[Federal Register Volume 75, Number 65 (Tuesday, April 6, 2010)]
[Notices]
[Pages 17456-17457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7695]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61808; File No. SR-FINRA-2010-005]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Repeal
Incorporated NYSE Rule 405(4) (Common Sales Accounts)
March 31, 2010.
On January 21, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change. The proposed rule change was
published for comment in the Federal Register on February 25, 2010.\3\
The Commission received no comments on the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Act Release No. 61543 (February 18, 2010); 75
FR 8770 (February 25, 2010).
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I. Description of the Proposal
As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\4\ FINRA proposed to repeal NYSE
Rule 405(4) (Common Sales Accounts).\5\
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\4\ 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).
\5\ For convenience, the Incorporated NYSE Rules are referred to
as the ``NYSE Rules.''
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NYSE Rule 405(4) (Common Sales Accounts) required proper
supervision of registered representatives handling common sales
accounts. The rule provided that a member might 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 provided that
such sales might 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 were satisfied: (1) The customer was identified as the
individual in whose name the securities are registered; (2) the
securities were 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 was sent to the customer; (4) all proceeds of
such sales were paid out on or immediately following settlement date;
and (5) a record was made in the common sales account that includes
certain customer-specific information.
FINRA believed that the rule as written might raise potential
investor protection concerns. The term ``isolated'' was not defined.\6\
Further, NYSE Rule 405(4) permitted 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 proposed to eliminate NYSE Rule
405(4) and not adopt its content into the Consolidated FINRA
Rulebook.\7\
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\6\ NYSE Rule 405(4) was adopted by the NYSE in the late 1960s.
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).
\7\ 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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II. Discussion
After careful review, 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 proposed
rule change is consistent with Section 15A(b)(6) of the Act, \9\ in
that it is designed, among other things, to prevent fraudulent and
manipulative acts and practices; to promote just and equitable
principles of trade; to remove impediments to and perfect the mechanism
of a free and open market and a national market system; and, in
general, to protect investors and the public interest by eliminating a
rule that contains terms that are not clearly defined and raises
potential investor protection concerns.
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\8\ In approving the proposed rule change, the Commission has
considered the rule change'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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III. Conclusion
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities association.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-FINRA-2010-010) be and
hereby 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. 2010-7695 Filed 4-5-10; 8:45 am]
BILLING CODE 8011-01-P