Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Implement Revolving Door Restrictions on Former Officers of FINRA, 41537-41539 [2011-17682]
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Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Notices
order execution and data consumption
activity. If it materializes, such an
increase in activity would assist the
Exchange in controlling the charges it
imposes on members generally for their
use of a variety of Exchange services.
The waiver of fees is also equitably
allocated since all existing and potential
co-location customers may avail
themselves of the waiver during the
period of availability. Notably, during
June 2011, the preponderance of
customers availing themselves of the
waiver were existing, rather than new
customers, demonstrating the benefit of
the program to a variety of members.
Finally, extending the program for a
month will ensure that several
customers that have expressed an
interest in expanding their data center
presence but that have not yet been able
to do so will have the opportunity to
benefit from the waiver.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition 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.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.9 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. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or 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:
9 15
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–Phlx–2011–97 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.
14:55 Jul 13, 2011
[FR Doc. 2011–17683 Filed 7–13–11; 8:45 am]
BILLING CODE 8011–01–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64841; File No. SR–FINRA–
2011–032]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Implement Revolving
Door Restrictions on Former Officers
of FINRA
July 8, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
All submissions should refer to File
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Number SR–Phlx–2011–97. This file
notice is hereby given that on July 1,
number should be included on the
2011, Financial Industry Regulatory
subject line if e-mail is used. To help the Authority, Inc. (‘‘FINRA’’) filed with the
Commission process and review your
Securities and Exchange Commission
comments more efficiently, please use
(‘‘SEC’’ or ‘‘Commission’’) the proposed
only one method. The Commission will rule change as described in Items I, II,
post all comments on the Commission’s and III below, which Items have been
Internet Web site (https://www.sec.gov/
prepared by FINRA. FINRA has
rules/sro.shtml).
designated the proposed rule change as
concerned solely with the
Copies of the submission, all
administration of the self-regulatory
subsequent amendments, all written
statements with respect to the proposed organization under Section
19(b)(3)(A)(iii) of the Act 3 and Rule
rule change that are filed with the
19b–4(f)(3) thereunder,4 which renders
Commission, and all written
the proposal effective upon receipt of
communications relating to the
this filing by the Commission. The
proposed rule change between the
Commission and any person, other than Commission is publishing this notice to
solicit comments on the proposed rule
those that may be withheld from the
change from interested persons.
public in accordance with the
provisions of 5 U.S.C. 552, will be
I. Self-Regulatory Organization’s
available for Web site viewing and
Statement of the Terms of Substance of
printing in the Commission’s Public
the Proposed Rule Change
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
FINRA is proposing to amend (i)
business days between the hours of 10
FINRA Rule 9141 (Appearance and
a.m. and 3 p.m. Copies of the filing also Practice; Notice of Appearance) to
will be available for inspection and
prohibit a former officer of FINRA, for
copying at the principal office of the
a period of one year after termination of
Exchange. All comments received will
employment with FINRA, from making
be posted without change; the
an appearance before an adjudicator on
Commission does not edit personal
behalf of any other person under the
identifying information from
FINRA Rule 9000 Series; and (ii) FINRA
submissions. You should submit only
Rule 9242 (Pre-hearing Submission) to
information that you wish to make
prohibit a former officer of FINRA, for
available publicly.
a period of one year after termination of
employment with FINRA, from
All submissions should refer to File
providing expert testimony on behalf of
Number SR–Phlx–2011–97 and should
any other person under the FINRA Rule
be submitted on or before August 4,
9000 Series.
2011.
The text of the proposed rule change
For the Commission, by the Division of
is available on FINRA’s Web site at
Trading and Markets, pursuant to delegated
https://www.finra.org, at the principal
authority.10
office of FINRA and at the
Cathy H. Ahn,
Commission’s Public Reference Room.
Deputy Secretary.
U.S.C. 78s(b)(3)(A)(ii).
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41537
PO 00000
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(3).
2 17
CFR 200.30–3(a)(12).
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41538
Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Notices
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.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA seeks to diligently uphold a
high degree of fairness in disciplinary
and similar proceedings that take place
before FINRA hearing panels and other
FINRA adjudicators. To further this
goal, FINRA is amending two
procedural rules that will prevent
former FINRA officers—for one year—
from appearing on behalf of a client
before a FINRA adjudicator or testifying
as an expert witness in a FINRA forum.
The FINRA Rule 9000 Series is
FINRA’s Code of Procedure (the
‘‘Code’’) and provides detailed
procedures for initiating and
adjudicating various types of actions,
including disciplinary, eligibility,
expedited, and cease and desist
proceedings. FINRA is imposing a
temporal forum appearance prohibition
under the Code on FINRA officers that
restricts former officers from acting in
two different capacities in a FINRA
forum (‘‘Revolving Door Restrictions’’).
The proposed rule change maintains the
perception of fairness and safeguards
against former FINRA officers
potentially exerting undue influence in
FINRA proceedings. Although FINRA is
not aware of any instances of former
officers exerting undue influence in
FINRA’s disciplinary and similar
forums, FINRA seeks to prevent such an
incident by implementing the Revolving
Door Restrictions under the Code.
First, the proposed rule change
addresses a former officer appearing as
a lawyer in FINRA’s forum. FINRA Rule
9141 governs, among other things, the
appearance and practice of lawyers
before an adjudicator under the Code.5
The proposed rule change amends
FINRA Rule 9141 to prohibit a former
5 See FINRA Rule 9141(b) (requiring attorneys
that seek to represent a party in a FINRA
proceeding to be licensed to practice law before the
highest court of any state).
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14:55 Jul 13, 2011
Jkt 223001
FINRA officer, for a period of one year
after termination of employment with
FINRA, from making an appearance
before an adjudicator on behalf of any
other person under the FINRA Rule
9000 Series. The proposed rule change
accordingly restricts former FINRA
officers who are attorneys from
appearing on behalf of clients before
Hearing Officers, Hearing Panels, the
National Adjudicatory Council, and the
FINRA Board of Governors.6 While the
most common impact of the proposed
rule change will be to prohibit a former
FINRA officer from appearing on behalf
of a respondent, the prohibition also
applies to a former FINRA officer
appearing on behalf of a witness who is
not a respondent but is testifying before
a Hearing Panel, Hearing Officer, or
other adjudicator.
Second, the Revolving Door
Restrictions amend FINRA Rule 9242 to
prohibit a former officer of FINRA, for
a period of one year after termination of
employment with FINRA, from
providing expert testimony on behalf of
a respondent under the FINRA Rule
9000 Series. The proposed rule change
makes clear, however, that nothing in
the rule prohibits a former officer of
FINRA from testifying as either a fact
witness or as an expert witness on
behalf of FINRA.
The Revolving Door Restrictions are
designed to provide clear boundaries
that limit specific activities of former
FINRA officers in a manner that is
consistent with restrictions currently
imposed on other regulators in the
securities industry.7 One aspect of the
restrictions focuses on a former FINRA
officer’s appearance before a FINRA
adjudicator because that event is
recorded in a written notice that is
currently required under the Code.8
Moreover, once a matter is pending
before an adjudicator, both the
prohibitions on appearing before an
adjudicator and testifying as an expert
witness can be enforced quickly in the
context of a pending FINRA proceeding
either directly by the adjudicator or
6 FINRA Rule 9120(a) defines the term
‘‘Adjudicator.’’ For purposes of the proposed rule
change, ‘‘adjudicator’’ includes the FINRA Board of
Governors, when it is calling a case for review, see
FINRA Rule 9351, a Subcommittee, Review
Subcommittee or Extended Proceeding Committee
of the National Adjudicatory Council, see FINRA
Rule 9331 and FINRA Regulation By-Law Article V,
Sec. 5.13, a Hearing Officer, see FINRA Rule
9120(r), a Hearing Panel, see FINRA Rule 9120(s),
a Hearing Panel in an eligibility proceeding or the
Statutory Disqualification Committee, see FINRA
Rule 9524(a)(1) and (10), and the Waiver
Subcommittee, see FINRA Rule 9630.
7 FINRA officers include Vice Presidents, Senior
Vice Presidents, and higher ranking FINRA
executives.
8 See FINRA Rule 9141(b).
PO 00000
Frm 00091
Fmt 4703
Sfmt 4703
through a motion to disqualify the
former FINRA officer, which is filed
with the adjudicator.9 In sum, the
proposed rule change is designed to
create restrictions that are precisely
defined and straightforward to enforce.
Although FINRA’s proposed rule
change will serve as one safeguard
against unfairness in its proceedings, it
is not the only safeguard. Former FINRA
employees, whether officers or not, who
are attorneys that seek to represent a
client in a FINRA proceeding must, as
noted earlier, be licensed to practice law
before the highest court of any state.10
The vast majority of state jurisdictions
have adopted rules of professional
conduct that are based on the American
Bar Association’s Model Rules of
Professional Conduct.11 Model Rule
1.9(a) addresses a lawyer’s conflict of
interest regarding a former client and
prohibits a lawyer who has represented
a client in a matter from subsequently
representing any other person in that
matter or a substantially related matter
when that person’s interests are
materially adverse to the interests of the
former client.12 For example, in a
FINRA disciplinary case, this means
that FINRA Department of Enforcement
attorneys who have litigated for FINRA
and have ended their FINRA
employment may not subsequently
represent any respondent in appeals in
that case, any other continuing litigation
in that case, or a substantially related
matter in which the respondent’s
interests are materially adverse to
FINRA’s interests.13 By augmenting the
protections imposed by state bar ethical
rules with the Revolving Door
Restrictions, FINRA believes that it will
further insulate its proceedings from the
appearance of any undue influence.
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date will be July 2,
2012.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,14 which
9 FINRA Rule 9150 authorizes an adjudicator to
exclude an attorney from acting as counsel in
FINRA disciplinary and similar proceedings.
10 See FINRA Rule 9141(b).
11 Richard Acello, New York Makes Itself a
‘Model’ State: California Now the Only Holdout on
Adopting ABA Model Rules, 95 ABA J., Sept. 2009,
at 22.
12 The ABA Model Rules of Professional Conduct
(2010), available at https://www.americanbar.org.
13 A conflict of interest may be waived by a
former client who gives informed consent. Model
Rule 1.9(a) and comment 9 (2010). FINRA, as the
former client with the option to waive, does not
anticipate waiving any such conflicts.
14 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\14JYN1.SGM
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Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Notices
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. FINRA believes that the
proposed rule change will maintain the
perception of fairness in its disciplinary
and similar proceedings and will
safeguard against former FINRA officers
potentially exerting undue influence in
FINRA proceedings.
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
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 15 and paragraph (f)(3) of Rule
19b–4 thereunder.16 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. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or 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:
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
wreier-aviles on DSKGBLS3C1PROD with NOTICES
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(3).
VerDate Mar<15>2010
14:55 Jul 13, 2011
[Release No. 34–64844; File No. SR–
NYSEAmex–2011–34]
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 64521
(May 19, 2011); 76 FR 30415 (‘‘Notice’’).
4 The Exchange’s affiliate, New York Stock
Exchange LLC (‘‘NYSE’’), has proposed to adopt the
same rule. See SR–NYSE–2011–22.
5 See Securities Exchange Act Release 55908
(June 14, 2007), 72 FR 34056 (June 20, 2007) (SR–
NYSE–2007–51) (notice of filing and immediate
effectiveness of proposed rule change permitting
member organizations to operate their booth
• 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–2011–032 on the
subject line.
16 17
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; NYSE
Amex LLC; Order Approving a
Proposed Rule Change Amending
All submissions should refer to File
Number SR–FINRA–2011–032. This file NYSE Amex Equities Rule 70.40(3) To
Permit Member Organizations To
number should be included on the
subject line if e-mail is used. To help the Engage in Proprietary Trading From
Their Approved Booth Premises in
Commission process and review your
Certain OTC Bulletin Board and OTC
comments more efficiently, please use
only one method. The Commission will Markets Securities
post all comments on the Commission’s July 8, 2011.
Internet Web site (https://www.sec.gov/
I. Introduction
rules/sro.shtml).
On May 11, 2011, NYSE Amex LLC
Copies of the submission, all
(‘‘NYSE Amex’’ or the ‘‘Exchange’’),
subsequent amendments, all written
filed with the Securities and Exchange
statements with respect to the proposed Commission (‘‘Commission’’), pursuant
rule change that are filed with the
to Section 19(b)(1) of the Securities
Commission, and all written
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
communications relating to the
19b–4 thereunder,2 a proposed rule
proposed rule change between the
change to amend NYSE Amex Equities
Commission and any person, other than Rule 70.40(3) to permit member
those that may be withheld from the
organizations to engage in proprietary
public in accordance with the
trading from their approved booth
provisions of 5 U.S.C. 552, will be
premises in certain OTC Bulletin Board
available for Web site viewing and
(‘‘OTCBB’’) and OTC Markets securities.
printing in the Commission’s Public
The proposed rule change was
published for comment in the Federal
Reference Room, 100 F Street, NE.,
Register on May 25, 2011.3 The
Washington, DC 20549, on official
Commission received no comment
business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also letters on the proposed rule change.
This order approves the proposed rule
will be available for inspection and
change.
copying at the principal office of
FINRA. All comments received will be
II. Description
posted without change; the Commission
NYSE Amex proposes to amend NYSE
does not edit personal identifying
Amex Equities Rule 70.40(3) to permit
information from submissions. You
member organizations to engage in
should submit only information that
proprietary trading from their approved
you wish to make available publicly.
booth premises in certain OTCBB and
All submissions should refer to File
OTC Markets securities.4
In June 2007, the New York Stock
Number SR–FINRA–2011–032 and
Exchange LLC adopted NYSE Rule
should be submitted on or before
70.40, which permits a member
August 4, 2011.
organization to operate its booth
For the Commission, by the Division of
premises on the NYSE Floor in a
Trading and Markets, pursuant to delegated
manner similar to its ‘‘upstairs’’ office,
authority.17
thereby allowing member organizations
Cathy H. Ahn,
to access other markets and trade a
Deputy Secretary.
wider array of products from their booth
[FR Doc. 2011–17682 Filed 7–13–11; 8:45 am]
premises and thus operate more
efficiently and competitively.5 At the
BILLING CODE 8011–01–P
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CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 76, Number 135 (Thursday, July 14, 2011)]
[Notices]
[Pages 41537-41539]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17682]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64841; File No. SR-FINRA-2011-032]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Implement Revolving Door Restrictions on Former
Officers of FINRA
July 8, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 1, 2011, 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. FINRA has
designated the proposed rule change as concerned solely with the
administration of the self-regulatory organization under Section
19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-4(f)(3) thereunder,\4\
which renders the proposal effective upon receipt of this filing by the
Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(iii).
\4\ 17 CFR 240.19b-4(f)(3).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend (i) FINRA Rule 9141 (Appearance and
Practice; Notice of Appearance) to prohibit a former officer of FINRA,
for a period of one year after termination of employment with FINRA,
from making an appearance before an adjudicator on behalf of any other
person under the FINRA Rule 9000 Series; and (ii) FINRA Rule 9242 (Pre-
hearing Submission) to prohibit a former officer of FINRA, for a period
of one year after termination of employment with FINRA, from providing
expert testimony on behalf of any other person under the FINRA Rule
9000 Series.
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.
[[Page 41538]]
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 seeks to diligently uphold a high degree of fairness in
disciplinary and similar proceedings that take place before FINRA
hearing panels and other FINRA adjudicators. To further this goal,
FINRA is amending two procedural rules that will prevent former FINRA
officers--for one year--from appearing on behalf of a client before a
FINRA adjudicator or testifying as an expert witness in a FINRA forum.
The FINRA Rule 9000 Series is FINRA's Code of Procedure (the
``Code'') and provides detailed procedures for initiating and
adjudicating various types of actions, including disciplinary,
eligibility, expedited, and cease and desist proceedings. FINRA is
imposing a temporal forum appearance prohibition under the Code on
FINRA officers that restricts former officers from acting in two
different capacities in a FINRA forum (``Revolving Door
Restrictions''). The proposed rule change maintains the perception of
fairness and safeguards against former FINRA officers potentially
exerting undue influence in FINRA proceedings. Although FINRA is not
aware of any instances of former officers exerting undue influence in
FINRA's disciplinary and similar forums, FINRA seeks to prevent such an
incident by implementing the Revolving Door Restrictions under the
Code.
First, the proposed rule change addresses a former officer
appearing as a lawyer in FINRA's forum. FINRA Rule 9141 governs, among
other things, the appearance and practice of lawyers before an
adjudicator under the Code.\5\ The proposed rule change amends FINRA
Rule 9141 to prohibit a former FINRA officer, for a period of one year
after termination of employment with FINRA, from making an appearance
before an adjudicator on behalf of any other person under the FINRA
Rule 9000 Series. The proposed rule change accordingly restricts former
FINRA officers who are attorneys from appearing on behalf of clients
before Hearing Officers, Hearing Panels, the National Adjudicatory
Council, and the FINRA Board of Governors.\6\ While the most common
impact of the proposed rule change will be to prohibit a former FINRA
officer from appearing on behalf of a respondent, the prohibition also
applies to a former FINRA officer appearing on behalf of a witness who
is not a respondent but is testifying before a Hearing Panel, Hearing
Officer, or other adjudicator.
---------------------------------------------------------------------------
\5\ See FINRA Rule 9141(b) (requiring attorneys that seek to
represent a party in a FINRA proceeding to be licensed to practice
law before the highest court of any state).
\6\ FINRA Rule 9120(a) defines the term ``Adjudicator.'' For
purposes of the proposed rule change, ``adjudicator'' includes the
FINRA Board of Governors, when it is calling a case for review, see
FINRA Rule 9351, a Subcommittee, Review Subcommittee or Extended
Proceeding Committee of the National Adjudicatory Council, see FINRA
Rule 9331 and FINRA Regulation By-Law Article V, Sec. 5.13, a
Hearing Officer, see FINRA Rule 9120(r), a Hearing Panel, see FINRA
Rule 9120(s), a Hearing Panel in an eligibility proceeding or the
Statutory Disqualification Committee, see FINRA Rule 9524(a)(1) and
(10), and the Waiver Subcommittee, see FINRA Rule 9630.
---------------------------------------------------------------------------
Second, the Revolving Door Restrictions amend FINRA Rule 9242 to
prohibit a former officer of FINRA, for a period of one year after
termination of employment with FINRA, from providing expert testimony
on behalf of a respondent under the FINRA Rule 9000 Series. The
proposed rule change makes clear, however, that nothing in the rule
prohibits a former officer of FINRA from testifying as either a fact
witness or as an expert witness on behalf of FINRA.
The Revolving Door Restrictions are designed to provide clear
boundaries that limit specific activities of former FINRA officers in a
manner that is consistent with restrictions currently imposed on other
regulators in the securities industry.\7\ One aspect of the
restrictions focuses on a former FINRA officer's appearance before a
FINRA adjudicator because that event is recorded in a written notice
that is currently required under the Code.\8\ Moreover, once a matter
is pending before an adjudicator, both the prohibitions on appearing
before an adjudicator and testifying as an expert witness can be
enforced quickly in the context of a pending FINRA proceeding either
directly by the adjudicator or through a motion to disqualify the
former FINRA officer, which is filed with the adjudicator.\9\ In sum,
the proposed rule change is designed to create restrictions that are
precisely defined and straightforward to enforce.
---------------------------------------------------------------------------
\7\ FINRA officers include Vice Presidents, Senior Vice
Presidents, and higher ranking FINRA executives.
\8\ See FINRA Rule 9141(b).
\9\ FINRA Rule 9150 authorizes an adjudicator to exclude an
attorney from acting as counsel in FINRA disciplinary and similar
proceedings.
---------------------------------------------------------------------------
Although FINRA's proposed rule change will serve as one safeguard
against unfairness in its proceedings, it is not the only safeguard.
Former FINRA employees, whether officers or not, who are attorneys that
seek to represent a client in a FINRA proceeding must, as noted
earlier, be licensed to practice law before the highest court of any
state.\10\ The vast majority of state jurisdictions have adopted rules
of professional conduct that are based on the American Bar
Association's Model Rules of Professional Conduct.\11\ Model Rule
1.9(a) addresses a lawyer's conflict of interest regarding a former
client and prohibits a lawyer who has represented a client in a matter
from subsequently representing any other person in that matter or a
substantially related matter when that person's interests are
materially adverse to the interests of the former client.\12\ For
example, in a FINRA disciplinary case, this means that FINRA Department
of Enforcement attorneys who have litigated for FINRA and have ended
their FINRA employment may not subsequently represent any respondent in
appeals in that case, any other continuing litigation in that case, or
a substantially related matter in which the respondent's interests are
materially adverse to FINRA's interests.\13\ By augmenting the
protections imposed by state bar ethical rules with the Revolving Door
Restrictions, FINRA believes that it will further insulate its
proceedings from the appearance of any undue influence.
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\10\ See FINRA Rule 9141(b).
\11\ Richard Acello, New York Makes Itself a `Model' State:
California Now the Only Holdout on Adopting ABA Model Rules, 95 ABA
J., Sept. 2009, at 22.
\12\ The ABA Model Rules of Professional Conduct (2010),
available at https://www.americanbar.org.
\13\ A conflict of interest may be waived by a former client who
gives informed consent. Model Rule 1.9(a) and comment 9 (2010).
FINRA, as the former client with the option to waive, does not
anticipate waiving any such conflicts.
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FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be July 2, 2012.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ which
[[Page 41539]]
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. FINRA believes that the proposed
rule change will maintain the perception of fairness in its
disciplinary and similar proceedings and will safeguard against former
FINRA officers potentially exerting undue influence in FINRA
proceedings.
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\14\ 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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \15\ and paragraph (f)(3) of Rule 19b-4
thereunder.\16\ 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. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule should be approved
or disapproved.
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(3).
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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-2011-032 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-2011-032. 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 the 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-2011-032 and
should be submitted on or before August 4, 2011.
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\17\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-17682 Filed 7-13-11; 8:45 am]
BILLING CODE 8011-01-P
