Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Adopt Remaining Legacy NASD and Incorporated NYSE Rules as FINRA Rules, 15646-15652 [2019-07504]
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Federal Register / Vol. 84, No. 73 / Tuesday, April 16, 2019 / Notices
anticipates that the proposed fee
structure will approximate the cost of
routing orders to MIAX Emerald. The
Exchange is proposing the charges set
forth above to maintain a simple and
fair fee schedule with respect to routing
fees that approximate the total cost of
routing, including Routing Costs.
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2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the Section 6 of the Act,3 in general, and
Section 6(b)(4),4 in particular, as it is
designed to provide for the equitable
allocation of reasonable dues, fees and
other charges among its Members and
other persons using its facilities. As
explained above, the Exchange generally
attempts to approximate the cost of
routing to other options exchanges,
including other applicable costs to the
Exchange for routing. The Exchange
believes its proposed fees are reasonable
taking into account Routing Costs based
on the rates charged by MIAX Emerald.
The Exchange believes that a pricing
model based on approximate Routing
Costs is a reasonable, fair and equitable
approach to pricing. Specifically, the
Exchange believes that its proposal to
adopt routing fees to MIAX Emerald is
fair, equitable and reasonable because
the fees are generally an approximation
of the anticipated cost to the Exchange
for routing orders to MIAX Emerald.
The Exchange notes that routing
through the Exchange is voluntary. The
Exchange also believes that the
proposed fee structure for orders routed
to and executed at MIAX Emerald is fair
and equitable and not unreasonably
discriminatory in that it applies equally
to all Members.
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. The
Exchange believes the proposed routing
fee will not impose an undue burden on
competition because the Exchange will
uniformly assess the routing fee on all
Members. The Exchange does not
believe that the proposed changes
represent a significant departure from
routing fees offered by the Exchange’s
competitors. Additionally, Members
may opt to disfavor the Exchange’s
pricing if they believe that alternatives
offer them better value or if they view
the proposed fee as excessive. Further,
excessive fees for participation would
serve to impair an exchange’s ability to
compete for order flow and members
rather than burdening competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
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 5 and paragraph (f) of Rule
19b–4 6 thereunder. 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 will institute proceedings
to determine whether the proposed rule
change 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:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2019–024 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2019–024. This
file number should be included on the
subject line if email 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 website (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 website 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
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2019–024 and
should be submitted on or before May
7, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07503 Filed 4–15–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85589; File No. SR–FINRA–
2019–009]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Adopt Remaining
Legacy NASD and Incorporated NYSE
Rules as FINRA Rules
April 10, 2019.
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 April 8,
2019, 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 and
7 17
3 15
U.S.C. 78f.
4 15 U.S.C. 78f(b)(4).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
5 15
U.S.C. 78s(b)(3)(A).
6 17 CFR 240.19b–4(f).
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Federal Register / Vol. 84, No. 73 / Tuesday, April 16, 2019 / Notices
II below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under paragraph (f)(6) of Rule
19b–4 under the Act,3 which renders
the proposal effective upon receipt of
the filing by the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to adopt the
following NASD Rules as FINRA Rules
in the consolidated FINRA rulebook
without any substantive changes: (1)
The NASD Rule 1010 Series
(Membership Proceedings) into the
FINRA Rule 1000 Series; (2) NASD Rule
1090 (Foreign Members) as FINRA Rule
1021; (3) NASD Rule 2340 (Customer
Account Statements) as FINRA Rule
2231; (4) NASD Rule 2510
(Discretionary Accounts) as FINRA Rule
3260; (5) NASD Rule 3140 (Approval of
Change in Exempt Status Under SEA
Rule 15c3–3) as FINRA Rule 1020; (6)
NASD Rule 3150 (Reporting
Requirements for Clearing Firms) as
FINRA Rule 4540; and (7) NASD Rule
IM–3150 (Exemptive Relief) as
Supplementary Material to FINRA Rule
4540. In addition, the proposed rule
change would adopt the remaining
Incorporated NYSE Rules and
Interpretations in the consolidated
FINRA rulebook without any
substantive changes as a separate
Temporary Dual FINRA–NYSE Member
Rule Series. FINRA also proposes to
delete four Incorporated NYSE Rule
definitions (Incorporated NYSE Rules—
Rule 4 (‘‘Stock’’), Rule 5 (‘‘Bond’’), Rule
9 (‘‘Branch Office Manager’’), and Rule
12 (‘‘Business Day’’)) that are not used
in the FINRA rule set as well as
Incorporated NYSE Rule 375 and related
Interpretation. Finally, the proposed
rule change would update crossreferences and make other nonsubstantive changes within FINRA
rules, due in part to the adoption of new
consolidated FINRA rules.
The text of the proposed rule change
is available on FINRA’s website at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
3 17
CFR 240.19b–4(f)(6).
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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
As part of the process of completing
a consolidated rulebook (‘‘Consolidated
FINRA Rulebook’’),4 FINRA is
proposing to adopt the following NASD
Rules as FINRA Rules in the
Consolidated FINRA Rulebook without
any substantive changes: (1) The NASD
Rule 1010 Series (Membership
Proceedings) into the FINRA Rule 1000
Series; 5 (2) NASD Rule 1090 (Foreign
Members) as FINRA Rule 1021; (3)
NASD Rule 2340 (Customer Account
Statements) as FINRA Rule 2231; (4)
NASD Rule 2510 (Discretionary
Accounts) as FINRA Rule 3260; (5)
NASD Rule 3140 (Approval of Change
in Exempt Status Under SEA Rule 15c3–
3) as FINRA Rule 1020; (6) NASD Rule
3150 (Reporting Requirements for
Clearing Firms) as FINRA Rule 4540;
and (7) NASD Rule IM–3150 (Exemptive
Relief) as Supplementary Material to
FINRA Rule 4540. In addition, FINRA
proposes to adopt the remaining
Incorporated NYSE Rules and
Interpretations in the Consolidated
FINRA Rulebook without any
4 The current FINRA rulebook consists of: (1)
FINRA Rules; (2) NASD Rules; and (3) rules
incorporated from New York Stock Exchange LLC
(‘‘NYSE’’) (‘‘Incorporated NYSE Rules’’) (together,
the NASD Rules and Incorporated NYSE Rules are
referred to as the ‘‘Transitional Rulebook’’). While
the NASD Rules generally apply to all FINRA
members, the Incorporated NYSE Rules apply only
to those members of FINRA that are also members
of the NYSE (‘‘Dual Members’’). The FINRA Rules
apply to all FINRA members, unless such rules
have a more limited application by their terms. For
more information about the rulebook consolidation
process, see Information Notice, March 12, 2008
(Rulebook Consolidation Process).
5 The FINRA Rule 1000 Series exists in the
FINRA rulebook and consists of FINRA Rule 1010.
The proposed rule change amends FINRA Rule
1010 to update the rule cross reference by deleting
the reference to NASD and updating the cross
references to reflect the adoption of the
consolidated FINRA registration rules. See also
infra note 30.
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15647
substantive changes as a separate
Temporary Dual FINRA–NYSE Member
Rule Series. The Temporary Dual
FINRA–NYSE Member Rule Series in
the Consolidated FINRA Rulebook as
the name suggests would apply solely to
Dual Members.6 Finally, FINRA
proposes to update cross-references and
make other non-substantive changes
within FINRA rules.
FINRA is proposing to transfer these
remaining NASD Rules and
Incorporated NYSE rules and
Interpretations into the FINRA
Consolidated Rulebook without any
substantive changes at this time to
eliminate the Transitional Rulebook and
provide greater clarity and regulatory
efficiency to FINRA members.7 FINRA
will continue to review the substance of
the rules addressed in this proposed
rule change and expects to propose
substantive changes to some or all of the
rules as part of future rulemakings.
Membership Rules
The proposed rule change would
adopt the NASD Rule 1010 Series
(Membership Proceedings) (collectively,
the ‘‘MAP rules’’) into the FINRA Rule
1000 Series without any substantive
changes.8 The NASD Rule 1010 Series
(Membership Proceedings) governs
FINRA’s membership application
process. Exchange Act Section 15A(b)(8)
requires that FINRA establish rules
providing a fair procedure for the denial
of membership.9 FINRA’s MAP rules
provide a means for FINRA, through its
Membership Application Program
(‘‘MAP’’), to assess the proposed
business activities of its potential and
current member firms. FINRA evaluates
6 See
supra note 4.
4 presents the text of the proposed rule
change with the changes marked against the
existing NASD and Incorporated NYSE Rules and
Interpretations to show the updated crossreferences, deletions of references to NASD and
similar changes. Exhibit 5 shows the text of the
proposed rule change marked against the current
rule text with the NASD rules show as deleted and
the FINRA rules shown as new text.
8 FINRA previously solicited comment on a
proposal to adopt the consolidated FINRA Rule
1000 Series that would have transferred the NASD
Rule 1010 Series and Incorporated NYSE Rules 311,
312, 313, 321, 416 and related supplementary
material and rule interpretations, and Incorporated
NYSE Rule 401/03 Interpretations to FINRA rules
with significant changes. See Regulatory Notices
10–01 (January 2010), 13–29 (September 2013) and
18–23 (July 2018). C:\Users\adeolam\AppData
\Local\Microsoft\Windows\INetCache\Content.
Outlook\RMPEEONQ\FINRA [sic] FINRA is
separately developing changes to the MAP rules in
connection with the retrospective review of this
rule set. See Regulatory Notice 18–23 (July 26, 2018)
(requesting comment on a proposal regarding the
MAP rules).
In addition, the proposed rule change corrects
rule cross-references in the MAP rules.
9 15 U.S.C. 78o–3(b)(8).
7 Exhibit
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an applicant’s financial, operational,
supervisory and compliance systems to
ensure that each applicant meets the
standards set forth in NASD Rule 1014.
NASD Rule 1011 (Definitions),
proposed to be adopted as FINRA Rule
1011, sets forth the defined terms
applicable to the membership
application process. NASD Rule 1012
(General Provisions), proposed to be
adopted as FINRA Rule 1012, sets forth
the requirements for submitting
membership applications and
supporting documentation. The MAP
rules require the filing of two distinct
types of applications. One category is a
new member application (‘‘NMA’’) filed
by an applicant seeking membership in
FINRA, which is filed pursuant to
NASD Rule 1013 (New Member
Application and Interview), proposed to
be adopted as FINRA Rule 1013. The
other category is a continuing
membership application (‘‘CMA’’),
which is filed pursuant to NASD Rule
1017 (Application for Approval of
Change in Ownership, Control or
Business Operations), proposed to be
adopted as FINRA Rule 1017. NASD
IM–1011–1 (Safe Harbor for Business
Expansions), proposed to be adopted as
FINRA IM–1011–1, specifies the
parameters for increases a member may
make in the number of its associated
persons involved in sales, offices or
markets made that is measured on a
rolling 12-month period. The
incremental changes a member may
make in these three categories are
presumed not to be a ‘‘material change
in business operations’’ (as defined in
Rule 1011) and thus do not require the
filing of a CMA.
NASD IM–1013–1 (Membership
Waive-In Process for Certain New York
Stock Exchange Member Organizations)
and NASD IM–1013–2 (Membership
Waive-In Process for Certain NYSE
Alternext US LLC Member
Organizations)—proposed to be adopted
as FINRA IM–1013–1 and FINRA IM–
1013–2, respectively—set forth a
streamlined application and review
process for FINRA membership that
applied to certain NYSE and NYSE
American (formerly known as NYSE
Alternext US) (‘‘waived-in firms’’).
To maintain the status quo for the
waived-in firms, the proposed rule
change would clarify that such firms
would be subject to FINRA rules, other
than FINRA Rules 1011 through 1016,
1019 through 1021, 2231, 3260 and
4540. With the exception of proposed
FINRA Rule 1017, the proposed rule
change would not require the waived-in
firms to comply with the FINRA Rule
1000 Series, or FINRA Rules 2231, 3260
and 4540, because these FINRA rules
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will continue to have a corresponding
Temporary Dual FINRA–NYSE Member
rule to which the waived-in firms will
be subject (namely Incorporated NYSE
Rules 311, 312, 313, 408, 409, 416 and
416A and related interpretations). As
the Temporary Dual FINRA–NYSE
Member Rules are eliminated, these
waived-in firms will become subject to
the corresponding FINRA rule. In
addition, as is the case today, if at any
time a waived-in firm seeks to expand
its business beyond the permitted floor
activities, the firm must apply for and
receive approval to engage in any such
activity under proposed FINRA Rule
1017. Once approved, the firm must
immediately comply with all FINRA
rules.
All applications are evaluated to
determine whether the applicant meets
the 14 standards or criteria (e.g.,
completeness and accuracy of the
application and supporting
documentation, the acquisition of all
requisite licenses and registrations, a
sufficient level of net capital, the
establishment of necessary contractual
agreements and business relationships,
an adequate supervisory system) set
forth in NASD Rule 1014 (Department
Decision), proposed to be adopted as
FINRA Rule 1014.
FINRA may grant in whole, in part
(subject to restrictions), or deny an
NMA or CMA. NASD Rule 1015
(Review by National Adjudicatory
Council), proposed to be adopted as
FINRA Rule 1015, permits an applicant
to submit a request for a review by the
National Adjudicatory Council of an
adverse decision rendered on an NMA
or CMA. NASD Rule 1016
(Discretionary Review by FINRA Board),
proposed to be adopted as FINRA Rule
1016, also permits a Governor of the
FINRA Board to call for a discretionary
review of a membership proceeding.
Finally, a person aggrieved by a final
action of FINRA under the NASD Rule
1010 Series may apply for review by the
SEC pursuant to NASD Rule 1019
(Application to Commission for
Review), proposed to be adopted as
FINRA Rule 1019.
Foreign Members
FINRA proposes to adopt NASD Rule
1090 (Foreign Members) as FINRA Rule
1021 without any substantive changes.
NASD Rule 1090 provides that a
member that does not maintain an office
in the United States responsible for
preparing and maintaining financial and
other reports required to be filed with
the SEC and FINRA must agree to a set
of requirements that are necessary to
effectively regulate foreign members’
compliance with applicable securities
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laws and regulations, and with
applicable FINRA rules. Such
requirements include, among others,
preparing all reports and maintaining a
general ledger chart of account in
English and U.S. dollars and having an
individual fluent in English and
knowledgeable in securities and
financial matters to assist
representatives of FINRA during
examinations.
Customer Account Statements
FINRA proposes to adopt NASD Rule
2340 (Customer Account Statements) as
FINRA Rule 2231 without any
substantive changes.10 NASD Rule 2340
generally requires each general
securities member to send account
statements to customers at least once
each calendar quarter containing a
description of any securities positions,
money balances or account activity in
the accounts since the prior account
statements were sent, except if carried
on a Delivery versus Payment/Receive
versus Payment basis. The rule also sets
forth requirements for disclosure of
values for unlisted or illiquid direct
participation programs and real estate
investment trusts.
Discretionary Accounts
FINRA proposes to adopt NASD Rule
2510 (Discretionary Accounts) as FINRA
Rule 3260 without any substantive
changes.11 NASD Rule 2510 addresses
the obligations of members and
associated persons that have
discretionary power over a customer’s
account.12 The rule prohibits a firm and
its agents or employees that have
discretionary power over a customer’s
account from effecting any excessive
transactions in view of the financial
resources and character of the account.
The rule also provides that a member or
registered representative may not
exercise any discretionary power in
such account unless the customer has
given prior written authorization to a
stated individual or individuals, and the
10 FINRA previously filed a proposal with the
SEC to adopt consolidated FINRA Rule 2231 that
would have transferred NASD Rule 2340 and
Incorporated NYSE Rule 409 (and its related
interpretations) with significant changes, but such
filing was subsequently withdrawn. See Securities
Exchange Act Release No. 67588 (August 2, 2012),
77 FR 47470 (August 8, 2012) (Notice of
Withdrawal of File No. SR–FINRA–2009–028).
FINRA solicited comment on a revised proposal.
See Regulatory Notice 14–35 (September 2014).
11 FINRA previously solicited comment to adopt
consolidated FINRA Rule 3260 that would have
transferred NASD Rule 2510 and Incorporated
NYSE Rule 408 and Interpretation 408/01 and/02
with significant changes. See Regulatory Notices
09–63 (November 2009) and 15–22 (June 2015).
12 See also SEA Rule 15c1–7 (Discretionary
Accounts).
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account has been accepted in writing by
the member or a designated partner,
officer or manager of the member. In
addition, a member or a designated
partner, officer or manager must
approve promptly in writing each
discretionary order entered and review
all discretionary accounts at frequent
intervals to detect and prevent excessive
transactions. The rule provides certain
exceptions from its requirements.
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Approval of Change in Exempt Status
Under SEA Rule 15c3–3
FINRA proposes to adopt NASD Rule
3140 (Approval of Change in Exempt
Status Under SEC Rule 15c3–3) as
FINRA Rule 1020 without any
substantive changes. NASD Rule 3140
provides that a member (as defined in
paragraph (a)) operating pursuant to any
exemptive provision in SEA Rule 15c3–
3(k) shall not change its method of
doing business in a manner which will
change its exemptive status to a fully
computing firm that is subject to all
provisions of SEA Rule 15c3–3; or
commence operations that will
disqualify it for continued exemption
under SEA Rule 15c3–3 without first
having obtained the prior written
approval of FINRA. The rule sets forth
standards that FINRA staff considers in
approving or denying such an
application under the rule.
Reporting Requirement for Clearing
Firms
FINRA proposes to adopt NASD Rule
3150 (Reporting Requirements for
Clearing Firms) as FINRA Rule 4540
without any substantive changes. NASD
Rule 3150 states that all clearing firms
must report prescribed data to FINRA
about the member and any member
broker-dealers for which it clears. The
member may report through a thirdparty but such member remains
responsible for the compliance with the
rule. In addition, the proposed rule
change would incorporate without
substantive change the provisions
regarding the requirement to distinguish
between data pertaining to all
proprietary and customer accounts of an
introducing member and of any member
for which the introducing member is
acting as an intermediary.
FINRA proposes to adopt NASD IM–
3150 (Exemptive Relief) as
Supplementary Material to proposed
FINRA Rule 4540 without any
substantive changes. NASD IM–3150
sets forth the circumstances under
which FINRA would generally grant an
exemption to the clearing firm reporting
requirement in NASD Rule 3150
(proposed to be adopted as FINRA Rule
4540). The provision further requires
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that a member report to FINRA any
change in the operation or nature of its
business such that it no longer qualifies
for an exemption previously granted
under the rule.
Incorporated NYSE Rules and
Interpretations
FINRA incorporated a set of NYSE
rules and interpretations as
Incorporated NYSE Rules and
Interpretations when NASD and the
NYSE consolidated their member
regulation operations to form FINRA.13
Since that time, FINRA has been
amending NASD Rules and
Incorporated NYSE Rules and
Interpretations to establish a single set
of rules. Given that FINRA would like
to proceed with the rulebook
consolidation process expeditiously to
eliminate the Transitional Rulebook and
provide greater clarity and regulatory
efficiency to FINRA members, FINRA is
proposing to adopt the remaining
Incorporated NYSE Rules and
Interpretations, as listed below, as
FINRA Rules, without any substantive
changes. The proposed rule change
would retain the current numbering
convention and add a ‘‘T’’ after the
number to denote its placement in the
Temporary Dual FINRA–NYSE Member
Rule Series of the Consolidated FINRA
Rulebook. FINRA also proposes to
delete four Incorporated NYSE Rule
definitions that are not used in the
FINRA rule set as well as Incorporated
NYSE Rule 375 and related
Interpretation as discussed below. The
Temporary Dual FINRA–NYSE Member
Rule Series in the Consolidated FINRA
Rulebook as the name suggests would
apply solely to Dual Members. The
proposed rule change would not impose
any new requirements on any member
firms.
• Incorporated NYSE Rule 1 (‘‘The
Exchange’’) that defines the term ‘‘the
Exchange’’ generally to mean the ‘‘New
York Stock Exchange LLC’’ would be
adopted as FINRA Rule 1T;
• Incorporated NYSE Rule 2
(‘‘Member,’’ ‘‘Membership,’’ ‘‘Member
Firm,’’ etc.) that defines these terms to
mean a person who has been approved
by the Exchange and, among others,
includes a definition for ‘‘control’’ to
mean a person who can direct or cause
the direction of the management or
policies of a person and sets thresholds
for a presumption of control, would be
adopted as FINRA Rule 2T;
• Incorporated NYSE Rule 3
(‘‘Security’’) that defines the term
13 See Securities Exchange Act Release No. 56147
(July 26, 2007), 72 FR 42166 (August 1, 2007)
(Order Approving File No. SR–NASD–2007–054).
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15649
‘‘security’’ the same as used in the
Exchange Act would be adopted as
FINRA Rule 3T;
• Incorporated Rule 6 (‘‘Floor’’) that
defines the term ‘‘Floor’’ to mean the
trading floor at the applicable addresses
listed therein would be adopted as
FINRA Rule 6T;
• Incorporated NYSE Rule 8
(‘‘Delivery’’) that defines the term
‘‘Delivery’’ to mean the delivery of
securities on Exchange contracts would
be adopted as FINRA Rule 8T;
• Incorporated NYSE Rule 11 (Effect
of Definitions) that provides that the
terms defined in Exchange Rules shall
have the meaning specified therein
would be adopted as FINRA Rule 11T;
• Incorporated NYSE Rule 311
(Formation and Approval of
Membership Organization) that details
the requirements to be approved as a
member organization would be adopted
as FINRA Rule 311T.14
• Incorporated NYSE Rule 312
(Changes Within Member
Organizations) that requires member
organizations to give notice to the
Exchange in certain circumstances,
including, without limitation, when
there is a change of stockholdings of the
member or a change in directors or
officers would be adopted as FINRA
Rule 312T.15
• Incorporated NYSE Rule 313
(Submission of Partnership Articles—
Submission of Corporate Documents)
that requires the submission of certain
corporate and partnership documents to
the Exchange would be adopted as
FINRA Rule 313T.16
• Incorporated NYSE Rule 321
(Formation or Acquisition of
Subsidiaries) that requires approval for
a member to form a subsidiary would be
adopted as FINRA Rule 321T.17
• Incorporated NYSE Rule 408
(Discretionary Power in Customers’
Accounts) that addresses the obligations
of members that have discretionary
power over customers’ accounts would
be adopted as FINRA Rule 408T; 18
• Incorporated NYSE Rule 409
(Statements of Accounts to Customers)
that requires a member to send
customers statements of account would
be adopted as FINRA Rule 409T; 19
• Incorporated NYSE Rule 416
(Questionnaires and Reports) that
requires members to submit reports as
requested by the Exchange would be
adopted as FINRA Rule 416T;
14 See
supra note 8.
supra note 8.
16 See supra note 8.
17 See supra note 8.
18 See supra note 11.
19 See supra note 8.
15 See
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• Incorporated NYSE Rule 416A
(Members and Member Organizations
Profile Information Updates and
Quarterly Certifications Via The
Electronic Filing Platform) that requires
that members supply to the Exchange’s
electronic filing platform certain profile
information and certify to the Exchange
quarterly, would be adopted as FINRA
Rule 416AT;
• Incorporated NYSE Rule 435
(Miscellaneous Provisions) that
provides that no member shall circulate
rumors of a sensational character which
might reasonably be expected to affect
market conditions on the Exchange
would be adopted as FINRA Rule
435T.20
• Incorporated NYSE Rule
Interpretation 311(b), (f) and (g) that
provides guidance on whether officers
may be part time, criteria for the
principal place of business of the
member, and use of titles and division
identification would be adopted as
FINRA Rule 311T(b), (f) and (g).21
• Incorporated NYSE Rule
Interpretation 401/01 through/04 that
requires members notify the Exchange
prior to certain events, including among
others, changes in business activities,
liquidity problems or capital problems
would be adopted as FINRA Rule 401T/
01 through/04.22
• Incorporated NYSE Rule
Interpretation 408/01 and/02 that
requires identification of discretionary
orders and provides guidance for
establishing automatic money market
fund redemptions would be adopted as
FINRA Rule 408T/01 and/02.23
• Incorporated NYSE Rule
Interpretation 409/(a) and/(b) that
dictates the disclosures that must be
made in a customer account statement,
including for externally held assets, and
requirements for use of third party
agents, logos, summary statements and
holding foreign customer mail would be
adopted as FINRA Rule 409T/(a) and/
(b).24
• Incorporated NYSE Interpretation
435(5)/01 that states that the
responsibility to prohibit the circulation
of rumors extends to all member
personnel would be adopted as FINRA
Rule 435(5)T/01.25
FINRA proposes to delete the
following Incorporated NYSE Rules—
20 FINRA previously solicited comment on a
proposal to adopt consolidated FINRA Rule 2030
that would have transferred Incorporated NYSE
Rule 435 and Rule Interpretation 435(5)/01 with
significant changes. See Regulatory Notices 08–68
(November 2008) and 09–29 (June 2009).
21 See supra note 8.
22 See supra note 8.
23 See supra note 11.
24 See supra note 10.
25 See supra note 20.
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Rule 4 (‘‘Stock’’), Rule 5 (‘‘Bond’’), Rule
9 (‘‘Branch Office Manager’’), and Rule
12 (‘‘Business Day’’) as such definitions
are not used in the Consolidated FINRA
Rulebook or the remaining proposed
Temporary Dual FINRA–NYSE Member
Rule Series.
FINRA also proposes to delete
Incorporated NYSE Rule 375 (Missing
the Market) and Interpretation 375/01.
Incorporated NYSE Rule 375 provides
that a member or member organization
that has accepted an order for execution
and that, because of neglect to execute
the order or otherwise, takes or supplies
the securities that are the subject of the
order for its own account, is not acting
as a broker and shall not charge a
commission, without the knowledge
and consent of the customer. The
purpose of this rule is to ensure that
when a member misses the market and
fails to execute a customer’s order
timely or as agent, the customer is
notified and does not pay a commission
unless the customer affirmatively
consents.
Incorporated NYSE Rule
Interpretation 375/01 provides that,
when a member or member organization
has ‘‘missed the market’’ on a customer
order, the customer should be
contacted, informed of the
circumstances, and given the choice of
either having the order filled at the price
that prevailed ‘‘as of’’ the time the
market was missed, or executed at the
present market price. If the customer
elects to have the order filled at the ‘‘as
of’’ price, the member may effect the
transaction for the customer’s account
on the floor of the NYSE 26 and make a
cash price adjustment, or fill the
customer’s order from the firm’s error
account.27 In both instances, the
customer’s confirmation shall carry the
‘‘as of’’ legend. In contrast to
Incorporated NYSE Rule 375, which is
focused on commissions, Rule
Interpretation 375/01 is focused on the
execution price of orders where a
member has missed the market.
FINRA proposes to eliminate
Incorporated NYSE Rule 375 and
Incorporated NYSE Rule Interpretation
375/01 because they address a narrow
range of conduct, which occurs in the
context of an exchange and specify the
remedial steps that must be taken to fill
customer orders under such
circumstances. In general, this NYSE
Rule and Interpretation were primarily
aimed at addressing the limited context
26 See NYSE Rule 6 for the definition of the NYSE
floor.
27 When the transaction is effected through a firm
error account, the firm no longer acts as agent, as
it is trading from a firm account as principal.
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of a specialist taking orders for
transactions on the exchange on an
agency basis. FINRA believes, this rule
and interpretation are not necessary in
light of the existing FINRA rules
discussed below that cover a broader
range of activities even though the
FINRA rules do not specify remedial
steps. FINRA believes FINRA’s rules
that establish a fairness standard both
with respect to commission and
execution prices provide adequate
remedies.
Specifically, FINRA Rule 2121 (Fair
Prices and Commissions) requires that
members assess customers prices,
service charges and commissions that
are fair, whether acting as principal or
agent. FINRA Rule 5320 (Prohibition
Against Trading Ahead of Customer
Orders) also prohibits a member from
trading for its own proprietary account
ahead of its customer order unless it
immediately executes the customer
order at the same or better price at
which it traded for its own account [sic].
Additionally, Rule 5310 (Best Execution
and Interpositioning) requires that a
member exercise reasonable diligence to
buy or sell so that the resultant price to
the customer is as favorable as possible
under prevailing market conditions.28
Further, Supplementary Material .01 of
Rule 5310 states that members must
make every effort to execute a
marketable customer order that it
receives [sic] fully and promptly. As
such, FINRA believes that the conduct
encompassed by Incorporated NYSE
Rule 375 and its accompanying
interpretation is and will continue to be
fully addressed by other FINRA rules,
and the deletion of the Rule and its
accompanying rule interpretation will
increase regulatory efficiency by
removing unnecessary provisions from
the rules.29
Cross-Reference and Technical Updates
The proposed rule change would
update cross-references and make other
non-substantive changes within FINRA
28 FINRA also believes that Incorporated NYSE
Rule 375 and Incorporated NYSE Rule
Interpretation 375/01 are functionally obsolete,
because, to FINRA’s knowledge, neither NYSE nor
FINRA has ever charged a violation of either the
rule or its interpretation.
29 FINRA previously solicited comment on a
proposal to adopt consolidated FINRA Rule 2121
that would have transferred NASD Rule 2440,
NASD IM 2440–1, NASD IM–2440–2, Incorporated
NYSE Rule 375 and related Interpretation to the
FINRA rulebook with significant changes. See
Regulatory Notices 11–08 (February 2011) and 13–
07 (January 2013). FINRA transferred NASD Rule
2440 and its Interpretative Materials into the
Consolidated FINRA Rulebook as FINRA Rule 2121
without material change. See Securities Exchange
Act Release No. 72208 (May 21, 2014), 79 FR 30675
(May 28, 2014) (Notice of filing and Immediate
Effectiveness of File No. SR–FINRA–2014–023).
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rules, due in part to the adoption of new
consolidated FINRA rules.
The proposed rule change would
update rule cross-references to reflect
the adoption of the consolidated FINRA
registration rules. The SEC approved the
new rules on July 7, 2017. As part of
that rule filing, FINRA adopted with
amendments the NASD and
Incorporated NYSE rules relating to
qualification and registration
requirements as FINRA rules in the
Consolidated FINRA Rulebook. FINRA
also deleted in their entirety the NASD
Rule 1000 Series relating to registration
of Principals and Representatives,
Incorporated NYSE Rules 10, 344, 345,
472, and Incorporated NYSE Rule
Interpretations 10, 344 and 345.30 The
consolidated FINRA registration rules
were implemented on October 1,
2018.31 As such, the proposed rule
change would update references to the
new rule numbers in Section 4 (Fees)
and Section 12 (Application and Annual
Fees for Statutorily Disqualified
Member Firms, Statutorily Disqualified
Applicants for Membership and
Member Firms Seeking to Associate
with Statutorily Disqualified
Individuals) of Schedule A to the ByLaws of the Corporation; and FINRA
Rules 1010 (Electronic Filing
Requirements for Uniform Forms), 2210
(Communications with the Public), 2241
(Research Analysts and Research
Reports), 2370 (Securities Futures), 3170
(Tape Recording of Registered Persons
by Certain Firms), 9217 (Violations
Appropriate for Disposition Under Plan
Pursuant to SEA Rule 19d–1(c)(2)), 9610
(Application), 9620 (Decision), and 9630
(Appeal).
In addition, the proposed rule change
would replace all references to NASD
Rule 2340 in FINRA Rules 0150
(Application of Rules to Exempted
Securities Except Municipal Securities),
2310 (Direct Participation Programs),
and 9610 (Application) with references
to proposed FINRA Rule 2231. The
proposed rule change would also
replace the references to NASD Rule
3150 in FINRA Rule 9610 with a
reference to proposed FINRA Rule 4540.
The proposed rule change would
replace the references to NASD Rule
2510 in FINRA Rules 0150 (Application
of Rules to Exempted Securities Except
Municipal Securities), 2360 (Options),
2370 (Securities Futures), 4512
(Customer Account Information), 4515
(Approval and Documentation of
Changes in Account Name or
30 See Securities Exchange Act Release No. 81098
(July 7, 2017), 82 FR 32419 (July 13, 2017) (Order
Approving File No. SR–FINRA–2017–007).
31 See Regulatory Notice 17–30 (October 2017).
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Designation) and 5121 (Public Offerings
of Securities With Conflicts of Interest)
with references to proposed FINRA Rule
3260. The proposed rule change would
replace all references to NASD Rule
3140 in FINRA Rule 0150 and FINRA
Rule 6630 (Applicability of FINRA
Rules to Securities Previously
Designated as PORTAL Securities) to a
reference to proposed FINRA Rule 1020.
The proposed rule change would
replace all references to the NASD Rule
1010 Series in Rules 7410 (Definitions),
8313 (Release of Disciplinary
Complaints, Decisions and Other
Information), 9521 (Purpose and
Definitions), 9522 (Initiation of
Eligibility Proceeding; Member
Regulation Consideration), and the
Capital Acquisition Broker Rule 100
Series (Member Application and
Associated Person Registration) to
references to the proposed FINRA Rule
1000 Series. The proposed rule change
would replace a reference to NASD Rule
1090 in Capital Acquisition Broker Rule
119 to a reference to proposed FINRA
Rule 1021. The proposed rule change
would also update the references to the
Incorporated NYSE Rules in FINRA
Rule 9217 (Violations Appropriate for
Disposition Under Plan Pursuant to SEA
Rule 19b–1(c)(2)) with the proposed
FINRA Temporary Dual FINRA–NYSE
Member Rule Series numbers. The
proposed rule change would update the
cross-references in FINRA Rule 5320
(Prohibition Against Trading Ahead of
Customer Orders) to reflect the
renumbering of Rule 7440(b)(19) as
7440(b)(20).32
The proposed rule change would
correct a typographical error in FINRA
Rule 7620A (FINRA/Nasdaq Trade
Reporting Facility Reporting Fees).
When Rule 7620A was amended
pursuant to SR–FINRA–2018–042,
Example 1 under Section II.4.B.
inadvertently stated ‘‘As to Tape B, the
Retail Participant would pay the
uncapped discounted monthly charges
applicable to Tier 1 its activity. . .’’
(emphasis added).33 The proposed rule
change would delete ‘‘its’’ before the
word ‘‘activity.’’
The proposed rule change also would
make technical changes to FINRA Rule
7640A (Data Products Offered By
NASDAQ). Pursuant to SR–NASDAQ–
2018–098, Nasdaq relocated its Rule
7000 Series (Equities Pricing) to the
Equity 7 Pricing Schedule of the Nasdaq
32 See
Securities Exchange Act Release No. 77523
(April 5, 2016), 81 FR 21427 (April 11, 2016) (Order
Approving File No. SR–FINRA–2016–006).
33 See Securities Exchange Act Release No. 84901
(December 20, 2018), 83 FR 67408 (December 28,
2018) (Notice of Filing and Immediate Effectiveness
of File No. SR–FINRA–2018–042).
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15651
rulebook’s shell structure.34 As part of
that proposed rule change, the Nasdaq
rules referred to in paragraph (c) of
FINRA Rule 7640A were renumbered.
Specifically, Nasdaq Rule 7037 was
renumbered as Equity 7 Pricing
Schedule, Section 137; Nasdaq Rule
7039 was renumbered as Equity 7
Pricing Schedule, Section 139; and
Nasdaq Rule 7047 was renumbered as
Equity 7 Pricing Schedule, Section 147.
The proposed rule change would make
conforming changes to Rule 7640A(c) to
update these references. The proposed
rule change would also change
‘‘NASDAQ’’ to ‘‘Nasdaq’’ in the Rule’s
title to conform to the rest of the Rule.
Finally, the proposed rule change
would add a reference to FINRA Rule
2030 (Engaging in Distribution and
Solicitation Activities with Government
Entities) to FINRA Rule 9610
(Application). FINRA Rule 2030
authorizes FINRA to exempt a covered
member from Rule 2030(a) and,
therefore, should be included in the list
of rules in FINRA Rule 9610.35
FINRA has filed the proposed rule
change for immediate effectiveness. The
implementation date will be 30 days
after the date of the filing.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,36 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. FINRA believes that the
proposed rule change, which does not
substantively change the rules, is
consistent with the Act because it is
being undertaken pursuant to the
rulebook consolidation process, which
is designed to provide additional clarity
and regulatory efficiency to FINRA
members by consolidating the
applicable NASD Rules, Incorporated
NYSE Rules and Interpretations, and
FINRA rules into one rule set.
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
34 See Securities Exchange Act Release No. 84684
(November 29, 2018), 83 FR 62936 (December 6,
2018) (Notice of Filing and Immediate Effectiveness
of File No. SR–NASDAQ–2018–098).
35 See Securities Exchange Act Release No. 78683
(August 25, 2016), 81 FR 60051 (August 31, 2016)
(Order Approving File No. SR–FINRA–2015–056).
36 15 U.S.C. 78o–3(b)(6).
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of the purposes of the Act. As noted
above, the proposed rule change will
not substantively change either the text
or application of the rules. FINRA
would like to proceed with the rulebook
consolidation process expeditiously,
which will provide additional clarity
and regulatory efficiency to members.
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 with respect to
the proposed rule change to transfer the
above listed NASD Rules, Incorporated
NYSE Rules and Interpretations into the
Consolidated FINRA Rulebook without
any substantive changes.37
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 38 and Rule 19b–
4(f)(6) thereunder.39
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:
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Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2019–009 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
37 But
see supra notes 8, 10, 11, 20 and 29.
U.S.C. 78s(b)(3)(A).
39 17 CFR 240.19b–4(f)(6).
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2019–009. This file
number should be included on the
subject line if email 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 website (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 website 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
10:00 a.m. and 3:00 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. Persons
submitting comments are cautioned that
we do not redact or edit personal
identifying information from comment
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2019–009 and should be submitted on
or before May 7, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–07504 Filed 4–15–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85590; File No. SR–
CboeEDGX–2019–018]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Relating To
Modify Its Fee Schedule
April 10, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
38 15
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16:32 Apr 15, 2019
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‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 3,
2019, Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) 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 Exchange. 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
Cboe EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) is filing with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change to modify its fee
schedule. The text of the proposed rule
change is attached as Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://markets.cboe.com/us/
options/regulation/rule_filings/edgx/),
at the Exchange’s Office of the
Secretary, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange 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
The Exchange proposes to amend the
EDGX Options fee schedule to modify
the definitions of fee codes RQ and RR
to include routing to MIAX Emerald
LLC (‘‘MIAX Emerald’’), effective April
3, 2019. The Exchange’s current
approach to routing fees is to set forth
in a simple manner certain subcategories of fees that approximate the
cost of routing to other options
exchanges based on the cost of
transaction fees assessed by each venue
as well as costs to the Exchange for
1 15
40 17
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
16APN1
]]>Agencies
[Federal Register Volume 84, Number 73 (Tuesday, April 16, 2019)]
[Notices]
[Pages 15646-15652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07504]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85589; File No. SR-FINRA-2019-009]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt Remaining Legacy NASD and Incorporated
NYSE Rules as FINRA Rules
April 10, 2019.
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 April 8, 2019, 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 and
[[Page 15647]]
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of the 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\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt the following NASD Rules as FINRA Rules
in the consolidated FINRA rulebook without any substantive changes: (1)
The NASD Rule 1010 Series (Membership Proceedings) into the FINRA Rule
1000 Series; (2) NASD Rule 1090 (Foreign Members) as FINRA Rule 1021;
(3) NASD Rule 2340 (Customer Account Statements) as FINRA Rule 2231;
(4) NASD Rule 2510 (Discretionary Accounts) as FINRA Rule 3260; (5)
NASD Rule 3140 (Approval of Change in Exempt Status Under SEA Rule
15c3-3) as FINRA Rule 1020; (6) NASD Rule 3150 (Reporting Requirements
for Clearing Firms) as FINRA Rule 4540; and (7) NASD Rule IM-3150
(Exemptive Relief) as Supplementary Material to FINRA Rule 4540. In
addition, the proposed rule change would adopt the remaining
Incorporated NYSE Rules and Interpretations in the consolidated FINRA
rulebook without any substantive changes as a separate Temporary Dual
FINRA-NYSE Member Rule Series. FINRA also proposes to delete four
Incorporated NYSE Rule definitions (Incorporated NYSE Rules--Rule 4
(``Stock''), Rule 5 (``Bond''), Rule 9 (``Branch Office Manager''), and
Rule 12 (``Business Day'')) that are not used in the FINRA rule set as
well as Incorporated NYSE Rule 375 and related Interpretation. Finally,
the proposed rule change would update cross-references and make other
non-substantive changes within FINRA rules, due in part to the adoption
of new consolidated FINRA rules.
The text of the proposed rule change is available on FINRA's
website 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
As part of the process of completing a consolidated rulebook
(``Consolidated FINRA Rulebook''),\4\ FINRA is proposing to adopt the
following NASD Rules as FINRA Rules in the Consolidated FINRA Rulebook
without any substantive changes: (1) The NASD Rule 1010 Series
(Membership Proceedings) into the FINRA Rule 1000 Series; \5\ (2) NASD
Rule 1090 (Foreign Members) as FINRA Rule 1021; (3) NASD Rule 2340
(Customer Account Statements) as FINRA Rule 2231; (4) NASD Rule 2510
(Discretionary Accounts) as FINRA Rule 3260; (5) NASD Rule 3140
(Approval of Change in Exempt Status Under SEA Rule 15c3-3) as FINRA
Rule 1020; (6) NASD Rule 3150 (Reporting Requirements for Clearing
Firms) as FINRA Rule 4540; and (7) NASD Rule IM-3150 (Exemptive Relief)
as Supplementary Material to FINRA Rule 4540. In addition, FINRA
proposes to adopt the remaining Incorporated NYSE Rules and
Interpretations in the Consolidated FINRA Rulebook without any
substantive changes as a separate Temporary Dual FINRA-NYSE Member Rule
Series. The Temporary Dual FINRA-NYSE Member Rule Series in the
Consolidated FINRA Rulebook as the name suggests would apply solely to
Dual Members.\6\ Finally, FINRA proposes to update cross-references and
make other non-substantive changes within FINRA rules.
---------------------------------------------------------------------------
\4\ The current FINRA rulebook consists of: (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from New York Stock Exchange
LLC (``NYSE'') (``Incorporated NYSE Rules'') (together, the NASD
Rules and Incorporated NYSE Rules are referred to as the
``Transitional Rulebook''). While the NASD Rules generally apply to
all FINRA members, the Incorporated NYSE Rules apply only to those
members of FINRA that are also members of the NYSE (``Dual
Members''). The FINRA Rules apply to all FINRA members, unless such
rules have a more limited application by their terms. For more
information about the rulebook consolidation process, see
Information Notice, March 12, 2008 (Rulebook Consolidation Process).
\5\ The FINRA Rule 1000 Series exists in the FINRA rulebook and
consists of FINRA Rule 1010. The proposed rule change amends FINRA
Rule 1010 to update the rule cross reference by deleting the
reference to NASD and updating the cross references to reflect the
adoption of the consolidated FINRA registration rules. See also
infra note 30.
\6\ See supra note 4.
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FINRA is proposing to transfer these remaining NASD Rules and
Incorporated NYSE rules and Interpretations into the FINRA Consolidated
Rulebook without any substantive changes at this time to eliminate the
Transitional Rulebook and provide greater clarity and regulatory
efficiency to FINRA members.\7\ FINRA will continue to review the
substance of the rules addressed in this proposed rule change and
expects to propose substantive changes to some or all of the rules as
part of future rulemakings.
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\7\ Exhibit 4 presents the text of the proposed rule change with
the changes marked against the existing NASD and Incorporated NYSE
Rules and Interpretations to show the updated cross-references,
deletions of references to NASD and similar changes. Exhibit 5 shows
the text of the proposed rule change marked against the current rule
text with the NASD rules show as deleted and the FINRA rules shown
as new text.
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Membership Rules
The proposed rule change would adopt the NASD Rule 1010 Series
(Membership Proceedings) (collectively, the ``MAP rules'') into the
FINRA Rule 1000 Series without any substantive changes.\8\ The NASD
Rule 1010 Series (Membership Proceedings) governs FINRA's membership
application process. Exchange Act Section 15A(b)(8) requires that FINRA
establish rules providing a fair procedure for the denial of
membership.\9\ FINRA's MAP rules provide a means for FINRA, through its
Membership Application Program (``MAP''), to assess the proposed
business activities of its potential and current member firms. FINRA
evaluates
[[Page 15648]]
an applicant's financial, operational, supervisory and compliance
systems to ensure that each applicant meets the standards set forth in
NASD Rule 1014.
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\8\ FINRA previously solicited comment on a proposal to adopt
the consolidated FINRA Rule 1000 Series that would have transferred
the NASD Rule 1010 Series and Incorporated NYSE Rules 311, 312, 313,
321, 416 and related supplementary material and rule
interpretations, and Incorporated NYSE Rule 401/03 Interpretations
to FINRA rules with significant changes. See Regulatory Notices 10-
01 (January 2010), 13-29 (September 2013) and 18-23 (July 2018).
C:\Users\adeolam\AppData\Local\Microsoft\Windows\INetCache\Content.Ou
tlook\RMPEEONQ\FINRA [sic] FINRA is separately developing changes to
the MAP rules in connection with the retrospective review of this
rule set. See Regulatory Notice 18-23 (July 26, 2018) (requesting
comment on a proposal regarding the MAP rules).
In addition, the proposed rule change corrects rule cross-
references in the MAP rules.
\9\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------
NASD Rule 1011 (Definitions), proposed to be adopted as FINRA Rule
1011, sets forth the defined terms applicable to the membership
application process. NASD Rule 1012 (General Provisions), proposed to
be adopted as FINRA Rule 1012, sets forth the requirements for
submitting membership applications and supporting documentation. The
MAP rules require the filing of two distinct types of applications. One
category is a new member application (``NMA'') filed by an applicant
seeking membership in FINRA, which is filed pursuant to NASD Rule 1013
(New Member Application and Interview), proposed to be adopted as FINRA
Rule 1013. The other category is a continuing membership application
(``CMA''), which is filed pursuant to NASD Rule 1017 (Application for
Approval of Change in Ownership, Control or Business Operations),
proposed to be adopted as FINRA Rule 1017. NASD IM-1011-1 (Safe Harbor
for Business Expansions), proposed to be adopted as FINRA IM-1011-1,
specifies the parameters for increases a member may make in the number
of its associated persons involved in sales, offices or markets made
that is measured on a rolling 12-month period. The incremental changes
a member may make in these three categories are presumed not to be a
``material change in business operations'' (as defined in Rule 1011)
and thus do not require the filing of a CMA.
NASD IM-1013-1 (Membership Waive-In Process for Certain New York
Stock Exchange Member Organizations) and NASD IM-1013-2 (Membership
Waive-In Process for Certain NYSE Alternext US LLC Member
Organizations)--proposed to be adopted as FINRA IM-1013-1 and FINRA IM-
1013-2, respectively--set forth a streamlined application and review
process for FINRA membership that applied to certain NYSE and NYSE
American (formerly known as NYSE Alternext US) (``waived-in firms'').
To maintain the status quo for the waived-in firms, the proposed
rule change would clarify that such firms would be subject to FINRA
rules, other than FINRA Rules 1011 through 1016, 1019 through 1021,
2231, 3260 and 4540. With the exception of proposed FINRA Rule 1017,
the proposed rule change would not require the waived-in firms to
comply with the FINRA Rule 1000 Series, or FINRA Rules 2231, 3260 and
4540, because these FINRA rules will continue to have a corresponding
Temporary Dual FINRA-NYSE Member rule to which the waived-in firms will
be subject (namely Incorporated NYSE Rules 311, 312, 313, 408, 409, 416
and 416A and related interpretations). As the Temporary Dual FINRA-NYSE
Member Rules are eliminated, these waived-in firms will become subject
to the corresponding FINRA rule. In addition, as is the case today, if
at any time a waived-in firm seeks to expand its business beyond the
permitted floor activities, the firm must apply for and receive
approval to engage in any such activity under proposed FINRA Rule 1017.
Once approved, the firm must immediately comply with all FINRA rules.
All applications are evaluated to determine whether the applicant
meets the 14 standards or criteria (e.g., completeness and accuracy of
the application and supporting documentation, the acquisition of all
requisite licenses and registrations, a sufficient level of net
capital, the establishment of necessary contractual agreements and
business relationships, an adequate supervisory system) set forth in
NASD Rule 1014 (Department Decision), proposed to be adopted as FINRA
Rule 1014.
FINRA may grant in whole, in part (subject to restrictions), or
deny an NMA or CMA. NASD Rule 1015 (Review by National Adjudicatory
Council), proposed to be adopted as FINRA Rule 1015, permits an
applicant to submit a request for a review by the National Adjudicatory
Council of an adverse decision rendered on an NMA or CMA. NASD Rule
1016 (Discretionary Review by FINRA Board), proposed to be adopted as
FINRA Rule 1016, also permits a Governor of the FINRA Board to call for
a discretionary review of a membership proceeding. Finally, a person
aggrieved by a final action of FINRA under the NASD Rule 1010 Series
may apply for review by the SEC pursuant to NASD Rule 1019 (Application
to Commission for Review), proposed to be adopted as FINRA Rule 1019.
Foreign Members
FINRA proposes to adopt NASD Rule 1090 (Foreign Members) as FINRA
Rule 1021 without any substantive changes. NASD Rule 1090 provides that
a member that does not maintain an office in the United States
responsible for preparing and maintaining financial and other reports
required to be filed with the SEC and FINRA must agree to a set of
requirements that are necessary to effectively regulate foreign
members' compliance with applicable securities laws and regulations,
and with applicable FINRA rules. Such requirements include, among
others, preparing all reports and maintaining a general ledger chart of
account in English and U.S. dollars and having an individual fluent in
English and knowledgeable in securities and financial matters to assist
representatives of FINRA during examinations.
Customer Account Statements
FINRA proposes to adopt NASD Rule 2340 (Customer Account
Statements) as FINRA Rule 2231 without any substantive changes.\10\
NASD Rule 2340 generally requires each general securities member to
send account statements to customers at least once each calendar
quarter containing a description of any securities positions, money
balances or account activity in the accounts since the prior account
statements were sent, except if carried on a Delivery versus Payment/
Receive versus Payment basis. The rule also sets forth requirements for
disclosure of values for unlisted or illiquid direct participation
programs and real estate investment trusts.
---------------------------------------------------------------------------
\10\ FINRA previously filed a proposal with the SEC to adopt
consolidated FINRA Rule 2231 that would have transferred NASD Rule
2340 and Incorporated NYSE Rule 409 (and its related
interpretations) with significant changes, but such filing was
subsequently withdrawn. See Securities Exchange Act Release No.
67588 (August 2, 2012), 77 FR 47470 (August 8, 2012) (Notice of
Withdrawal of File No. SR-FINRA-2009-028). FINRA solicited comment
on a revised proposal. See Regulatory Notice 14-35 (September 2014).
---------------------------------------------------------------------------
Discretionary Accounts
FINRA proposes to adopt NASD Rule 2510 (Discretionary Accounts) as
FINRA Rule 3260 without any substantive changes.\11\ NASD Rule 2510
addresses the obligations of members and associated persons that have
discretionary power over a customer's account.\12\ The rule prohibits a
firm and its agents or employees that have discretionary power over a
customer's account from effecting any excessive transactions in view of
the financial resources and character of the account. The rule also
provides that a member or registered representative may not exercise
any discretionary power in such account unless the customer has given
prior written authorization to a stated individual or individuals, and
the
[[Page 15649]]
account has been accepted in writing by the member or a designated
partner, officer or manager of the member. In addition, a member or a
designated partner, officer or manager must approve promptly in writing
each discretionary order entered and review all discretionary accounts
at frequent intervals to detect and prevent excessive transactions. The
rule provides certain exceptions from its requirements.
---------------------------------------------------------------------------
\11\ FINRA previously solicited comment to adopt consolidated
FINRA Rule 3260 that would have transferred NASD Rule 2510 and
Incorporated NYSE Rule 408 and Interpretation 408/01 and/02 with
significant changes. See Regulatory Notices 09-63 (November 2009)
and 15-22 (June 2015).
\12\ See also SEA Rule 15c1-7 (Discretionary Accounts).
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Approval of Change in Exempt Status Under SEA Rule 15c3-3
FINRA proposes to adopt NASD Rule 3140 (Approval of Change in
Exempt Status Under SEC Rule 15c3-3) as FINRA Rule 1020 without any
substantive changes. NASD Rule 3140 provides that a member (as defined
in paragraph (a)) operating pursuant to any exemptive provision in SEA
Rule 15c3-3(k) shall not change its method of doing business in a
manner which will change its exemptive status to a fully computing firm
that is subject to all provisions of SEA Rule 15c3-3; or commence
operations that will disqualify it for continued exemption under SEA
Rule 15c3-3 without first having obtained the prior written approval of
FINRA. The rule sets forth standards that FINRA staff considers in
approving or denying such an application under the rule.
Reporting Requirement for Clearing Firms
FINRA proposes to adopt NASD Rule 3150 (Reporting Requirements for
Clearing Firms) as FINRA Rule 4540 without any substantive changes.
NASD Rule 3150 states that all clearing firms must report prescribed
data to FINRA about the member and any member broker-dealers for which
it clears. The member may report through a third-party but such member
remains responsible for the compliance with the rule. In addition, the
proposed rule change would incorporate without substantive change the
provisions regarding the requirement to distinguish between data
pertaining to all proprietary and customer accounts of an introducing
member and of any member for which the introducing member is acting as
an intermediary.
FINRA proposes to adopt NASD IM-3150 (Exemptive Relief) as
Supplementary Material to proposed FINRA Rule 4540 without any
substantive changes. NASD IM-3150 sets forth the circumstances under
which FINRA would generally grant an exemption to the clearing firm
reporting requirement in NASD Rule 3150 (proposed to be adopted as
FINRA Rule 4540). The provision further requires that a member report
to FINRA any change in the operation or nature of its business such
that it no longer qualifies for an exemption previously granted under
the rule.
Incorporated NYSE Rules and Interpretations
FINRA incorporated a set of NYSE rules and interpretations as
Incorporated NYSE Rules and Interpretations when NASD and the NYSE
consolidated their member regulation operations to form FINRA.\13\
Since that time, FINRA has been amending NASD Rules and Incorporated
NYSE Rules and Interpretations to establish a single set of rules.
Given that FINRA would like to proceed with the rulebook consolidation
process expeditiously to eliminate the Transitional Rulebook and
provide greater clarity and regulatory efficiency to FINRA members,
FINRA is proposing to adopt the remaining Incorporated NYSE Rules and
Interpretations, as listed below, as FINRA Rules, without any
substantive changes. The proposed rule change would retain the current
numbering convention and add a ``T'' after the number to denote its
placement in the Temporary Dual FINRA-NYSE Member Rule Series of the
Consolidated FINRA Rulebook. FINRA also proposes to delete four
Incorporated NYSE Rule definitions that are not used in the FINRA rule
set as well as Incorporated NYSE Rule 375 and related Interpretation as
discussed below. The Temporary Dual FINRA-NYSE Member Rule Series in
the Consolidated FINRA Rulebook as the name suggests would apply solely
to Dual Members. The proposed rule change would not impose any new
requirements on any member firms.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 56147 (July 26,
2007), 72 FR 42166 (August 1, 2007) (Order Approving File No. SR-
NASD-2007-054).
---------------------------------------------------------------------------
Incorporated NYSE Rule 1 (``The Exchange'') that defines
the term ``the Exchange'' generally to mean the ``New York Stock
Exchange LLC'' would be adopted as FINRA Rule 1T;
Incorporated NYSE Rule 2 (``Member,'' ``Membership,''
``Member Firm,'' etc.) that defines these terms to mean a person who
has been approved by the Exchange and, among others, includes a
definition for ``control'' to mean a person who can direct or cause the
direction of the management or policies of a person and sets thresholds
for a presumption of control, would be adopted as FINRA Rule 2T;
Incorporated NYSE Rule 3 (``Security'') that defines the
term ``security'' the same as used in the Exchange Act would be adopted
as FINRA Rule 3T;
Incorporated Rule 6 (``Floor'') that defines the term
``Floor'' to mean the trading floor at the applicable addresses listed
therein would be adopted as FINRA Rule 6T;
Incorporated NYSE Rule 8 (``Delivery'') that defines the
term ``Delivery'' to mean the delivery of securities on Exchange
contracts would be adopted as FINRA Rule 8T;
Incorporated NYSE Rule 11 (Effect of Definitions) that
provides that the terms defined in Exchange Rules shall have the
meaning specified therein would be adopted as FINRA Rule 11T;
Incorporated NYSE Rule 311 (Formation and Approval of
Membership Organization) that details the requirements to be approved
as a member organization would be adopted as FINRA Rule 311T.\14\
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\14\ See supra note 8.
---------------------------------------------------------------------------
Incorporated NYSE Rule 312 (Changes Within Member
Organizations) that requires member organizations to give notice to the
Exchange in certain circumstances, including, without limitation, when
there is a change of stockholdings of the member or a change in
directors or officers would be adopted as FINRA Rule 312T.\15\
---------------------------------------------------------------------------
\15\ See supra note 8.
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Incorporated NYSE Rule 313 (Submission of Partnership
Articles--Submission of Corporate Documents) that requires the
submission of certain corporate and partnership documents to the
Exchange would be adopted as FINRA Rule 313T.\16\
---------------------------------------------------------------------------
\16\ See supra note 8.
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Incorporated NYSE Rule 321 (Formation or Acquisition of
Subsidiaries) that requires approval for a member to form a subsidiary
would be adopted as FINRA Rule 321T.\17\
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\17\ See supra note 8.
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Incorporated NYSE Rule 408 (Discretionary Power in
Customers' Accounts) that addresses the obligations of members that
have discretionary power over customers' accounts would be adopted as
FINRA Rule 408T; \18\
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\18\ See supra note 11.
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Incorporated NYSE Rule 409 (Statements of Accounts to
Customers) that requires a member to send customers statements of
account would be adopted as FINRA Rule 409T; \19\
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\19\ See supra note 8.
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Incorporated NYSE Rule 416 (Questionnaires and Reports)
that requires members to submit reports as requested by the Exchange
would be adopted as FINRA Rule 416T;
[[Page 15650]]
Incorporated NYSE Rule 416A (Members and Member
Organizations Profile Information Updates and Quarterly Certifications
Via The Electronic Filing Platform) that requires that members supply
to the Exchange's electronic filing platform certain profile
information and certify to the Exchange quarterly, would be adopted as
FINRA Rule 416AT;
Incorporated NYSE Rule 435 (Miscellaneous Provisions) that
provides that no member shall circulate rumors of a sensational
character which might reasonably be expected to affect market
conditions on the Exchange would be adopted as FINRA Rule 435T.\20\
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\20\ FINRA previously solicited comment on a proposal to adopt
consolidated FINRA Rule 2030 that would have transferred
Incorporated NYSE Rule 435 and Rule Interpretation 435(5)/01 with
significant changes. See Regulatory Notices 08-68 (November 2008)
and 09-29 (June 2009).
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Incorporated NYSE Rule Interpretation 311(b), (f) and (g)
that provides guidance on whether officers may be part time, criteria
for the principal place of business of the member, and use of titles
and division identification would be adopted as FINRA Rule 311T(b), (f)
and (g).\21\
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\21\ See supra note 8.
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Incorporated NYSE Rule Interpretation 401/01 through/04
that requires members notify the Exchange prior to certain events,
including among others, changes in business activities, liquidity
problems or capital problems would be adopted as FINRA Rule 401T/01
through/04.\22\
---------------------------------------------------------------------------
\22\ See supra note 8.
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Incorporated NYSE Rule Interpretation 408/01 and/02 that
requires identification of discretionary orders and provides guidance
for establishing automatic money market fund redemptions would be
adopted as FINRA Rule 408T/01 and/02.\23\
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\23\ See supra note 11.
---------------------------------------------------------------------------
Incorporated NYSE Rule Interpretation 409/(a) and/(b) that
dictates the disclosures that must be made in a customer account
statement, including for externally held assets, and requirements for
use of third party agents, logos, summary statements and holding
foreign customer mail would be adopted as FINRA Rule 409T/(a) and/
(b).\24\
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\24\ See supra note 10.
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Incorporated NYSE Interpretation 435(5)/01 that states
that the responsibility to prohibit the circulation of rumors extends
to all member personnel would be adopted as FINRA Rule 435(5)T/01.\25\
---------------------------------------------------------------------------
\25\ See supra note 20.
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FINRA proposes to delete the following Incorporated NYSE Rules--
Rule 4 (``Stock''), Rule 5 (``Bond''), Rule 9 (``Branch Office
Manager''), and Rule 12 (``Business Day'') as such definitions are not
used in the Consolidated FINRA Rulebook or the remaining proposed
Temporary Dual FINRA-NYSE Member Rule Series.
FINRA also proposes to delete Incorporated NYSE Rule 375 (Missing
the Market) and Interpretation 375/01. Incorporated NYSE Rule 375
provides that a member or member organization that has accepted an
order for execution and that, because of neglect to execute the order
or otherwise, takes or supplies the securities that are the subject of
the order for its own account, is not acting as a broker and shall not
charge a commission, without the knowledge and consent of the customer.
The purpose of this rule is to ensure that when a member misses the
market and fails to execute a customer's order timely or as agent, the
customer is notified and does not pay a commission unless the customer
affirmatively consents.
Incorporated NYSE Rule Interpretation 375/01 provides that, when a
member or member organization has ``missed the market'' on a customer
order, the customer should be contacted, informed of the circumstances,
and given the choice of either having the order filled at the price
that prevailed ``as of'' the time the market was missed, or executed at
the present market price. If the customer elects to have the order
filled at the ``as of'' price, the member may effect the transaction
for the customer's account on the floor of the NYSE \26\ and make a
cash price adjustment, or fill the customer's order from the firm's
error account.\27\ In both instances, the customer's confirmation shall
carry the ``as of'' legend. In contrast to Incorporated NYSE Rule 375,
which is focused on commissions, Rule Interpretation 375/01 is focused
on the execution price of orders where a member has missed the market.
---------------------------------------------------------------------------
\26\ See NYSE Rule 6 for the definition of the NYSE floor.
\27\ When the transaction is effected through a firm error
account, the firm no longer acts as agent, as it is trading from a
firm account as principal.
---------------------------------------------------------------------------
FINRA proposes to eliminate Incorporated NYSE Rule 375 and
Incorporated NYSE Rule Interpretation 375/01 because they address a
narrow range of conduct, which occurs in the context of an exchange and
specify the remedial steps that must be taken to fill customer orders
under such circumstances. In general, this NYSE Rule and Interpretation
were primarily aimed at addressing the limited context of a specialist
taking orders for transactions on the exchange on an agency basis.
FINRA believes, this rule and interpretation are not necessary in light
of the existing FINRA rules discussed below that cover a broader range
of activities even though the FINRA rules do not specify remedial
steps. FINRA believes FINRA's rules that establish a fairness standard
both with respect to commission and execution prices provide adequate
remedies.
Specifically, FINRA Rule 2121 (Fair Prices and Commissions)
requires that members assess customers prices, service charges and
commissions that are fair, whether acting as principal or agent. FINRA
Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) also
prohibits a member from trading for its own proprietary account ahead
of its customer order unless it immediately executes the customer order
at the same or better price at which it traded for its own account
[sic]. Additionally, Rule 5310 (Best Execution and Interpositioning)
requires that a member exercise reasonable diligence to buy or sell so
that the resultant price to the customer is as favorable as possible
under prevailing market conditions.\28\ Further, Supplementary Material
.01 of Rule 5310 states that members must make every effort to execute
a marketable customer order that it receives [sic] fully and promptly.
As such, FINRA believes that the conduct encompassed by Incorporated
NYSE Rule 375 and its accompanying interpretation is and will continue
to be fully addressed by other FINRA rules, and the deletion of the
Rule and its accompanying rule interpretation will increase regulatory
efficiency by removing unnecessary provisions from the rules.\29\
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\28\ FINRA also believes that Incorporated NYSE Rule 375 and
Incorporated NYSE Rule Interpretation 375/01 are functionally
obsolete, because, to FINRA's knowledge, neither NYSE nor FINRA has
ever charged a violation of either the rule or its interpretation.
\29\ FINRA previously solicited comment on a proposal to adopt
consolidated FINRA Rule 2121 that would have transferred NASD Rule
2440, NASD IM 2440-1, NASD IM-2440-2, Incorporated NYSE Rule 375 and
related Interpretation to the FINRA rulebook with significant
changes. See Regulatory Notices 11-08 (February 2011) and 13-07
(January 2013). FINRA transferred NASD Rule 2440 and its
Interpretative Materials into the Consolidated FINRA Rulebook as
FINRA Rule 2121 without material change. See Securities Exchange Act
Release No. 72208 (May 21, 2014), 79 FR 30675 (May 28, 2014) (Notice
of filing and Immediate Effectiveness of File No. SR-FINRA-2014-
023).
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Cross-Reference and Technical Updates
The proposed rule change would update cross-references and make
other non-substantive changes within FINRA
[[Page 15651]]
rules, due in part to the adoption of new consolidated FINRA rules.
The proposed rule change would update rule cross-references to
reflect the adoption of the consolidated FINRA registration rules. The
SEC approved the new rules on July 7, 2017. As part of that rule
filing, FINRA adopted with amendments the NASD and Incorporated NYSE
rules relating to qualification and registration requirements as FINRA
rules in the Consolidated FINRA Rulebook. FINRA also deleted in their
entirety the NASD Rule 1000 Series relating to registration of
Principals and Representatives, Incorporated NYSE Rules 10, 344, 345,
472, and Incorporated NYSE Rule Interpretations 10, 344 and 345.\30\
The consolidated FINRA registration rules were implemented on October
1, 2018.\31\ As such, the proposed rule change would update references
to the new rule numbers in Section 4 (Fees) and Section 12 (Application
and Annual Fees for Statutorily Disqualified Member Firms, Statutorily
Disqualified Applicants for Membership and Member Firms Seeking to
Associate with Statutorily Disqualified Individuals) of Schedule A to
the By-Laws of the Corporation; and FINRA Rules 1010 (Electronic Filing
Requirements for Uniform Forms), 2210 (Communications with the Public),
2241 (Research Analysts and Research Reports), 2370 (Securities
Futures), 3170 (Tape Recording of Registered Persons by Certain Firms),
9217 (Violations Appropriate for Disposition Under Plan Pursuant to SEA
Rule 19d-1(c)(2)), 9610 (Application), 9620 (Decision), and 9630
(Appeal).
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\30\ See Securities Exchange Act Release No. 81098 (July 7,
2017), 82 FR 32419 (July 13, 2017) (Order Approving File No. SR-
FINRA-2017-007).
\31\ See Regulatory Notice 17-30 (October 2017).
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In addition, the proposed rule change would replace all references
to NASD Rule 2340 in FINRA Rules 0150 (Application of Rules to Exempted
Securities Except Municipal Securities), 2310 (Direct Participation
Programs), and 9610 (Application) with references to proposed FINRA
Rule 2231. The proposed rule change would also replace the references
to NASD Rule 3150 in FINRA Rule 9610 with a reference to proposed FINRA
Rule 4540. The proposed rule change would replace the references to
NASD Rule 2510 in FINRA Rules 0150 (Application of Rules to Exempted
Securities Except Municipal Securities), 2360 (Options), 2370
(Securities Futures), 4512 (Customer Account Information), 4515
(Approval and Documentation of Changes in Account Name or Designation)
and 5121 (Public Offerings of Securities With Conflicts of Interest)
with references to proposed FINRA Rule 3260. The proposed rule change
would replace all references to NASD Rule 3140 in FINRA Rule 0150 and
FINRA Rule 6630 (Applicability of FINRA Rules to Securities Previously
Designated as PORTAL Securities) to a reference to proposed FINRA Rule
1020. The proposed rule change would replace all references to the NASD
Rule 1010 Series in Rules 7410 (Definitions), 8313 (Release of
Disciplinary Complaints, Decisions and Other Information), 9521
(Purpose and Definitions), 9522 (Initiation of Eligibility Proceeding;
Member Regulation Consideration), and the Capital Acquisition Broker
Rule 100 Series (Member Application and Associated Person Registration)
to references to the proposed FINRA Rule 1000 Series. The proposed rule
change would replace a reference to NASD Rule 1090 in Capital
Acquisition Broker Rule 119 to a reference to proposed FINRA Rule 1021.
The proposed rule change would also update the references to the
Incorporated NYSE Rules in FINRA Rule 9217 (Violations Appropriate for
Disposition Under Plan Pursuant to SEA Rule 19b-1(c)(2)) with the
proposed FINRA Temporary Dual FINRA-NYSE Member Rule Series numbers.
The proposed rule change would update the cross-references in FINRA
Rule 5320 (Prohibition Against Trading Ahead of Customer Orders) to
reflect the renumbering of Rule 7440(b)(19) as 7440(b)(20).\32\
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\32\ See Securities Exchange Act Release No. 77523 (April 5,
2016), 81 FR 21427 (April 11, 2016) (Order Approving File No. SR-
FINRA-2016-006).
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The proposed rule change would correct a typographical error in
FINRA Rule 7620A (FINRA/Nasdaq Trade Reporting Facility Reporting
Fees). When Rule 7620A was amended pursuant to SR-FINRA-2018-042,
Example 1 under Section II.4.B. inadvertently stated ``As to Tape B,
the Retail Participant would pay the uncapped discounted monthly
charges applicable to Tier 1 its activity. . .'' (emphasis added).\33\
The proposed rule change would delete ``its'' before the word
``activity.''
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\33\ See Securities Exchange Act Release No. 84901 (December 20,
2018), 83 FR 67408 (December 28, 2018) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2018-042).
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The proposed rule change also would make technical changes to FINRA
Rule 7640A (Data Products Offered By NASDAQ). Pursuant to SR-NASDAQ-
2018-098, Nasdaq relocated its Rule 7000 Series (Equities Pricing) to
the Equity 7 Pricing Schedule of the Nasdaq rulebook's shell
structure.\34\ As part of that proposed rule change, the Nasdaq rules
referred to in paragraph (c) of FINRA Rule 7640A were renumbered.
Specifically, Nasdaq Rule 7037 was renumbered as Equity 7 Pricing
Schedule, Section 137; Nasdaq Rule 7039 was renumbered as Equity 7
Pricing Schedule, Section 139; and Nasdaq Rule 7047 was renumbered as
Equity 7 Pricing Schedule, Section 147. The proposed rule change would
make conforming changes to Rule 7640A(c) to update these references.
The proposed rule change would also change ``NASDAQ'' to ``Nasdaq'' in
the Rule's title to conform to the rest of the Rule.
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\34\ See Securities Exchange Act Release No. 84684 (November 29,
2018), 83 FR 62936 (December 6, 2018) (Notice of Filing and
Immediate Effectiveness of File No. SR-NASDAQ-2018-098).
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Finally, the proposed rule change would add a reference to FINRA
Rule 2030 (Engaging in Distribution and Solicitation Activities with
Government Entities) to FINRA Rule 9610 (Application). FINRA Rule 2030
authorizes FINRA to exempt a covered member from Rule 2030(a) and,
therefore, should be included in the list of rules in FINRA Rule
9610.\35\
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\35\ See Securities Exchange Act Release No. 78683 (August 25,
2016), 81 FR 60051 (August 31, 2016) (Order Approving File No. SR-
FINRA-2015-056).
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FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be 30 days after the date
of the filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\36\ 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. FINRA believes that the proposed rule change, which
does not substantively change the rules, is consistent with the Act
because it is being undertaken pursuant to the rulebook consolidation
process, which is designed to provide additional clarity and regulatory
efficiency to FINRA members by consolidating the applicable NASD Rules,
Incorporated NYSE Rules and Interpretations, and FINRA rules into one
rule set.
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\36\ 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
[[Page 15652]]
of the purposes of the Act. As noted above, the proposed rule change
will not substantively change either the text or application of the
rules. FINRA would like to proceed with the rulebook consolidation
process expeditiously, which will provide additional clarity and
regulatory efficiency to members.
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 with respect
to the proposed rule change to transfer the above listed NASD Rules,
Incorporated NYSE Rules and Interpretations into the Consolidated FINRA
Rulebook without any substantive changes.\37\
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\37\ But see supra notes 8, 10, 11, 20 and 29.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \38\ and Rule 19b-
4(f)(6) thereunder.\39\
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\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 17 CFR 240.19b-4(f)(6).
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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 email to [email protected]. Please include
File Number SR-FINRA-2019-009 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2019-009. This
file number should be included on the subject line if email 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 website (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 website 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 10:00 a.m. and
3:00 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2019-009 and should be submitted
on or before May 7, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-07504 Filed 4-15-19; 8:45 am]
BILLING CODE 8011-01-P
