[Federal Register Volume 75, Number 77 (Thursday, April 22, 2010)]
[Notices]
[Pages 21083-21085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-9284]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61934; File No. SR-BX-2010-028]
Self-Regulatory Organizations; NASDAQ OMX BX; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Certain
Rules To Reflect Changes to Corresponding FINRA Rules
April 16, 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 April 5, 2010, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Exchange has designated
the proposed rule change as constituting a non-controversial rule
change under Rule 19b-4(f)(6) under the Act,\3\ which renders the
proposal effective upon filing with the Commission. 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.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing this proposed rule change to delete Rule
3130 and IM-3130, to adopt a new Rule 4000A series, and to amend Rules
9552, 9554, 9557 and 9559 to conform BX's rules to recent changes to
the rules of the Financial Industry Regulatory Authority (``FINRA'').
The Exchange will implement the proposed rule change thirty days after
the date of the filing. The text of the proposed rule change is
available at http://nasdaqomxbx.cchwallstreet.com, at the Exchange's
principal office, 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, the Exchange 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. The Exchange 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
BX proposes certain conforming changes to the rules concerning
members' financial responsibilities and the rules concerning expedited
hearings in light of changes made to the analogous rules of FINRA. BX
based much of its rules on those of The NASDAQ Stock Market LLC
(``NASDAQ''). Similarly, many of NASDAQ's rules are based on rules of
FINRA (formerly the National Association of Securities Dealers
(``NASD'')). During 2008, FINRA embarked on an extended process of
moving rules formerly designated as ``NASD Rules'' into a consolidated
FINRA rulebook. In most cases, FINRA has renumbered these rules, and in
some cases has substantively amended them. Accordingly, BX also has
initiated a process of modifying its rulebook to ensure that BX rules
corresponding to FINRA/NASD rules continue to mirror them as closely as
practicable. In some cases, it is not possible for the rule numbers of
BX rules to mirror corresponding FINRA rules, because existing or
planned BX rules make use of those numbers. However, wherever possible,
BX plans to update its rules to reflect changes to corresponding FINRA
rules.
As part of this rule consolidation process, FINRA recently made
several changes to its financial responsibility rules, which are
largely incorporated by reference in BX's rules.\4\ In addition, FINRA
also recently amended certain rules under its Rule 9000 Series
concerning expedited proceedings, which are closely mirrored in BX's
Rule 9000 Series.\5\ Accordingly, BX is proposing to amend its
analogous rules consistent with the changes made by FINRA, as discussed
below.
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\4\ Securities Exchange Act Release No. 60933 (November 4,
2009), 74 FR 58334 (November 12, 2009) (SR-FINRA-2008-067).
\5\ Securities Exchange Act Release No. 61242 (December 28,
2009), 75 FR 167 (January 4, 2010) (SR-FINRA-2009-076).
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Financial Responsibility Rules:
FINRA's new consolidated financial responsibility rules establish
criteria that promote the permanency of member's capital, requiring the
review and approval of material financial transactions and establishing
criteria intended to identify member firms approaching financial
difficulty and to monitor their financial and operational condition.
FINRA's new financial responsibility rules incorporate many of the
provisions of the prior NASD and NYSE rules, but streamlined and
reorganized the provisions. FINRA also tiered many provisions to apply
only to those firms that clear or carry customer accounts.
Currently, BX Rule 3130 and IM-3130 incorporate by reference old
NASD Rule 3130 and IM-3130. These rules concerned FINRA's authority to
regulate the activities of members experiencing financial or
operational difficulties. In adopting the new financial responsibility
rules, FINRA eliminated NASD Rule 3130 and IM-3130, and replaced them
with several rules that represented a consolidation of the old NASD and
NYSE rules concerning financial responsibility. As a consequence, BX is
also deleting Rule 3130 and IM-3130, and replacing them with new rules
found under a new Rule 4000A series.\6\ These new BX rules incorporate
by reference the analogous newly-adopted financial responsibility rules
of FINRA found in FINRA Rules 4110, 4120, 4140 and 4521. Consistent
with current BX Rule 3130(b), BX is proposing to make clear in proposed
Rules 4110A, 4120A and 4140A that references to Rule 9557 are to BX's
Rule 9557.
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\6\ FINRA also eliminated NASD Rule 3131 and adopted FINRA Rule
4130 in its place. NASD Rule 3131 concerned the regulation of
members registered with the SEC pursuant to Section 15C of the
Exchange Act. BX does not have such a class of membership, and as
such, did not adopt NASD Rule 3131 and is not proposing to adopt, or
incorporate by reference, FINRA Rule 4130.
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FINRA also revised FINRA Rule 9557 (Procedures for Regulating
Activities Under FINRA Rules 4110, 4120 and 4130 Regarding a Member
Experiencing Financial or Operational Difficulties) and FINRA Rule 9559
(Hearing Procedures for Expedited Proceedings Under the Rule 9550
Series). FINRA Rules 9557 and 9559 address service of notice to member
firms that are experiencing financial or operational
[[Page 21084]]
difficulties and the related hearing procedures. FINRA made a number of
conforming revisions to Rules 9557 and 9559 in light of several of the
new financial responsibility rules. BX Rules 9557 and 9559 mirror the
analogous rules of FINRA in substance, with only minor technical
differences.\7\ As such, BX is proposing to make the same changes Rules
9557 and 9559 as FINRA made to its Rules 9557 and 9559, with minor
technical differences.
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\7\ For example, FINRA Rule 9557(c)(5) references ``FINRA
staff'' whereas proposed BX Rule 9557(c)(5) references instead
``Exchange Regulation staff.''
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Expedited Proceedings Rules:
FINRA recently made certain changes to its Rule 9000 series
concerning expedited proceedings. The expedited proceedings rules of
FINRA, and in turn BX, address certain types of misconduct more quickly
than would be possible under the ordinary disciplinary process, while
also affording members numerous procedural protections. In its rule
change, FINRA modified various time requirements regarding expedited
proceedings, added an expedited proceeding for failure to pay
restitution, and harmonized a remedy in an expedited procedure with a
remedy in the FINRA By-Laws. With respect to modifying time
requirements, FINRA amended Rule 9552 to shorten the period before a
suspension automatically turns into an expulsion or bar from six to
three months. In addition, FINRA amended Rule 9559 to shorten the
timeframe within which a hearing must be held from 60 days after a
hearing request to 30 days after the request. As a consequence of
shortening the timeframe for hearings, FINRA also shortened the
timeframes under Rule 9559(h) concerning the pre-hearing exchange of
documents between the parties to the expedited proceeding. FINRA
amended Rule 9554, which contains expedited procedures for failure to
pay FINRA arbitration awards, to also permit FINRA to take expedited
action for failure to comply with a FINRA order of restitution or a
FINRA settlement providing for restitution. FINRA noted that it did not
have explicit authority to take expedited action against firms or
associated persons who fail to pay restitution to a third party
(usually investors who have been harmed), and that its only recourse
was to initiate an ordinary disciplinary action, which can take several
months to conclude. In adding the new expedited procedure, FINRA stated
it believed that firms and associated persons should not be permitted
to continue doing business for prolonged periods when they have failed
to pay restitution to third parties.
FINRA also eliminated from Rule 9554 the remedy of barring an
individual for failure to pay an arbitration award. FINRA noted that it
had no such authority under its by-laws, and as such that it was
harmonizing the remedy for this misconduct with the remedy provided in
its by-laws. BX is proposing to incorporate all the changes made by
FINRA to its expedited proceedings rules into the analogous BX Rules
9552, 9554, and 9559.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and with
Sections 6(b)(5) of the Act,\9\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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. The proposed
changes will conform BX rules to recent changes made to corresponding
FINRA rules, to promote application of consistent regulatory standards.
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\8\ 15 U.S.C. 78f.
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ thereunder in
that it effects a change that: (i) Does not significantly affect the
protection of investors or the public interest; (ii) does not impose
any significant burden on competition; and (iii) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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In its guidance on the proposed rules of Self-Regulatory
Organizations (``SROs''),\12\ the Commission concluded that filings
based on the rules of another SRO already approved by the Commission
are eligible for immediate effectiveness under Rule 19b-4(f)(6). The
Commission noted that ``a proposed rule change appropriately may be
filed as an immediately effective rule so long as it is based on and
similar to another SRO's rule and each policy issue raised by the
proposed rule (i) has been considered previously by the Commission when
the Commission approved another exchange's rule (that was subject to
notice and comment), and (ii) the rule change resolves such policy
issue in a manner consistent with such prior approval.'' \13\ The
Exchange notes that the changes are virtually identical to changes made
by FINRA approved by the Commission. BX proposes to adopt every change
adopted by FINRA, with only minor changes or omissions based on the
nature of BX or its members.
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\12\ Securities Exchange Act Release No. 58092 (July 3, 2008),
73 FR 40144 (July 11, 2008).
\13\ Id. at 40149.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, 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-BX-2010-028 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-BX-2010-028. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your
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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 the Exchange. 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-BX-2010-028
and should be submitted on or before May 13, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-9284 Filed 4-21-10; 8:45 am]
BILLING CODE 8011-01-P