and new
member applicants) that are themselves subject to a disqualification
that wish to obtain relief from the eligibility requirements are
required to submit a Form MC-400A application.
New Membership Application Rule
FINRA is proposing to adopt new FINRA Rule 1113 providing that the
Department of Member Regulation (``Department'') shall reject an
application for FINRA membership \4\ in which either the applicant or
an associated person, as defined in Article I of the FINRA By-Laws,\5\
of the applicant is subject to a statutory disqualification, as defined
in Article III, Section 4 of the FINRA By-Laws.\6\ The proposed rule
also provides that any new member application that the Department
approves by virtue of Department or applicant error (including, but not
limited to, an inadvertent or intentional misstatement or omission by
the applicant or associated person) shall be subject to membership
cancellation in accordance with FINRA Rule 9555 (Failure to Meet the
Eligibility or Qualification Standards or Prerequisites for Access to
Services).
---------------------------------------------------------------------------
\4\ Proposed FINRA Rule 1113, by its terms, will not apply to a
member submitting a continuing membership application pursuant to
NASD Rule 1017 (Application for Approval of Change in Ownership,
Control, or Business Operations).
\5\ Article I of the FINRA By-Laws defines an associated person
as a: (1) A natural person who is registered or has applied for
registration under FINRA rules; (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 FINRA under its By-Laws or rules; and (3) for
purposes of FINRA Rule 8210, any other person listed in Schedule A
of Form BD of a member. See FINRA By-Laws, Article I (rr)
(definition of ``person associated with a member'' or ``associated
person of a member'').
\6\ As previously noted, Article III, Section 4 of the FINRA By-
Laws incorporates the definition of ``statutory disqualification''
as such term is defined in Exchange Act Section 3(a)(39).
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FINRA believes that a new member applicant should enter the
membership application process free of the concerns and issues that can
arise from either being associated with a disqualified person or being
itself subject to a statutory disqualification. Also, a new member
applicant has no prior operating or supervisory history, and therefore,
would not be able to demonstrate adequately its ability to supervise a
disqualified person.
FINRA Rule 9520 Series Amendments
FINRA also is proposing several amendments to the FINRA Rule 9520
Series, which, as noted above, set forth the eligibility proceedings.
First, the proposed rule change would amend the FINRA Rule 9520 Series
definition of ``sponsoring member'' \7\ to eliminate the reference to
new member applicants. As stated above, FINRA is concerned about the
ability of new member applicants to supervise adequately a disqualified
person, as such new member applicants generally would not have any
prior operating or supervisory history that would indicate the
necessary experience to supervise disqualified persons. Thus, this
amendment conforms to the proposed new membership application rule
discussed above by precluding new member applicants from being able to
sponsor disqualified persons.\8\
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\7\ FINRA Rule 9521(b)(4).
\8\ The proposed rule change also would make conforming
amendments throughout the FINRA Rule 9520 Series to reflect the
proposed amendment discussed above that a new member applicant may
not sponsor a person subject to a disqualification.
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Second, the proposed rule change would amend the definition of
``disqualified member'' \9\ in the FINRA Rule 9520 Series to clarify
that a new member applicant is not eligible to submit an application
for relief under the FINRA Rule 9520 Series where the new member
applicant itself is subject to a disqualification.
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\9\ FINRA Rule 9521(b)(2).
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Lastly, the proposed rule change would further amend the definition
of ``sponsoring member'' to preclude any member from sponsoring the
association or continued association of a disqualified person to be
admitted, readmitted, or permitted to continue in association that is
directly or indirectly a beneficial owner of more than five percent of
the sponsoring member. This proposed change reflects FINRA's belief
that a member cannot effectively supervise such a disqualified person
in light of the inherent conflict of interest resulting from the
ownership interest. In FINRA's experience, a member's decision to
sponsor such a person is nearly always influenced more by that person's
beneficial ownership interest in the firm, rather than by objective
considerations, such as the person's work experience, the length of
time since the disqualifying event, the person's professional
activities since the time of the disqualifying event, or subsequent
lack of disciplinary history.\10\
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\10\ See The Ass'n of X as a Gen. Secs. Representative,
Chairman, CEO, and owner, Redacted Decision No. SD99013 (NASD NAC
1999) at 9 (the National Adjudicatory Council denied a sponsoring
firm's statutory disqualification application, finding that the
proposed supervisor would not adequately supervise a disqualified
individual who would be 100 percent owner of the firm).
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FINRA notes that the proposed rule change is not designed to apply
in several situations. Proposed new FINRA Rule 1113 would not apply to
a new member applicant that itself is subject to a statutory
disqualification solely due to its association with a non-natural
person that is subject to a statutory disqualification.\11\ Also, in
such situations, notwithstanding the proposed rule change to the FINRA
Rule 9520 Series that would preclude a new member applicant from
submitting an application for relief under the FINRA Rule 9520 Series,
the new member applicant would be permitted to file an MC-400A
application on behalf of itself.
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\11\ Exchange Act Section 3(a)(39)(E) subjects a person to a
statutory disqualification if the person is associated with any
person who is known, or in the exercise of reasonable care should be
known, by him to be subject to any statutory disqualification
described in Exchange Act Sections 3(a)(39)(A) through (D). Because
the applicable definition of ``associated person'' (set forth in
Exchange Act Section 3(a)(21)) includes non-natural persons, a
member may find itself subject to a statutory disqualification
solely because it is associated with a person who is subject to a
statutory disqualification pursuant to Exchange Act Section
3(a)(39)(A) through (D). For additional information, see Regulatory
Notice 09-19 (April 2009).
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Moreover, the proposed amendments to the FINRA Rule 9520 Series
that would preclude any member from sponsoring a disqualified person
that is directly or indirectly a beneficial owner of more than five
percent of the sponsoring member would not preclude a member from
filing an MC-400A application to sponsor itself where needed (e.g., a
member whose majority owner is subject to a 30-day principal suspension
for failure to supervise a books and records violation may seek to
sponsor itself for continued membership rather than having to cease
business for the period of its owner's suspension).
FINRA will announce the effective date of the proposed rule change
in a
[[Page 71168]]
Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 90 days
following publication of the Regulatory Notice announcing Commission
approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed rule change will further these purposes
by restricting certain members and new member applicants from being
able to associate with statutorily disqualified persons in light of the
concerns to investor protection raised by such associations.
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\12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2010-056 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-056. 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 Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of FINRA.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2010-056
and should be submitted on or before December 13, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29281 Filed 11-19-10; 8:45 am]
BILLING CODE 8011-01-P