[Federal Register Volume 75, Number 37 (Thursday, February 25, 2010)]
[Notices]
[Pages 8770-8771]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-3780]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61543; File No. SR-FINRA-2010-005]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Repeal
Incorporated NYSE Rule 405(4) (Common Sales Accounts)
February 18, 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 January 21, 2010, 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,
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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to repeal Incorporated NYSE Rule 405(4) (Common
Sales Accounts) as part of the process to develop 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 repeal NYSE
Rule 405(4) (Common Sales Accounts).\4\
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\3\ The current FINRA rulebook consists of (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from the New York Stock
Exchange (``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).
\4\ For convenience, the Incorporated NYSE Rules are referred to
as the ``NYSE Rules.''
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NYSE Rule 405(4) (Common Sales Accounts) requires proper
supervision of registered representatives handling common sales
accounts. The rule provides that a member may facilitate the isolated
liquidation of securities valued at $1,000 or less registered in the
name of an individual who does not have an account, and which are not
part of any distribution, through a common sales account set up for the
specific purpose of handling such sales. The rule further provides that
such sales may be effected on behalf of the customer without requiring
the member to send a periodic customer account statement to the
individual as otherwise generally required, provided the following
conditions are satisfied: (1) The customer is identified as the
individual in whose name the securities are registered; (2) the
securities are received by the member, at or prior to the time of the
entry of the order, in the exact amount to be sold in good delivery
form; (3) a confirmation is sent to the customer; (4) all proceeds of
such sales are paid out on or immediately following settlement date;
and (5) a record is made in the common sales account that includes
certain customer-specific information.
FINRA believes that the rule as written may raise potential
investor protection concerns. The term ``isolated'' is not defined.\5\
Further, NYSE Rule 405(4) permits a member to effect sales of
securities for customers without expressly requiring prior customer
consent and without the need to send periodic account statements to the
customer. For these reasons, FINRA proposes to eliminate NYSE Rule
405(4) and not adopt its content into the Consolidated FINRA
Rulebook.\6\
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\5\ NYSE Rule 405(4) was adopted by the NYSE in the late 1960's.
In 1977, the NYSE proposed amendments to Rule 405(4) to define the
term ``isolated'' to mean ``not exceeding five $2,000 transactions
during any twelve-month period unless otherwise approved by the
NYSE,'' and to allow unsolicited purchases as well as sales of
securities. In late 1977, the SEC instituted proceedings to
determine whether to disapprove the proposed rule change and
identified the potential grounds for disapproval. See Securities
Exchange Act Release No. 14143 (November 7, 1977) (Order Instituting
Proceedings to Determine Whether Proposed Changes to Rule 405 Should
be Disapproved; File No. SR-NYSE-76-34). The SEC expressed concern
that ``execution of such transactions, and in particular of
purchases [as proposed], in the common purchase and sale account may
permit opportunities for fraudulent and manipulative acts or
practices[.]'' In February 1978, the NYSE withdrew the filing. See
Securities Exchange Act Release No. 14630 (April 3, 1978) (Order
Approving Withdrawal of NYSE's Proposed Changes to Rule 405; File
No. SR-NYSE-76-34).
\6\ FINRA notes that in the event a member may seek permission
not to send customer account statements under certain limited
circumstances, proposed FINRA Rule 2231 which relates to customer
account statements, would authorize FINRA to exempt members from the
provisions of such rule, including the requirement to deliver
periodic account statements, pursuant to the Rule 9600 Series. See
Securities Exchange Act Release No. 59921 (May 14, 2009), 74 FR
23912 (May 21, 2009) (Notice of Filing; File No. SR-FINRA-2009-028).
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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 following Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions
[[Page 8771]]
of Section 15A(b)(6) of the Act,\7\ 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
streamline and improve FINRA's rulebook by eliminating a rule that
contains terms that are not clearly defined and may raise potential
investor protection concerns.
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\7\ 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 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-2010-005 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-2010-005. 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-2010-005
and should be submitted on or before March 18, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-3780 Filed 2-24-10; 8:45 am]
BILLING CODE 8011-01-P