[Federal Register Volume 75, Number 154 (Wednesday, August 11, 2010)]
[Notices]
[Pages 48731-48733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19750]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62655; File No. SR-FINRA-2010-042]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rule 4160 (Verification of Assets)
August 5, 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 August 4, 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 and
II, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt FINRA Rule 4160 (Verification of
Assets). The proposed rule provides that a member, when notified by
FINRA, may not continue to custody or retain record ownership of
assets, at a non-member financial institution, which, upon FINRA
staff's request, fails promptly to provide FINRA with written
verification of assets maintained by the member at
[[Page 48732]]
such financial institution. The proposed rule change also would add a
supplementary material section to the new rule.
The text of the proposed rule change is below. Proposed new
language is underlined.
* * * * *
4000. FINANCIAL AND OPERATIONAL RULES
4100. FINANCIAL CONDITION
* * * * *
4160. Verification of Assets
A member, when notified by FINRA, may not continue to custody or
retain record ownership of assets, whether such assets are proprietary
or customer assets, at a financial institution that is not a member of
FINRA, which, upon FINRA staff's request, fails promptly to provide
FINRA with written verification of assets maintained by the member at
such financial institution.
Supplementary Material: ------------
.01 Asset Transfers. Any member required to transfer its
proprietary and/or customer assets pursuant to this Rule shall effect
such transfer within a reasonable period of time.
.02 Member Obligations Under SEA Rule 15c3-3. Nothing in this Rule
shall be construed as altering in any manner a member's obligations
under SEA Rule 15c3-3.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA is proposing a rule designed to ensure that FINRA can
independently verify assets maintained by a member at a non-member
financial institution. While FINRA currently may request such
independent verification, it generally cannot compel a financial
institution that is not a member to comply with the request because
FINRA's rules apply only to members. This inability to obtain such
information directly from a non-member financial institution may limit
FINRA's ability to effectively detect fraud and protect investors.
To address these jurisdictional constraints, FINRA is proposing a
rule providing that a member, when notified by FINRA, may not continue
to custody or retain record ownership of assets, whether such assets
are proprietary or customer assets, at a non-member financial
institution, which, upon FINRA staff's request, fails promptly \3\ to
provide FINRA with written verification of assets maintained by the
member at such financial institution. FINRA believes there would be
significant incentive on the part of non-member financial institutions
to promptly comply with staff requests for asset verification in order
to continue to retain members' proprietary or customer assets.
Similarly, members would seek to assure that non-member financial
institutions maintaining their proprietary or customer assets comply
with such requests to avoid having to transfer assets to another
institution. At this time, FINRA is not proposing to require a member
to enter into a written contract with a non-member financial
institution maintaining its proprietary or customer assets that would
obligate the institution to comply with FINRA staff's requests for
verification; however, FINRA would strongly encourage a member to enter
into such a contract. A non-member financial institution that has a
written contractual obligation with a member but still refuses to
provide FINRA with prompt written verification may be in breach of
contract, and the member could seek appropriate remedies against the
institution. The proposed rule, however, would preclude the member from
continuing to maintain assets at that financial institution and require
the member to transfer the assets to another financial institution. In
this regard, FINRA is mindful of the potential challenges of an asset
transfer, and is proposing to adopt Supplementary Material .01 (Asset
Transfers), providing that any member required to transfer its
proprietary and/or customer assets pursuant to the proposed rule shall
effect such transfer within a reasonable period of time.
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\3\ The proposed rule does not define the term ``promptly,''
which would be assessed based on the particular facts and
circumstances.
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Additionally, FINRA is proposing to adopt Supplementary Material
.02 (Member Obligations Under SEA Rule 15c3-3) to clarify that nothing
in the proposed rule shall be construed as altering in any manner a
member's obligations under SEA Rule 15c3-3.
FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice to be published no later than 60 days following
Commission approval. The effective date will be no later than 30 days
following publication of the Regulatory Notice announcing 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,\4\ 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 is
consistent with the provisions of the Act noted above in that
independent verification will further strengthen FINRA's ability to
effectively detect fraud and protect investors.
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\4\ 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 45 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 or disapprove 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
[[Page 48733]]
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-2010-042 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-2010-042. 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-2010-042
and should be submitted on or before September 1, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19750 Filed 8-10-10; 8:45 am]
BILLING CODE 8010-01-P