[Federal Register Volume 73, Number 155 (Monday, August 11, 2008)]
[Notices]
[Pages 46661-46664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18384]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58291; File No. SR-FINRA-2008-043]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Establish
a Membership Waive-In Process and Fee Waiver for Certain NYSE Alternext
U.S. LLC Member Organizations
August 1, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 30, 2008, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by FINRA. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 46662]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing a rule change to establish Interpretive Material
1013-2 (``IM-1013-2''), a membership waive-in process for certain
American Stock Exchange LLC (``AMEX''), to be renamed NYSE Alternext
U.S. LLC (``NYSE Alternext''), member organizations and to amend
Interpretive Material Section 4(b)(1) and (e) to Schedule A of the By-
Laws to establish a membership application fee waiver for those NYSE
Alternext member organizations that apply for membership pursuant to
IM-1013-2. The Waive-In Membership Application Form is attached as
Exhibit 3 to this rule filing. The text of the proposed rule change is
available at the FINRA's principal office, the Commission's Public
Reference Room, and http://www.finra.org.
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
On January 17, 2008, the Amex Membership Corporation and NYSE
Euronext entered into an Agreement and Plan of Merger (``Merger
Agreement'') whereby, through a series of mergers, NYSE Euronext will
acquire AMEX (``Merger Transaction'') \3\ and as a result of these
mergers (the ``Mergers''), AMEX will become one of the U.S. wholly
owned subsidiaries of NYSE Group and will be renamed NYSE Alternext
U.S. LLC.
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\3\ See SR-AMEX-2008-62 and SR-AMEX-2008-63.
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To achieve efficiencies in the regulation of NYSE Alternext member
organizations, NYSE intends to (1) require mandatory FINRA and NYSE
membership for NYSE Alternext member organizations (other than those
that exclusively trade options),\4\ (2) adopt a series of member
conduct rules for NYSE Alternext member organizations that are
substantively identical to the Incorporated NYSE Rules that are the
subject of an Agreement among FINRA, New York Stock Exchange LLC, and
NYSE Regulation, Inc. (``NYSE Regulation''), pursuant to Rule 17d-2
under the Act (the ``17d-2 Agreement''), and (3) amend the 17d-2
Agreement to include NYSE Alternext as a party to that agreement so
that FINRA will assume regulatory responsibility consistent with the
terms of that agreement for the NYSE Alternext Equities rules that are
substantively identical to the Incorporated NYSE Rules.
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\4\ See SR-NYSE-2008-70.
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In furtherance of these efforts, the proposed rule change would
establish a membership waive-in process for certain NYSE Alternext
member organizations, similar to the process for NYSE member
organizations.\5\
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\5\ FINRA established a waive-in process to expedite the
approval of membership applications of NYSE-only member
organizations that were required to become FINRA members. That
process is set forth in IM-1013-1 (Membership Waive-In Process for
Certain New York Stock Exchange Member Organizations). See
Securities Exchange Act Release No. 56653 (October 12, 2007), 72 FR
59127 (October 18, 2007) (File No. SR-NASD-2007-056).
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The proposed rule change would apply to any NYSE Alternext member
organization that holds a valid 86 Trinity Permit \6\ as of the date
such firm transfers its equities operations to the NYSE Alternext
Trading Systems \7\ and is not currently a FINRA member.
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\6\ The ``86 Trinity Permit'' will authorize owners, lessees or
nominees of AMEX Regular Members or Options Principal Members
(``OPMs''), AMEX limited trading permit holders, and AMEX associate
members who were authorized to trade on the AMEX immediately before
the Mergers to continue to trade at NYSE Alternext's systems and
facilities at 86 Trinity Place, New York, New York (the ``86 Trinity
Trading Systems''). NYSE Alternext will recognize the former AMEX
(i) owners, lessees or nominees of Regular Members or OPMs, (ii)
limited trading permit holders, and (iii) associate members as
either NYSE Alternext member organizations or members, as
applicable.
\7\ In connection with the Mergers, NYSE Euronext intends to
relocate all equities trading previously conducted on the 86 Trinity
Trading Systems to the NYSE's trading systems and facilities located
at 11 Wall Street, New York, New York (the ``NYSE Alternext Trading
Systems'').
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FINRA recognizes that the AMEX and NYSE have comprehensive
membership applications and review processes based on similar
principles and standards to that of FINRA. As such, those NYSE
Alternext member organizations that will become FINRA members already
have been subjected to an extensive screening process. Therefore, the
proposed rule change would establish IM-1013-2 (Membership Waive-In
Process for Certain NYSE Alternext U.S. LLC Member Organizations), a
process that would make such firms eligible to automatically become a
FINRA member and to automatically register all associated persons whose
registrations are approved with NYSE Alternext in registration
categories recognized by FINRA upon submission to FINRA's Member
Regulation Department (``the Department'') of a signed waive-in
membership application (``Waive-In Application'').\8\
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\8\ The NYSE is proposing a 60-day grace period for such NYSE
Alternext member organizations to apply for and be approved for
FINRA membership. In coordination with this proposal and with
respect to the requirement in Incorporated NYSE Rule 2, FINRA would
permit a 60-day grace period within which these member organizations
must apply for and be approved for FINRA membership. Such grace
period would run from the date that the NYSE Alternext member
organization transfers its equities operations to NYSE Alternext
Trading Systems.
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Associated persons of the NYSE Alternext member organizations will
be automatically registered with FINRA only for those registration
categories that are recognized jointly by FINRA and NYSE Alternext--
e.g., a General Securities Representative (Series 7); provided,
however, that the firm must, upon approval of FINRA membership, submit
an amended Form U4 for each such associated person, denoting the
corresponding FINRA registration category(ies) for such person. A list
of those registration categories is included as part of the Waive-In
Application. (Please note that both FINRA and AMEX recognize the Series
9/10, but for FINRA, persons who have passed the Series 9/10 may
function only as a General Securities Sales Supervisor (see NASD Rule
1022(g))). For those associated persons registered in a category
recognized only by NYSE Alternext, FINRA will acknowledge such
registrations to permit such persons to continue to function in the
capacity for which they are registered.
The Waive-In Application would require the following information:
(1) General company information, including Central Registration
Depository (CRD[supreg]) Number and contact person;
(2) An attestation that all information on the applicant's
CRD[supreg] form, as of the date of submission of the Waive-In
Application, is accurate and complete and fully reflects all aspects of
the applicant's current business, including, but not limited to,
ownership structure, management, product lines and disclosures;
(3) The identity of the firm's Executive Representative;
[[Page 46663]]
(4) Completed and signed Entitlement Forms (unless previously
submitted);
(5) A signed FINRA Membership Agreement; and
(6) Representations that the applicant's Uniform Application for
Broker-Dealer Registration (``Form BD'') will be amended as needed to
keep current and accurate; that all individual and entity registrations
with FINRA will be kept current; and that all information and
statements contained in the Waive-In Application are current, true and
complete.
The proposed rule change would require the Department to review the
Waive-In Application within three (3) business days of receipt and, if
complete, issue a letter notifying the applicant that it has been
approved for membership. The Membership Agreement would become
effective on the date of such notification letter.
As set forth in proposed IM-1013-2, the NYSE Alternext member
organizations admitted pursuant to proposed IM-1013-2, being member
organizations of both NYSE and NYSE Alternext, would be subject to the
consolidated FINRA rules \9\ (provided that firms admitted to FINRA
membership under IM-1013-1 also are subject to the consolidated FINRA
rules),\10\ the NYSE rules incorporated by FINRA,\11\ the FINRA By-Laws
and Schedules to By-Laws, including Schedule A (Assessments and Fees),
and the NASD Rule 8000 (Investigations and Sanctions) and Rule 9000
(Code of Procedure) Series, provided that their NYSE or NYSE Alternext
securities business is limited to floor-based activities in either
NYSE-traded or NYSE Alternext-traded securities, or routing away to
other markets orders that are ancillary to their core NYSE or NYSE
Alternext floor business under NYSE Rule 70.40 or NYSE Alternext
Equities Rule 70.40 (``permitted floor activities'').\12\
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\9\ The new consolidated FINRA rulebook (``Consolidated FINRA
Rulebook'') will consist only of FINRA Rules and will apply to all
FINRA members, unless such rules have a more limited application by
their terms.
\10\ FINRA is proposing that firms admitted to FINRA membership
under IM-1013-1 be subject to the consolidated FINRA rules. See
Securities Exchange Act Release No. 58206 (July 22, 2008), 73 FR
43808 (July 28, 2008).
\11\ The NYSE notes in its filing SR-NYSE-2008-70 that while the
AMEX rules governing membership are substantially similar to NYSE
rules governing membership (i.e., NYSE Rules 311-313), there are
certain additional requirements that are not contained in the AMEX
rules, including a requirement that a member organization submit an
opinion of counsel that a member corporation's stock is validly
issued and outstanding and that restrictions and provisions required
by NYSE on the transfer, issuance, conversion and redemption of its
stock have been made legally effective. See NYSE Rule 313.20. NYSE
proposes to allow NYSE Alternext member organizations six months
from the date the member organization transfers its equities
operations to the NYSE Alternext Trading Systems to comply with the
membership requirements in NYSE Rules 311-313. FINRA also proposes
to grant NYSE Alternext member organizations becoming FINRA members
pursuant to IM-1013-2 an identical period to comply with
Incorporated NYSE Rules 311-313.
\12\ For purposes of this filing, activities that are ancillary
to a Floor broker's core business include (i) routing orders in
NYSE-traded or NYSE Alternext-traded securities to an away market
for any reason relating to their ongoing Floor activity, including
regulatory compliance or meeting best-execution obligations, or (ii)
provided that the majority of transactions effected by the firm are
effected on the NYSE, sending to other markets orders in NYSE-
traded, NYSE Alternext-traded or non-NYSE-traded securities and/or
futures if such orders relate to hedging positions in NYSE-traded or
NYSE Alternext-traded securities, or are part of arbitrage or
program trade strategies that include NYSE-traded or NYSE Alternext-
traded securities.
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If an NYSE Alternext member organization admitted pursuant to
proposed IM-1013-2 seeks to expand its business operations to include
any activities other than the permitted floor activities or makes
changes to its securities business that would otherwise require FINRA
membership, such firm must apply for and receive approval to engage in
such business activity pursuant to NASD Rule 1017. Upon approval of
such business expansion, the firm would become subject to all NASD
Rules, in addition to the consolidated FINRA rules and those NYSE rules
incorporated by FINRA.
Associated persons of an NYSE Alternext member organization
admitted to FINRA pursuant to proposed IM-1013-2 would be subject to
the same set of rules as the firm with which they are associated.
Inasmuch as these associated persons would not be subject to NASD Rules
1021 or 1031, they would not be required to register in a registration
category recognized by FINRA. To the extent that such persons continue
to be associated solely with a firm whose business complies with the
limitations imposed on those firms admitted to FINRA pursuant to
proposed IM-1013-2, FINRA is not imposing any registration requirements
beyond those required by the NYSE or NYSE Alternext, provided their
business is confined in scope as contemplated in proposed IM-1013-
2.\13\
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\13\ The licensing and other requirements applicable to the NYSE
Alternext member organizations and their associated persons are
subject to change as part of the process of establishing the
Consolidated FINRA Rulebook.
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Finally, the proposed rule change would amend Interpretive Material
Section 4(b)(1) and 4(e) of Schedule A of the FINRA By-Laws to exempt
NYSE Alternext applicants from the assessment of a FINRA membership
application fee and from fees for each initial Form U4 filed by the
applicant with FINRA for the registration of a representative or
principal associated with the firm at the time it submits its
application for FINRA membership pursuant to proposed IM-1013-2. FINRA
believes the exemption is appropriate because the waive-in application
process will not require the same resources by the Department as when a
new applicant that is not already a member of NYSE or NYSE Alternext
seeks membership.
The effective date of the proposed rule change will be the date of
Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The proposed rule change will facilitate the
application process for NYSE Alternext member organizations with a
waive-in process that ensures that these firms meet suitable standards
for admission into FINRA.
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\14\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which FINRA consents, the Commission will:
(A) By order approve such proposed rule change; or
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(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2008-043 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-2008-043. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://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 inspection
and copying in the Commission's Public Reference Room, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of FINRA. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-FINRA-2008-043 and should be submitted on or before September 2,
2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18384 Filed 8-8-08; 8:45 am]
BILLING CODE 8010-01-P