[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8771-8772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3778]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61540; File No. SR-FINRA-2009-081]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Adopt FINRA
Rule 2261 (Disclosure of Financial Condition) in the Consolidated FINRA
Rulebook
February 18, 2010.
On November 18, 2009, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers,
Inc. (``NASD'')) filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt FINRA Rule 2261 (Disclosure of Financial
Condition) in the Consolidated FINRA Rulebook. The proposed rule change
was published for comment in the Federal Register on January 5,
2010.\3\ The Commission received no comments on the proposal. This
order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act of 1934 Release No. 61253
(December 29, 2009), 75 FR 0475.
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As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\4\ FINRA proposed adopting NASD Rule
2270 (Disclosure of Financial Condition to Customers) and NASD Rule
2910 (Disclosure of Financial Condition to Other Members), subject to
certain amendments, as FINRA Rule 2261 in the Consolidated FINRA
Rulebook.
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\4\ 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 2270 requires members to make available for inspection,
upon the request of any bona fide regular customer,\5\ the information
relative to such member's financial condition as disclosed in its most
recent balance sheet prepared either in accordance
[[Page 8772]]
with such member's usual practice or as required by any State or
Federal securities laws, or any rule or regulation thereunder.
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\5\ For purposes of the rule, ``customer'' means any person who,
in the regular course of such member's business, has cash or
securities in the possession of such member.
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FINRA proposed amending the requirements of NASD Rule 2270 to
provide an alternative means of satisfying the requirement that members
make balance sheet information available to bona fide regular
customers. Currently, the rule requires that members ``make available
to inspection by any bona fide regular customer, upon request, the
information relative to such member's financial condition as disclosed
in its most recent balance sheet * * *.'' FINRA proposed providing
members with the option of delivering their balance sheet, in paper or
electronic form, to customers who request it. With respect to
electronic delivery, the requesting customer must consent to receive
the balance sheet in electronic form to ensure that such information is
accessible to the customer. FINRA did not propose requiring members to
deliver their balance sheet to all customers (instead of making them
available to inspection or delivering them upon request) because Rule
17a-5(c) under the Act \6\ generally requires a broker-dealer that
carries customer accounts to send its full balance sheet and certain
other financial information to each of its customers twice a year.\7\
NASD Rule 2270 provides customers with additional access to their
broker's balance sheet information by requiring that members permit
customers to inspect or obtain a copy of a member's most recent balance
sheet at any time upon request.
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\6\ 17 CFR 240.17a-5(c).
\7\ SEC Rule 17a-5(c)(5) contains a conditional exemption from
the requirement that broker-dealers semi-annually send customers a
full balance sheet. Under the exemption, a broker-dealer can semi-
annually send its customers summary information regarding its net
capital, as long as it also provides customers with a toll-free
number to call for a free copy of its full balance sheet, makes its
full balance sheet available to customers on its Web site, and meets
other specified requirements. See Securities Exchange Act Release
No. 48272 (August 1, 2003), 68 FR 46446 (August 6, 2003).
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NASD Rule 2910 requires any member that is a party to an open
transaction or who has on deposit cash or securities of another member
to furnish, upon the written request of the other member, a statement
of its financial condition as disclosed in its most recently prepared
balance sheet. FINRA proposed amending the provisions of NASD Rule 2910
to require, consistent with NASD Rule 2270, that members provide to
other members the balance sheet that was ``prepared either in
accordance with such member's usual practice or as required by any
State or Federal securities laws, or any rule or regulation
thereunder.'' In addition, FINRA proposed that members be permitted to
provide their balance sheet to other members in paper or electronic
form. However, unlike the proposed amendments to NASD Rule 2270, FINRA
did not propose requiring members to obtain the consent of other
members to electronically deliver the balance sheet. FINRA believes
that other members, unlike all customers, will be equipped to receive
electronic delivery.
FINRA believes that the requirements of NASD Rule 2270 and NASD
Rule 2910 continue to provide access to important information by
allowing customers and other members to have access to a copy of a
member's most recent balance sheet at any time upon request and should
be transferred, as amended, to the Consolidated FINRA Rulebook as FINRA
Rule 2261.
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 Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities association.\8\ In
particular, the Commission finds that the proposal is consistent with
Section 15A(b)(6) of the Act,\9\ which requires, among other things,
that FINRA's rules 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
Commission believes that the proposed rule change will further the
purposes of the Act by, among other things, ensuring that basic,
current information regarding the financial condition of members with
which customers and other members conduct business is available upon
request. The Commission therefore believes that it is appropriate and
consistent with the Act for FINRA to Adopt FINRA Rule 2261 (Disclosure
of Financial Condition) in the Consolidated FINRA Rulebook.
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\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78o-3(b)(6).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-FINRA-2009-081) is approved.
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\10\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3778 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P