[Federal Register Volume 75, Number 40 (Tuesday, March 2, 2010)]
[Notices]
[Pages 9459-9464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4235]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61575; File No. SR-FINRA-2010-007]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the
By-Laws of NASD Dispute Resolution
February 23, 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
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'') on
January 22, 2010, 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 amend the By-Laws of NASD Dispute
Resolution.\3\
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\3\ If this proposed rule change is approved by the Commission,
the By-Laws of NASD Dispute Resolution will be redesignated as the
``By-Laws of FINRA Dispute Resolution.''
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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
[[Page 9460]]
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
Background on FINRA and Its Subsidiaries
On July 30, 2007, NASD and the New York Stock Exchange (``NYSE'')
consolidated their member firm regulation and dispute resolution
operations into a combined organization, FINRA.\4\ As part of the
consolidation, the SEC approved amendments to the NASD By-Laws to
implement governance and related changes. The resulting FINRA By-Laws
included a FINRA Board governance structure that balanced public and
industry representation and designated seven governor seats to
represent member firms of various sizes based on the criteria of firm
size.
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\4\ See Securities Exchange Act Release No. 56145 (July 26,
2007), 72 FR 42169 (August 1, 2007), as amended by Securities
Exchange Act Release No. 56145A (May 30, 2008), 73 FR 32377 (June 6,
2008) (File No. SR-NASD-2007-023).
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On September 8, 2008, FINRA filed a proposal with the SEC to amend
the By-Laws of FINRA's regulatory subsidiary (``FINRA Regulation'') to
realign the representation of industry members on the National
Adjudicatory Council (``NAC'') to follow more closely the industry
representation on the FINRA Board of Governors (``FINRA Board''), to
eliminate the Regional Nominating Committees, to transfer such
committees' responsibilities for NAC industry appointments to the FINRA
Nominating Committee (``Nominating Committee''), and to change the name
of ``NASD Regulation'' and ``NASD'' to ``FINRA Regulation '' and
``FINRA'' respectively.\5\ The SEC approved the amendments to FINRA
Regulation's By-Laws on November 6, 2008.\6\
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\5\ See Securities Exchange Act Rel. No. 58626 (Sept. 23, 2008),
73 FR 56872 (Sept. 30, 2008) (File No. SR-FINRA-2008-046, Notice of
Filing and Amendment No. 1).
\6\ See Securities Exchange Act Rel. No. 58909 (Nov. 6, 2008),
73 FR 68467 (Nov. 18, 2008).
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On March 27, 2009, FINRA filed a proposal with the SEC to amend
further the By-Laws of FINRA Regulation to modify the FINRA Regulation
Board (``FINRA Regulation Board'') composition, to adopt changes to
conform the FINRA Regulation By-Laws to the FINRA By-Laws, and to
reflect the corporate name change and similar matters.\7\ The SEC
approved the amendments to FINRA Regulation's By-Laws on May 21,
2009.\8\
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\7\ See Securities Exchange Act Rel. No. 59696 (Apr. 2, 2009),
74 FR 16020 (Apr. 8, 2009) (File No. SR-FINRA-2009-020).
\8\ See Securities Exchange Act Rel. No. 59962 (May 21, 2009),
74 FR 25792 (May 29, 2009) (Order Approving SR-FINRA-2009-020).
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FINRA Dispute Resolution (formerly known as NASD Dispute
Resolution) is a subsidiary of FINRA that operates according to the
Plan of Allocation and Delegation of Functions by NASD to Subsidiaries
(``Delegation Plan''), as amended,\9\ which NASD adopted first in 1996.
Pursuant to the Delegation Plan, FINRA's dispute resolution subsidiary
conducts arbitration, mediation and other dispute resolution programs
and interprets rules and regulations pertaining to its dispute
resolution programs.\10\ NASD Dispute Resolution's By-Laws were not
amended at the time of the consolidation. Now that the consolidation
has been completed and amendments to FINRA Regulation's By-Laws have
been approved, FINRA believes NASD Dispute Resolution's By-Laws should
be updated.
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\9\ See Securities Exchange Act Rel. No. 41971 (Sept. 30, 1999),
64 FR 55793 (Oct. 14, 1999) (Order Approving a Proposed Rule Change
by the National Association of Securities Dealers, Inc. to Create a
Dispute Resolution Subsidiary).
\10\ See FINRA Manual, Corporate Organization, Plan of
Allocation & Delegation of Functions by NASD to Subsidiaries, NASD
Dispute Resolution, Section III (A)(1)(a) and (c).
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In July 2007, when NASD and the NYSE consolidated their member firm
regulation and dispute resolution operations, FINRA created a
Regulation Policy Committee of the Board of Governors, the members of
which are 14 Governors from FINRA's Board of Governors.\11\ The members
of the Regulation Policy Committee also serve as the Directors of the
FINRA Regulation and FINRA Dispute Resolution Boards of Directors.\12\
The Commission approved the composition of FINRA's committees when it
approved amendments to FINRA's By-Laws on July 26, 2007.\13\ The
Commission also approved the composition of FINRA Regulation's Board of
Directors when it approved amendments to FINRA's By-Laws on May 21,
2009.\14\ When the FINRA Regulation and FINRA Dispute Resolution Boards
of Directors meet, they act in their respective capacities as directors
of those subsidiaries. The FINRA Dispute Resolution Board of Directors
continues to oversee the management of FINRA Dispute Resolution,
establish policies and procedures, and monitor the use of financial
resources, among other things.
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\11\ FINRA's Board of Governors consists of 21 members, 11 of
whom are public members. See FINRA By-Laws, Article I(ss) and I(tt),
definitions of Public Director and Public Governor, respectively.
The Regulation Policy Committee is comprised of seven public, five
industry, and two neutral members of FINRA's Board of Governors. The
two neutral members are the Chief Executive Officers of FINRA and
NYSE Regulation, Inc. FINRA's By-Laws require that FINRA's
committees consist of a majority public members. See FINRA By-Laws,
Article IX (Committees--Appointment), section 1(b).
\12\ FINRA's Chair and Chief Executive Officer is an ex-officio,
non-voting member of the FINRA Regulation and FINRA Dispute
Resolution Boards of Directors.
\13\ Supra note 3.
\14\ Supra note 7.
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Proposal To Amend NASD Dispute Resolution's By-Laws
FINRA is proposing to amend the NASD Dispute Resolution By-Laws to:
(1) Modify the composition of the FINRA Dispute Resolution Board; (2)
adopt changes to conform the NASD Dispute Resolution By-Laws to the
FINRA By-Laws; and (3) implement other conforming changes to reflect
the corporate name change and other similar matters. The proposed
amendments to NASD Dispute Resolution By-Laws are modeled on those of
the FINRA and FINRA Regulation By-Laws (which, as discussed above, were
both previously approved by the Commission), with modifications,
described below, as appropriate to the particular functions of FINRA
Dispute Resolution.
The following discussion addresses the proposed amendments to NASD
Dispute Resolution's By-Laws under the article of the By-Laws of NASD
Dispute Resolution in which the amendments would first appear.
Amendments to Article I--Definitions
Article I of the NASD Dispute Resolution By-Laws contains
definitions of terms used in the By-Laws. FINRA is proposing to add to
or amend some of these definitions.
Broker and Dealer
FINRA is proposing to amend the definitions of ``broker'' and
``dealer'' in Article I of the By-Laws of NASD Dispute Resolution to
conform them to the definitions of ``broker'' and ``dealer'' in the
Act, as amended by the Gramm-Leach-Bliley Act of 1999.\15\ As proposed,
FINRA would incorporate by reference the definitions of the terms
``broker'' and ``dealer'' as set forth in Sections 3(a)(4) and 3(a)(5),
[[Page 9461]]
respectively, of the Act.\16\ The SEC approved the same change to
definitions of the terms ``broker'' and ``dealer'' in the then-NASD
Regulation's By-Laws in March 2001.\17\ FINRA believes that the
proposed changes to the terms ``broker'' and ``dealer'' are necessary
to ensure that the definitions in the NASD Dispute Resolution By-Laws
remain consistent with the definitions of the Act.
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\15\ Public Law 106-102, 113 Stat. 1338 (1999).
\16\ 15 U.S.C. 78c(a)(4) and (a)(5).
\17\ See Securities Exchange Act Rel. No. 44052 (March 8, 2001),
66 FR 15157 (March 15, 2001) (File No. SR-NASD-01-13).
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Corporation
FINRA is proposing to add the term ``Corporation'' to Article I of
the By-Laws of NASD Dispute Resolution to reflect the change of the
Corporation's name from ``NASD'' to ``FINRA.'' \18\ Proposed Article
I(e) would define Corporation to mean the National Association of
Securities Dealers, Inc., the Financial Industry Regulatory Authority,
Inc., or any future name of the entity.
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\18\ Supra note 3.
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Electronic Transmission
FINRA is proposing to add the term ``electronic transmission'' to
Article I of the By-Laws of NASD Dispute Resolution to reflect the
common usage of electronic transmission as a means of
communication.\19\ The term ``electronic transmission'' would be
defined to mean communicating or disseminating information or documents
to individuals or entities by telegraph, telefax, cable, radio,
wireless or other device or method. FINRA intends ``other device or
method'' to include e-mail, text messages, and related technologies,
for example. FINRA believes that the new definition clarifies the
current methods FINRA uses to communicate with and disseminate
information to individuals and entities, and gives FINRA flexibility to
use other devices or methods as advances in technology are made.
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\19\ The new term ``electronic transmission'' would be added as
proposed Article I(k) of the By-Laws of NASD Dispute Resolution.
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FINRA Member
FINRA is proposing to add the term ``FINRA member'' to Article I of
the By-Laws of NASD Dispute Resolution.\20\ As proposed, the term
``FINRA member'' would mean ``any broker or dealer admitted to
membership in FINRA, whether or not the membership has been terminated
or cancelled; and any broker or dealer admitted to membership in a
self-regulatory organization that, with FINRA consent, has required its
members to arbitrate pursuant to the Code of Arbitration Procedure for
Customer Disputes (``Customer Code'') or the Code of Arbitration
Procedure for Industry Disputes (``Industry Code'', and together with
the Customer Code, ``Codes'') and/or to be treated as members of FINRA
for purposes of the Codes, whether or not the membership has been
terminated or cancelled.''
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\20\ The new term ``FINRA member'' would be added as proposed
Article I(o) of the By-Laws of NASD Dispute Resolution.
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FINRA believes the proposed change would clarify the forum's
jurisdiction concerning a FINRA member, and would conform the
definition in the By-Laws to that in the Customer Code and the Industry
Code.\21\ FINRA believes that the proposed change to add the term
``FINRA member'' is necessary to ensure that the definitions in the
NASD Dispute Resolution By-Laws are consistent with the definitions in
the Codes.
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\21\ Rule 12100(o) of the Customer Code (definition of member)
and Rule 13100(o) of the Industry Code (definition of member). In
July 2007, the SEC approved an amendment to the Codes to clarify the
term ``member.'' See Securities Exchange Act Rel. No. 56029 (July 9,
2007), 72 FR 38641 (July 13, 2007) (File No. SR-NASD-2007-038).
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Industry Director or Industry Member and Public Director or Public
Member
FINRA is proposing to modify the terms ``Industry Director'' or
``Industry member'' and ``Public Director'' or ``Public member'' in
Articles I(k) and I(t), respectively. With regard to the term
``Industry Director'' or ``Industry member'', the proposed rule change
would amend the NASD Dispute Resolution's By-Laws by separating these
definitions into two definitions for ease of reference.\22\
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\22\ The term ``Industry Director'' will be defined in proposed
Article I(r); ``Industry Member'' in proposed Article I(s).
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FINRA is also proposing to amend the revised terms ``Industry
Director'' and ``Industry Member'' to limit the look-back test that
characterizes committee members as industry if they have served as an
officer, director, or employee of a broker or dealer, among other
reasons, to the past twelve months. The current provision uses a three-
year look-back test. The proposed change would make the definitions of
``Industry Director'' and ``Industry Member'' under the NASD Dispute
Resolution By-Laws consistent with the definitions of ``Industry
Director'', ``Industry Governor'', and ``Industry committee member'' in
the FINRA By-Laws.\23\
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\23\ See FINRA By-Laws, Article I(s) and I(t).
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The proposal would also add the term ``independent director'' to
the portion of the definitions of ``Industry Director'' and ``Industry
Member'' that excludes outside directors of a broker or dealer. The
term ``independent director'' is synonymous with outside director, but
FINRA is proposing to add it to the exclusionary clause to harmonize
the NASD Dispute Resolution By-Laws with the definition of ``Industry
Governor'' in the FINRA By-Laws.\24\
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\24\ See FINRA By-Laws, Article I(t).
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Similarly, FINRA is proposing to modify the term ``Public
Director'' or ``Public member'' by separating it into two definitions
for ease of reference.\25\ FINRA would also amend the proposed terms
``Public Director'' or ``Public Member'' to clarify that an
individual's service as a public director of a self regulatory
organization does not disqualify that person from serving as a Pubic
Director or Public Member under NASD Dispute Resolution's By-Laws.
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\25\ The term ``Public Director'' will be defined in proposed
Article I(w); ``Public Member'' in proposed Article I(x).
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FINRA notes that the proposed changes to the definitions of
``Industry Director'' and ``Industry Member'' as well as ``Public
Director'' and ``Public Member'' under the NASD Dispute Resolution By-
Laws are generally consistent with similar amendments to the By-Laws of
FINRA Regulation,\26\ which the SEC approved in November 2008.\27\
FINRA believes that the changes to the definitions would eliminate any
ambiguity concerning the interpretation of the rules within the
Corporation, and would ensure uniform application of the rules.
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\26\ Under the FINRA Regulation's By-Laws, the definitions of
Industry Member and Public Member contain a reference to a NAC or
committee member. See FINRA Regulation By-Laws, Articles I(y) and
I(ii). The NAC is appointed and governed pursuant to FINRA
Regulation By-Laws; FINRA Dispute Resolution does not use this
committee, and thus, references thereto do not appear in NASD
Dispute Resolution By-Laws.
\27\ Supra note 5.
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Person Associated With a Member or Associated Person of a Member
On June 5, 2009, FINRA filed a proposed rule change to amend Rules
12100(r), 12506(a), and 12902(a) of the Customer Code and Rule 13100(r)
of the Industry Code to amend the definition of ``associated person,''
streamline a case administration procedure, and clarify that customers
could be assessed hearing session fees based on their own claims for
relief in connection with an industry claim.\28\ The Commission
approved the proposal on October 26, 2009.\29\
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\28\ See Securities Exchange Act Rel. No. 60159 (June 22, 2009),
74 FR 31779 (July 2, 2009) (File No. SR-FINRA-2009-041).
\29\ See Securities Exchange Act Rel. No. 60878, 74 FR 56679
(Nov. 2, 2009) (Notice of Filing of Amendment No. 1 and Order
Granting Accelerated Approval of SR-2009-041, as Modified by
Amendment No. 1).
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[[Page 9462]]
Under that proposal, FINRA amended the definition of associated
person under the Codes \30\ to match the definition in FINRA's By-
Laws.\31\ The proposal amended the definition of ``person associated
with a member'' in the Codes in two ways: (1) By inserting the word
``other'' before the second reference to ``natural person'' to clarify
that the definition does not include corporate entities; and (2) by
inserting the criterion that a natural person includes someone who has
applied for registration.
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\30\ Rule 12100(r) of the Customer Code and Rule 13100(r) of the
Industry Code define ``person associated with a member'' to mean:
(1) A natural person registered under the Rules of FINRA; or (2) A
sole proprietor, partner, officer, director, or branch manager of a
member, or a natural person occupying a similar status or performing
similar functions, or a natural person engaged in the investment
banking or securities business who is directly or indirectly
controlling or controlled by a member, whether or not any such
person is registered or exempt from registration with FINRA under
the By-Laws or the Rules of FINRA.
For purposes of the Code, a person formerly associated with a
member is a person associated with a member.
\31\ FINRA's By-Laws define ``person associated with a member or
associated person of a member'' as (1) a natural person who is
registered or has applied for registration under the Rules of the
Corporation; (2) a sole proprietor, partner, officer, director, or
branch manager of a member, or other natural person occupying a
similar status or performing similar functions, or a natural person
engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by a member,
whether or not any such person is registered or exempt from
registration with the Corporation under these By-Laws or the Rules
of the Corporation; and (3) for purposes of Rule 8210, any other
person listed in Schedule A of Form BD of a member. See By-Laws of
the Corporation, Article I, Definitions (rr).
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FINRA is proposing to implement the same changes to the definition
of associated person of a member in the NASD Dispute Resolution By-
Laws, as have been approved recently by the Commission to same
definitions under the Codes, to ensure uniform application of the
definition.
Amendments to Article IV--Board of Directors
FINRA is proposing to make limited conforming changes to Article IV
of the NASD Dispute Resolution By-Laws to parallel more closely the
governance structure of the FINRA Board.
Section 4.3--Qualifications
The proposed rule change would amend Article IV, section 4.3(a) to
reflect FINRA's current governance structure by establishing that NASD
Dispute Resolution Board members would be drawn exclusively from the
FINRA Board. The proposed rule change would also amend section 4.3(a)
to streamline the composition of NASD Dispute Resolution's Board and
implement a requirement that it contain more Public Directors than
Industry Directors. Thus, section 4.3(a) would be amended to state that
``the number of Public Directors shall exceed the number of Industry
Directors.'' FINRA's By-Laws contain a similar requirement.\32\
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\32\ See By-Laws of the Corporation, Article VII (Board of
Governors), section 4(a).
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The proposal would make other changes to Article IV, section 4.3 as
follows:
Re-structure the Board to remove the President of NASD
Dispute Resolution. The President would not be deemed a Director, and
therefore, the proposed rule change would delete several references to
the President of NASD Dispute Resolution;\33\
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\33\ See NASD Dispute Resolution By-Laws, Article IV, Sections
4.3(a) (Qualifications), 4.5 (Resignation), 4.11(c) (Meetings),
4.13(f) (Executive Committee), and 4.13(g) (Finance Committee).
Section 141(c)(2) of the General Corporation Law of the State of
Delaware provides that ``[t]he board of directors may designate 1 or
more committees, each committee to consist of 1 or more directors of
the corporation.'' (Emphasis added). Committees of the board,
therefore, may be comprised exclusively of board members. In
addition, any committee of the board that is delegated any power and
authority of the board, such as the Executive Committee, must be
comprised exclusively of board members. See Delaware General
Corporation Law, section 141(c)(2).
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Clarify that the Chair of the FINRA Board and the Chief
Executive Officer of FINRA shall be ex-officio non-voting members of
the Board;
Transfer the task of selecting the Chair of the NASD
Dispute Resolution Board from the Board members to NASD Dispute
Resolution's stockholder;\34\
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\34\ See Delaware General Corporation Law section 142, which
allows the sole stockholder to make this selection if expressly
provided for in the By-Laws.
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Eliminate the requirement that the Board select a Vice
Chair; and
State that the stockholder will designate the Chair at the
same time that the Directors are elected.
Section 4.4--Election
The proposed rule change would eliminate as unnecessary the
reference to the first meeting of NASD Regulation at which Directors
initially were elected.
Section 4.5--Resignation
The proposal would remove the requirement that Directors submit
written notice of resignation to the President. Under the proposal,
such notice would be submitted to the Chair of the Board, instead of
the President.
Section 4.6--Removal
The proposed rule change would transfer the authority to remove
Directors from a majority vote of the FINRA Board to the stockholder of
FINRA Regulation.\35\ The proposed amendment would reflect Delaware
law, which requires that a stock corporation vest the power to remove
directors with the stockholder.\36\
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\35\ The sole stockholder of the capital stock of FINRA Dispute
Resolution, Inc. is FINRA, Inc. See Article VIII, section 8.1 (Sole
Stockholder).
\36\ See Delaware General Corporation Law, section 141(k). As a
practical matter, the FINRA Board generally would be asked to pass a
resolution authorizing an officer of FINRA to execute a sole
stockholder consent on behalf of FINRA (who is the sole stockholder
of FINRA Dispute Resolution) before such a consent is executed. As
such, the FINRA Board would have a voice in the matter, but as a
matter of Delaware law, the consent authorizing the removal must be
executed by a duly authorized officer of FINRA in FINRA's capacity
as sole stockholder.
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Section 4.7--Disqualification
In connection with the proposed change to section 4.3(a), which
would require the number of Public Directors to exceed the number of
Industry Directors, the proposal would also amend section 4.7 to
clarify that when a Director is disqualified from Board service and the
Director's remaining term is not more than six months, the Board may
continue to operate and will not violate any compositional requirements
if it does not replace the disqualified Director.
Section 4.8--Filling of Vacancies
Currently, Directors of FINRA Dispute Resolution are elected
annually at the meeting of FINRA Dispute Resolution's stockholder
meeting or at a special meeting dedicated to Board elections.\37\ When
the annual election of Directors is not held on the designated date,
the NASD Dispute Resolution By-Laws charge the Directors to ``cause
such election'' to be held.\38\ The proposed rule change would confirm
that the same process should be used by the FINRA Dispute Resolution
Board when filling vacancies among its ranks. Thus, the proposal would
amend section 4.8 to provide that the FINRA Board shall ``cause the
election'' of a qualified Director to fill the vacant position.\39\
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\37\ See current NASD Dispute Resolution By-Laws, Article IV,
section 4.4 (Election).
\38\ Id.
\39\ Pursuant to Delaware law, FINRA, as the sole stockholder of
FINRA Dispute Resolution, has the authority to execute a stockholder
consent electing an individual to the fill the vacancy pursuant to
directions of the FINRA Board. Alternatively, the FINRA Board may
pass a resolution making it known who they would like appointed to
fill the vacancy. Under this scenario, it is likely that the
remaining members of the FINRA Dispute Resolution Board will follow
the advice of its controlling stockholder and elect the recommended
individual. See Delaware General Corporation Law, section 223.
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[[Page 9463]]
Section 4.9--Quorum and Voting
The proposed rule change would remove a cross-reference to section
4.14(b) in the quorum provision, and also amend the provision to
clarify that, when there is a quorum, a majority vote of the Directors
present at a meeting constitutes action of the Board.
Section 4.12--Notice of Meetings; Waiver of Notice
The proposal would clarify the conditions under which the NASD
Dispute Resolution Board may meet. The current NASD Dispute Resolution
By-Laws instruct that a Director may waive notice of a Board meeting by
being present at the meeting, so long as the Director did not attend
the meeting solely to object to the meeting taking place.\40\ FINRA is
proposing to amend section 4.12(c) to clarify that a Board meeting is a
legal meeting if all Directors are present and no Director is present
solely for the purpose of objecting to the meeting taking place.
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\40\ See current NASD Dispute Resolution By-Laws, Article IV,
section 4.12(b) (Notice of Meeting; Waiver of Notice) and Article
IX, section 9.3(b) (Waiver of Notice).
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The proposed rule change also would amend section 4.12(a) and (b)
to replace the phrase ``telegraph, telefax, cable, radio, or wireless''
with the new term ``electronic transmission.'' \41\ For an explanation
of the term ``electronic transmission,'' see the discussion under
``Amendments to Article I--Definitions'' above.
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\41\ FINRA proposed similar changes to Article IV, Section 4.12
(Notice of Meeting; Waiver of Notice) and Article XII, Section 12.3
(Waiver of Notice) of the FINRA Regulation By-Laws. See Securities
Exchange Act Rel. No. 59696 (April 2, 2009), 74 FR 16020 (April 8,
2009) (File No. SR-FINRA-2009-020).
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Section 4.13--Committees
As explained under the discussion of section 4.3(a), the proposal
would implement a requirement that the FINRA Dispute Resolution Board
contain more Public Directors than Industry Directors.\42\ In
furtherance of this change, references throughout Article IV to
balancing ``Industry'' and ``Non-Industry'' Board members would be
replaced with references to balancing ``Industry'' and ``Public'' Board
members. Similarly, the proposal would remove the requirement that the
Executive Committee include at least one Non-Industry Member and
institute the requirement that Public Directors shall exceed Industry
Directors on FINRA Dispute Resolution's Executive Committee of the
Board.\43\
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\42\ See also proposed Article I(r) (Industry Director);
proposed Article I(s) (Industry Member); proposed Article I(w)
(Public Director); and proposed Article I(x) (Public Member).
\43\ See Article IV, section 4.12(f) (Executive Committee).
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Section 4.15--Action Without Meeting
The proposal would make a related change to section 4.15 to
eliminate the requirement that unanimous consent for taking action
without a meeting specifically be in writing and filed with the minutes
of the meeting. Instead, the proposal would require the consent to be
``in accordance with applicable law,'' which in the instance of FINRA
Dispute Resolution, would be Delaware law.
FINRA believes that the proposed amendments to Article IV would
align FINRA Dispute Resolution's Board structure with that of FINRA and
its other subsidiary, and conform FINRA Dispute Resolution's corporate
practices to Delaware law.
Amendment to Article V--Officers, Agents, and Employees
Section 5.1--Officers
As explained under the discussion of Article IV, section 4.3, the
proposed rule change would re-structure the Board to remove the
President of FINRA Dispute Resolution as a Director of the Board.\44\
In connection with this change, the proposal would remove a reference
to the President from section 5.1, so that the amended language would
state, in relevant part, that none of the officers need to be Directors
of FINRA Dispute Resolution.
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\44\ Supra note 32.
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Amendments to Article VIII--Capital Stock
Section 8.3--Signatures
The proposed rule change would amend several provisions regarding
FINRA Dispute Resolution's capital stock. Currently, under section
8.3(a), FINRA's approach to the corporate law issue of signing
certificates representing shares of FINRA Dispute Resolution capital
stock is to have these shares signed by FINRA Dispute Resolution
officers. Under the proposed re-structuring of the Board, FINRA Dispute
Resolution would not have an officer as Chair of the Board. Thus, FINRA
is proposing to remove the provision that permits the Chair of the
Board to sign stock certificates, and limit the authority to sign such
certificates to the President, Vice President, Secretary or Treasurer
of FINRA Dispute Resolution.
FINRA is proposing to amend section 8.3(b) to remove the
limitations on the type of signatures required on certificates of
capital stock. The current provision states, in relevant part, that
``if any such certificates are countersigned by a transfer agent other
than NASD Dispute Resolution or its employee, or by a registrar other
than NASD Dispute Resolution or its employee, any other signature on
the certificate may be a facsimile.'' The proposed amendment would
eliminate limitations on when signatures on certificates representing
shares of FINRA Dispute Resolution's capital stock may be facsimiles
and permit any signature to be a facsimile. Thus, under the proposal,
the provision would be amended to state that ``any signature on the
stock certificate may be a facsimile.'' FINRA believes this change
would be consistent with current practice that permits its certificates
representing capital stock to be sealed with a facsimile of FINRA
Dispute Resolution's corporate seal.
Section 8.4--Stock Ledger
Currently, section 8.4(a) of the NASD Dispute Resolution By-Laws
requires that the FINRA Dispute Resolution Secretary, or another
officer, employee, or agent, keep a record of FINRA Dispute
Resolution's capital stock ownership and ``the number of shares
represented by each such certificate.'' FINRA is proposing to change
several references to ``capital stock'' to ``certificates representing
shares of capital stock'' or similar constructions, instead of
``certificates for shares of capital stock.'' \45\ This change would
make NASD Dispute Resolution's By-Laws more consistent with the
language of the applicable section of the General Corporation Law of
the State of Delaware.\46\
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\45\ The proposal would delete as imprecise the words
``certificates for'' in the discussion of potential registration of
shares of capital stock. See proposed NASD Dispute Resolution By-
Laws, Article VIII, section 8.4(b) (Stock Ledger), 8.5 (Transfers of
Stock), 8.6 (Cancellation), and 8.7 (Lost, Stolen, Destroyed, and
Mutilated Certificates).
\46\ See Delaware General Corporation Law section 158.
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Amendments to Article IX--Miscellaneous Provisions
Section 9.3--Waiver of Notice
FINRA is proposing to amend section 9.3(a) of the NASD Dispute
Resolution By-Laws to replace the phrase ``telegraph, telefax, cable,
radio, or wireless'' with the new term ``electronic transmission.''
\47\
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\47\ See supra note 40, and the explanation of the term
``electronic transmission'' under ``Amendments to Article I--
Definitions.''
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[[Page 9464]]
Conforming Changes Relating to the New FINRA Name and Other Technical
Changes
FINRA is proposing to implement certain other non-substantive
changes to all articles of the NASD Dispute Resolution By-Laws. The
proposed rule change would make certain non-substantive changes to the
NASD Dispute Resolution By-Laws as follows:
``The NASD'' or ``NASD'' would be replaced with ``FINRA''
or ``the Corporation;''
``NASD Dispute Resolution'' would be changed to ``FINRA
Dispute Resolution;''
``The Rules of the Association'' would be replaced with
``the Rules of the Corporation;''
``National Nominating Committee'' would be replaced with
``Nominating Committee;''
A reference to ``FINRA Regulation'' would be added; and
``Association'' would be replaced with ``Corporation.''
FINRA is also proposing to amend Article II, section 2.1 to change
the name and address of the registered agent from The Corporation Trust
Company, 1209 Orange Street, Wilmington, DE 19801 to Corporation
Creations Network Inc., 1308 Delaware Avenue, Wilmington, DE 19806.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A of the Act, including Section 15A(b)(2) of
the Act,\48\ in that it provides for the organization of FINRA and
FINRA Dispute Resolution in a manner that will permit FINRA to carry
out the purposes of the Act, to comply with the Act, and to enforce
compliance by FINRA members and persons associated with FINRA members
with the Act, the rules and regulations thereunder, FINRA and NASD
rules and the Federal securities laws. FINRA further believes that the
proposed rule change is consistent with Section 15A(b)(4) of the
Act,\49\ which requires, among other things, that FINRA's rules assure
a fair representation of its members in the selection of its directors
and administration of its affairs and provides that one or more
directors shall be representative of issuers and investors and not be
associated with a member of FINRA, broker or dealer. FINRA believes
that the proposed composition of its Dispute Resolution Board would
fairly and effectively represent users of the dispute resolution forum,
and would help resolve dispute resolution issues in a manner that will
redound to the benefit of investors.
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\48\ 15 U.S.C. 78o-3(b)(2).
\49\ 15 U.S.C. 78o-3(b)(4).
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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, as amended.
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 by FINRA.
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-2010-007 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-2010-007. 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. 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 the File Number SR-FINRA-
2010-007 and should be submitted on or before March 23, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\50\
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\50\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4235 Filed 3-1-10; 8:45 am]
BILLING CODE 8011-01-P