[Federal Register Volume 75, Number 107 (Friday, June 4, 2010)]
[Notices]
[Pages 31825-31826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13460]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62199; File No. SR-FINRA-2010-026]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rule 5121 (Public Offerings of Securities With Conflicts of
Interest) in the Consolidated FINRA Rulebook
June 1, 2010.
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 May 20, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been substantially 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt NASD Rule 2720 (Public Offerings of
Securities With Conflicts of Interest) as a FINRA rule in the
consolidated FINRA rulebook without material change. The proposed rule
change would renumber NASD Rule 2720 as FINRA Rule 5121 in the
consolidated FINRA rulebook.
The text of the proposed rule change is available on FINRA's Web
site at http://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 developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt NASD
Rule 2720 (Public Offerings of Securities With Conflicts of Interest)
without material change as FINRA Rule 5121 in the Consolidated FINRA
Rulebook.
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\3\ The current FINRA rulebook consists of (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from 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).
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NASD Rule 2720 governs public offerings of securities in which a
member with a conflict of interest participates. The rule generally
prohibits a member with a ``conflict of interest,'' as defined in the
rule,\4\ from participating in a public offering, unless certain other
requirements are met.\5\ There is no comparable Incorporated NYSE Rule.
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\4\ As defined in NASD Rule 2720(f)(5), a conflict of interest
exists, if at the time of a member's participation in an entity's
public offering, any of the following four conditions applies: (1)
The securities are to be issued by the member; (2) the issuer
controls, is controlled by or is under common control with the
member or the member's associated persons; (3) at least five percent
of the net offering proceeds, not including underwriting
compensation, are intended to be (i) used to reduce or retire the
balance of a loan or credit facility extended by the member, its
affiliates and its associated persons, in the aggregate; or (ii)
otherwise directed to the member, its affiliates and associated
persons, in the aggregate; or (4) if, as a result of the public
offering and any transactions contemplated at the time of the public
offering (i) the member will be an affiliate of the issuer; (ii) the
member will become publicly owned; or (iii) the issuer will become a
member or form a broker-dealer subsidiary. NASD Rule 2720 defines
several terms for purposes of the rule, including ``entity,''
``control,'' and ``common control.''
\5\ The rule requires prominent disclosure of the nature of the
conflict, and in certain circumstances, the participation of a
qualified independent underwriter. Members also must comply with
certain net capital, discretionary accounts and filing requirements,
as applicable.
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On June 15, 2009, the SEC approved a proposed rule change to
modernize NASD Rule 2720 (the ``2009 Rule Change'').\6\ The 2009 Rule
Change became effective on September 14, 2009.\7\
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\6\ See Securities Exchange Act Release No. 60113 (June 15,
2009), 74 FR 29255 (June 19, 2009) (Order Approving Proposed Rule
Change; File No. SR-FINRA-2007-009).
\7\ See Regulatory Notice 09-49 (SEC Approves Amendments to
Modernize and Simplify NASD Rule 2720 Relating to Public Offerings
in Which a Member Firm With a Conflict of Interest Participates)
(August 2009).
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The proposed rule change would adopt NASD Rule 2720 without
material change as FINRA Rule 5121 in the Consolidated FINRA Rulebook.
The rule would make minor changes to reflect the new terminology
conventions of the Consolidated FINRA Rulebook.
FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 90 days
following Commission approval. The implementation date will be no later
than 180 days from 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,\8\ 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 will
continue to serve to protect investors in offerings where the member
has a conflict of interest.
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\8\ 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.
[[Page 31826]]
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 the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-FINRA-2010-026 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2010-026. 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 Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of FINRA.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2010-026
and should be submitted on or before June 25, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13460 Filed 6-3-10; 8:45 am]
BILLING CODE 8010-01-P