Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Adopt FINRA Rule 1113 (Restriction Pertaining to New Member Applications) and To Amend the FINRA Rule 9520 Series (Eligibility Proceedings), 10629-10631 [2011-4216]
Download as PDF
Federal Register / Vol. 76, No. 38 / Friday, February 25, 2011 / Notices
Participant that an alert has been
triggered, but the Participant will be
required to sign into the Dashboard in
order to receive the alert message. While
this alert message will provide
Participants with greater efficiency in
how they view settlement events,
Participants will continue to have the
responsibility to independently check
the settlement functions to verify all of
their settlement related events.
Additionally, DTC is making
unrelated technical updates to its
Settlement Service Guide to conform to
certain rule changes that have
previously been filed with the
Commission.6 These changes will
necessitate revisions to the existing DTC
Settlement Guide and those revisions
are attached to DTC’s proposed rule
filing as Exhibit 5.
DTC states that the proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
DTC because it will promote efficiencies
in the way that Participants view
settlement related transactions and as
such will promote the safeguarding of
securities and funds in DTC’s custody or
control or for which it is responsible.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
DTC does not believe that the
proposed rule change will have any
impact or impose any burden on
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
DTC has not solicited or received
written comments relating to the
proposed rule change. DTC will notify
the Commission of any written
comments it receives.
srobinson on DSKHWCL6B1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective upon filing pursuant to Section
19(b)(3)(A)(iii) of the Act 7 and Rule
19b–4(f)(4) 8 because the proposed rule
change effects a change in an existing
6 In 2010, DTC implemented a new function that
allows DTC Participants to set a profile in PBS so
that they can request that excess funds be wired to
their settling bank account at approximately 3:20
p.m. Eastern Time. Securities Exchange Act Release
No. 61922 (Apr. 15, 2010), 75 FR 21072 (Apr. 22,
2010). Also in 2010, DTC updated its processing
schedule in order to extend the end-of-day cutoff
time for processing pledges and releases to and
from the New York Federal Reserve Bank from 3
p.m. to 5 p.m. Securities Exchange Act Release No.
63415 (Dec. 2, 2010), 75 FR 76506 (Dec. 8, 2010).
7 Supra note 2.
8 Supra note 3.
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16:39 Feb 24, 2011
Jkt 223001
service of DTC that (i) does not
adversely affect the safeguarding of
securities or funds in DTC’s custody or
control or for which it is responsible
and (ii) does not significantly affect the
respective rights of DTC or persons
using the service. At any time within 60
days of the filing of the proposed rule
change, the Commission summarily may
temporarily suspend 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:
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
No. SR–DTC–2011–03 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 No.
SR–DTC–2011–03. 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 filings
also will be available for inspection and
copying at DTC’s principal office and
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10629
DTC’s Web site at https://www.dtcc.com/
downloads/legal/rule_filings/2011/dtc/
2011-03.pdf. 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–DTC–2011–
03 and should be submitted on or before
March 18, 2011.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.9
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4289 Filed 2–24–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63933; File No. SR–FINRA–
2010–056]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Adopt
FINRA Rule 1113 (Restriction
Pertaining to New Member
Applications) and To Amend the FINRA
Rule 9520 Series (Eligibility
Proceedings)
February 18, 2011.
I. Introduction
On November 1, 2010, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Exchange Act’’ or ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed 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 proposed rule change was
published for comment in the Federal
Register on November 22, 2010.3 The
Commission received three comment
letters on the proposed rule change.4
9 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. 63316 (Nov. 15,
2010), 75 FR 71166 (Nov. 22, 2010) (‘‘Notice’’).
4 See letter from Board of Directors, ASG
Securities Inc., to the Commission, dated Dec. 13,
2010 (‘‘ASG Letter’’); letter from Manuel P. AsensioGarcia, to the Commission, dated Dec. 20, 2010;
1 15
E:\FR\FM\25FEN1.SGM
Continued
25FEN1
10630
Federal Register / Vol. 76, No. 38 / Friday, February 25, 2011 / Notices
FINRA responded to these comments in
a letter dated February 4, 2011.5 This
order approves the proposed rule
change.
srobinson on DSKHWCL6B1PROD with NOTICES
II. Description of Proposal
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
a disqualification; and, that no person
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).6
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
and, letter from Manuel P. Asensio-Garcia, to Robert
W. Cook, Director, Division of Trading and Markets,
dated Dec. 20, 2010 (Because both letters from Mr.
Asensio raise substantially the same issues with
respect to the proposed rule change, they are
addressed in this order as a single comment letter,
collectively referred to herein as the ‘‘Asensio
Letter’’).
5 See letter from Patricia M. Albrecht, Assistant
General Counsel, FINRA, to Elizabeth M. Murphy,
Secretary, Commission, dated Feb. 4, 2011 (‘‘FINRA
Response’’).
6 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: (1) Has been
convicted of certain misdemeanors or any felony
criminal convictions within the ten years preceding
the date of the filing of an application for
membership or participation in, or to become
associated with a member of, such SRO; (2) is
subject to a temporary or permanent injunction
(regardless of its age) issued by a court of competent
jurisdiction involving at least one of a broad range
of unlawful investment activities; (3) has been
expelled or suspended from membership or
participation in an SRO; or, (4) is subject to an SEC
order denying, suspending, or revoking brokerdealer registration.
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16:39 Feb 24, 2011
Jkt 223001
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.
FINRA proposed to adopt new FINRA
Rule 1113 (Restriction Pertaining to
New Member Applications) and to
amend the FINRA Rule 9520 Series
(Eligibility Proceedings) to further
restrict new member applicants’ and
certain members’ association with
disqualified persons.
New FINRA Rule 1113 would direct
FINRA’s Department of Member
Regulation (‘‘Department’’) to reject an
application for FINRA membership 7 in
which either the applicant or an
associated person of the applicant, as
defined in Article I of the FINRA ByLaws,8 is subject to a statutory
disqualification, as defined in Article
III, Section 4 of the FINRA By-Laws.9
The proposed new rule would also
provide that any new member
application that the Department
approves due to a 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).
The proposed amendments to the
FINRA Rule 9520 Series, which sets
forth the eligibility proceedings for
membership, would have the following
effects: First, they would amend the
FINRA Rule 9520 Series definition of
‘‘sponsoring member’’ 10 to eliminate the
7 Proposed FINRA Rule 1113, by its terms, would
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).
8 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’’).
9 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).
10 FINRA Rule 9521(b)(4).
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Frm 00076
Fmt 4703
Sfmt 4703
reference to new member applicants.
FINRA believes that because new
member applicants do not have any
prior operating or supervisory history
there is nothing to indicate the
necessary experience to supervise
disqualified persons. FINRA believes
that the proposed amendment would
alleviate its concerns about the ability of
new member applicants to supervise
adequately a disqualified person.
Furthermore, FINRA believes this
amendment would conform to the
proposed new membership application
rule (FINRA Rule 1113), discussed
above, by precluding new member
applicants from being able to sponsor
disqualified persons.11
Second, the proposed rule change
would amend the definition of
‘‘disqualified member’’ 12 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 if the new
member applicant itself is subject to a
disqualification. FINRA believes a new
member applicant should enter FINRA
membership free of the supervisory and
operating concerns raised by association
with a statutorily disqualified person or
being itself subject to a statutory
disqualification and believes this
proposed rule change is consistent with
that belief.
Third, 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, who is directly or
indirectly a beneficial owner of more
than five percent of the sponsoring
member, to be admitted, readmitted, or
permitted to continue in association.
FINRA believes that a member cannot
effectively supervise a disqualified
person in light of the inherent conflict
of interest resulting from the
disqualified person’s ownership interest
in the member. FINRA believes the
proposed amendment to the definition
of ‘‘sponsoring member’’ would address
this issue.
III. Discussion of Comment Letters
One commenter, Manuel P. AsensioGarcia, a principal of Asensio &
Company, Inc. (‘‘ACO’’), submitted a
letter opposing the proposed rule
change on several grounds.13 First, the
Asensio Letter asserts that the proposed
11 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.
12 FINRA Rule 9521(b)(2).
13 Asensio Letter.
E:\FR\FM\25FEN1.SGM
25FEN1
srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 76, No. 38 / Friday, February 25, 2011 / Notices
rule change was an improper attempt to
adversely impact a New Member
Application Form (‘‘NMA’’) filed by
ACO and concurrent MC–400
application filed by ACO on Mr.
Asensio’s behalf. In the FINRA
Response, FINRA contests this
assertion. Specifically, the FINRA
Response states that the proposed rule
change is a separate policy-driven
proceeding based on its belief that a
new member applicant should enter
FINRA membership free of the
supervisory and operating concerns
raised by association with a statutorily
disqualified person or being itself
subject to a statutory disqualification.14
The FINRA Response further notes that
the proposed rule change would apply
only to NMAs and applications for relief
from a statutory disqualification filed on
or after the effective date of the
proposed rule change and,
consequently, would not impact any
applications pending before such
effective date.
The Asensio Letter also states that the
proposed rule change was unnecessary
because FINRA already has authority
under its current rules to deny an NMA
based on the existence of a statutory
disqualification and to deny an MC–400
application based on the fact that a
disqualified person is proposing to
associate with a new member.15 The
FINRA Response contests this assertion
by citing the public policy interests
underlying the proposed rule change’s
objective—to promote initiation of
FINRA membership free of statutory
disqualification concerns. Moreover,
FINRA believes the proposed rule
would allow FINRA to conserve
regulatory resources that would
otherwise be devoted to considering an
NMA or MC–400 application that the
proposed rule change would preclude at
the outset.16
The Asensio Letter also states that the
proposal would effectively foreclose use
of the eligibility proceedings by a
disqualified person seeking relief from
FINRA sanctions. Specifically, the
Asensio Letter states that the eligibility
proceedings represent the only avenue
for seeking relief outside of an appeal
and to effectively use the eligibility
proceedings for this purpose, a
disqualified person must be able to
create a new member applicant to be his
sponsor; otherwise, a disqualified
person cannot present his arguments for
relief free from possible restrictions that
could be imposed by a member
14 FINRA
Response.
Letter.
16 FINRA Response.
15 Asensio
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16:39 Feb 24, 2011
Jkt 223001
sponsor.17 The FINRA Response states
that the eligibility proceedings are not
the appropriate forum for reviewing
sanctions imposed in a formal
disciplinary action brought by FINRA;
rather, the correct process for an
individual to challenge any FINRAimposed sanctions is set forth in the
FINRA Rule 9300 Series (Review of
Disciplinary Proceeding By National
Adjudicatory Council and FINRA Board;
Application for SEC Review).18
Accordingly, FINRA believes this
objection lacks merit.19
The second commenter, ASG
Securities, did not oppose the proposed
rule change but requested that FINRA
amend the proposal to (1) extend from
ten business days to twenty business
days the period in FINRA Rule
9522(a)(3) (Notice Regarding an
Associated Person) during which a
member may file a Form MC–400A
application for itself and an associated
person upon receiving a disqualification
notice from FINRA staff; and (2)
prohibit a disqualified person or entity
from financing a member or providing
or lending funds to an associated person
for re-investment into a member.20 The
FINRA Response states that the
commenter’s suggestions are outside the
scope of the rule proposal; as such, it
does not intend to expand the proposal
to address these additional issues at this
time. However, it will consider whether
to propose additional changes at a later
date.21
IV. Discussion and Commission
Findings
The Commission has carefully
reviewed the proposed rule change, the
comments received, and FINRA’s
response to the comments, and finds
that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities association.22 In particular,
the Commission finds that the proposed
rule change is consistent with Section
17 Asensio
Letter.
Response.
19 The Asensio Letter also describes the
foreclosure of a review of a FINRA-imposed
sanction through the eligibility proceedings as
‘‘contrary to the most basic ideals of constitutional
due process.’’ As referenced above, FINRA believes
that the eligibility proceedings are not the
appropriate forum for reviewing FINRA-imposed
sanctions; however, a process does exist for
individuals to challenge a FINRA-imposed
sanction. As such, FINRA also believes the Asensio
Letter’s argument lacks merit.
20 ASG Letter.
21 FINRA Response.
22 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).
18 FINRA
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Frm 00077
Fmt 4703
Sfmt 4703
10631
15A(b)(6) of the Act,23 which, among
other things, requires that FINRA rules
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest. In
particular, the Commission agrees that a
new member applicant should enter
FINRA membership free of the
supervisory and operating concerns
raised by association with a statutorily
disqualified person or being itself
subject to a statutory disqualification.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,24 that the
proposed rule change (SR–FINRA–
2010–056), be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.25
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–4216 Filed 2–24–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63934; File No. SR–NYSE–
2011–04]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange Price List
February 18, 2011.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on February
14, 2011, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
2011 Price List (‘‘Price List’’) for equity
23 15
U.S.C. 78o–3(b)(6).
U.S.C. 78s(b)(2).
25 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
24 15
E:\FR\FM\25FEN1.SGM
25FEN1
Agencies
[Federal Register Volume 76, Number 38 (Friday, February 25, 2011)]
[Notices]
[Pages 10629-10631]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4216]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63933; File No. SR-FINRA-2010-056]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Adopt FINRA
Rule 1113 (Restriction Pertaining to New Member Applications) and To
Amend the FINRA Rule 9520 Series (Eligibility Proceedings)
February 18, 2011.
I. Introduction
On November 1, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed 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 proposed rule change was published for comment in the Federal
Register on November 22, 2010.\3\ The Commission received three comment
letters on the proposed rule change.\4\
[[Page 10630]]
FINRA responded to these comments in a letter dated February 4,
2011.\5\ 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. 63316 (Nov. 15, 2010), 75 FR
71166 (Nov. 22, 2010) (``Notice'').
\4\ See letter from Board of Directors, ASG Securities Inc., to
the Commission, dated Dec. 13, 2010 (``ASG Letter''); letter from
Manuel P. Asensio-Garcia, to the Commission, dated Dec. 20, 2010;
and, letter from Manuel P. Asensio-Garcia, to Robert W. Cook,
Director, Division of Trading and Markets, dated Dec. 20, 2010
(Because both letters from Mr. Asensio raise substantially the same
issues with respect to the proposed rule change, they are addressed
in this order as a single comment letter, collectively referred to
herein as the ``Asensio Letter'').
\5\ See letter from Patricia M. Albrecht, Assistant General
Counsel, FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated
Feb. 4, 2011 (``FINRA Response'').
---------------------------------------------------------------------------
II. Description of Proposal
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 a disqualification; and, that no person 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).\6\
---------------------------------------------------------------------------
\6\ 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: (1) Has been convicted of certain
misdemeanors or any felony criminal convictions within the ten years
preceding the date of the filing of an application for membership or
participation in, or to become associated with a member of, such
SRO; (2) is subject to a temporary or permanent injunction
(regardless of its age) issued by a court of competent jurisdiction
involving at least one of a broad range of unlawful investment
activities; (3) has been expelled or suspended from membership or
participation in an SRO; or, (4) is subject to an SEC order denying,
suspending, or revoking broker-dealer registration.
---------------------------------------------------------------------------
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.
FINRA proposed to adopt new FINRA Rule 1113 (Restriction Pertaining
to New Member Applications) and to amend the FINRA Rule 9520 Series
(Eligibility Proceedings) to further restrict new member applicants'
and certain members' association with disqualified persons.
New FINRA Rule 1113 would direct FINRA's Department of Member
Regulation (``Department'') to reject an application for FINRA
membership \7\ in which either the applicant or an associated person of
the applicant, as defined in Article I of the FINRA By-Laws,\8\ is
subject to a statutory disqualification, as defined in Article III,
Section 4 of the FINRA By-Laws.\9\ The proposed new rule would also
provide that any new member application that the Department approves
due to a 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).
---------------------------------------------------------------------------
\7\ Proposed FINRA Rule 1113, by its terms, would 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).
\8\ 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'').
\9\ 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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The proposed amendments to the FINRA Rule 9520 Series, which sets
forth the eligibility proceedings for membership, would have the
following effects: First, they would amend the FINRA Rule 9520 Series
definition of ``sponsoring member'' \10\ to eliminate the reference to
new member applicants. FINRA believes that because new member
applicants do not have any prior operating or supervisory history there
is nothing to indicate the necessary experience to supervise
disqualified persons. FINRA believes that the proposed amendment would
alleviate its concerns about the ability of new member applicants to
supervise adequately a disqualified person. Furthermore, FINRA believes
this amendment would conform to the proposed new membership application
rule (FINRA Rule 1113), discussed above, by precluding new member
applicants from being able to sponsor disqualified persons.\11\
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\10\ FINRA Rule 9521(b)(4).
\11\ 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'' \12\ 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 if the new member applicant
itself is subject to a disqualification. FINRA believes a new member
applicant should enter FINRA membership free of the supervisory and
operating concerns raised by association with a statutorily
disqualified person or being itself subject to a statutory
disqualification and believes this proposed rule change is consistent
with that belief.
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\12\ FINRA Rule 9521(b)(2).
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Third, 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, who is
directly or indirectly a beneficial owner of more than five percent of
the sponsoring member, to be admitted, readmitted, or permitted to
continue in association. FINRA believes that a member cannot
effectively supervise a disqualified person in light of the inherent
conflict of interest resulting from the disqualified person's ownership
interest in the member. FINRA believes the proposed amendment to the
definition of ``sponsoring member'' would address this issue.
III. Discussion of Comment Letters
One commenter, Manuel P. Asensio-Garcia, a principal of Asensio &
Company, Inc. (``ACO''), submitted a letter opposing the proposed rule
change on several grounds.\13\ First, the Asensio Letter asserts that
the proposed
[[Page 10631]]
rule change was an improper attempt to adversely impact a New Member
Application Form (``NMA'') filed by ACO and concurrent MC-400
application filed by ACO on Mr. Asensio's behalf. In the FINRA
Response, FINRA contests this assertion. Specifically, the FINRA
Response states that the proposed rule change is a separate policy-
driven proceeding based on its belief that a new member applicant
should enter FINRA membership free of the supervisory and operating
concerns raised by association with a statutorily disqualified person
or being itself subject to a statutory disqualification.\14\ The FINRA
Response further notes that the proposed rule change would apply only
to NMAs and applications for relief from a statutory disqualification
filed on or after the effective date of the proposed rule change and,
consequently, would not impact any applications pending before such
effective date.
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\13\ Asensio Letter.
\14\ FINRA Response.
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The Asensio Letter also states that the proposed rule change was
unnecessary because FINRA already has authority under its current rules
to deny an NMA based on the existence of a statutory disqualification
and to deny an MC-400 application based on the fact that a disqualified
person is proposing to associate with a new member.\15\ The FINRA
Response contests this assertion by citing the public policy interests
underlying the proposed rule change's objective--to promote initiation
of FINRA membership free of statutory disqualification concerns.
Moreover, FINRA believes the proposed rule would allow FINRA to
conserve regulatory resources that would otherwise be devoted to
considering an NMA or MC-400 application that the proposed rule change
would preclude at the outset.\16\
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\15\ Asensio Letter.
\16\ FINRA Response.
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The Asensio Letter also states that the proposal would effectively
foreclose use of the eligibility proceedings by a disqualified person
seeking relief from FINRA sanctions. Specifically, the Asensio Letter
states that the eligibility proceedings represent the only avenue for
seeking relief outside of an appeal and to effectively use the
eligibility proceedings for this purpose, a disqualified person must be
able to create a new member applicant to be his sponsor; otherwise, a
disqualified person cannot present his arguments for relief free from
possible restrictions that could be imposed by a member sponsor.\17\
The FINRA Response states that the eligibility proceedings are not the
appropriate forum for reviewing sanctions imposed in a formal
disciplinary action brought by FINRA; rather, the correct process for
an individual to challenge any FINRA-imposed sanctions is set forth in
the FINRA Rule 9300 Series (Review of Disciplinary Proceeding By
National Adjudicatory Council and FINRA Board; Application for SEC
Review).\18\ Accordingly, FINRA believes this objection lacks
merit.\19\
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\17\ Asensio Letter.
\18\ FINRA Response.
\19\ The Asensio Letter also describes the foreclosure of a
review of a FINRA-imposed sanction through the eligibility
proceedings as ``contrary to the most basic ideals of constitutional
due process.'' As referenced above, FINRA believes that the
eligibility proceedings are not the appropriate forum for reviewing
FINRA-imposed sanctions; however, a process does exist for
individuals to challenge a FINRA-imposed sanction. As such, FINRA
also believes the Asensio Letter's argument lacks merit.
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The second commenter, ASG Securities, did not oppose the proposed
rule change but requested that FINRA amend the proposal to (1) extend
from ten business days to twenty business days the period in FINRA Rule
9522(a)(3) (Notice Regarding an Associated Person) during which a
member may file a Form MC-400A application for itself and an associated
person upon receiving a disqualification notice from FINRA staff; and
(2) prohibit a disqualified person or entity from financing a member or
providing or lending funds to an associated person for re-investment
into a member.\20\ The FINRA Response states that the commenter's
suggestions are outside the scope of the rule proposal; as such, it
does not intend to expand the proposal to address these additional
issues at this time. However, it will consider whether to propose
additional changes at a later date.\21\
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\20\ ASG Letter.
\21\ FINRA Response.
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IV. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change, the
comments received, and FINRA's response to the comments, and finds that
the proposed rule change is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities association.\22\ In particular, the Commission finds that
the proposed rule change is consistent with Section 15A(b)(6) of the
Act,\23\ which, among other things, requires that FINRA rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, and, in general, to
protect investors and the public interest. In particular, the
Commission agrees that a new member applicant should enter FINRA
membership free of the supervisory and operating concerns raised by
association with a statutorily disqualified person or being itself
subject to a statutory disqualification.
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\22\ 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).
\23\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-FINRA-2010-056), be, and
hereby is, approved.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-4216 Filed 2-24-11; 8:45 am]
BILLING CODE 8011-01-P