[Federal Register Volume 76, Number 70 (Tuesday, April 12, 2011)]
[Notices]
[Pages 20407-20409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8633]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64215; File No. SR-NASDAQ-2011-045]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend NASDAQ Rule 3011 To Reflect Changes to a Corresponding Financial
Industry Regulatory Authority, Inc. Rule
April 6, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on March 31, 2011, The NASDAQ Stock Market LLC (the ``Exchange''
or ``NASDAQ'') 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 substantially prepared by the
Exchange. 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
The Exchange proposes to amend NASDAQ Rule 3011 to reflect recent
changes to a corresponding rule of the Financial Industry Regulatory
Authority, Inc. (``FINRA''). The text of the proposed rule change is
available at http://nasdaq.cchwallstreet.com, at NASDAQ'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
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, NASDAQ also has been modifying
its rulebook to ensure that NASDAQ rules corresponding to FINRA/NASD
rules continue to mirror them as closely as practicable. In some cases,
it will not be possible for the rule numbers of NASDAQ rules to mirror
corresponding FINRA rules, because existing or planned NASDAQ rules
make use of those numbers. However, wherever possible, NASDAQ plans to
update its rules to reflect changes to corresponding FINRA rules.
[[Page 20408]]
This filing addresses NASDAQ Rule 3011, which pertains to anti-
money laundering compliance programs.\3\ In SR-FINRA-2009-039,\4\ FINRA
adopted: (1) NASD Rule 3011 (AML Compliance Program) as FINRA Rule 3310
(AML Compliance Program), without substantive change; (2) NASD IM-3011-
1 (Independent Testing Requirements) as FINRA Rule 3310.01, subject to
certain amendments; and (3) NASD IM-3011-2 (Review of AML Compliance
Person Information) as FINRA Rule 3310.02, without substantive change.
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\3\ NASDAQ Rule 3011 will remain numbered as Rule 3011, rather
than Rule 3310, like FINRA's rule, because NASDAQ already has a
different rule operating as NASDAQ Rule 3310.
\4\ Securities Exchange Act Release No. 60645 (September 10,
2009), 74 FR 47630 (September 16, 2009) (SR-FINRA-2009-039).
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FINRA Rule 3310 requires that each AML compliance program must, at
a minimum: (1) Establish and implement policies and procedures that can
be reasonably expected to detect and cause the reporting of suspicious
transactions; (2) establish and implement policies, procedures, and
internal controls reasonably designed to achieve compliance with the
Bank Secrecy Act (``BSA'') \5\ and its implementing regulations
promulgated by the Department of the Treasury; (3) provide in most
instances for annual (on a calendar-year basis) independent testing for
compliance to be conducted by member personnel or a qualified outside
party; (4) designate and identify to FINRA an individual or individuals
(i.e., AML compliance person(s)) who will be responsible for
implementing and monitoring the day-to-day operations and internal
controls of the AML compliance program and provide prompt notification
to FINRA of any changes to the designation; and (5) provide on-going
training for appropriate persons. NASDAQ is proposing to adopt FINRA
Rule 3310 in the same form as NASDAQ Rule 3011.
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\5\ See Currency and Foreign Transactions Reporting Act of 1970
(commonly referred to as the Bank Secrecy Act), 12 U.S.C. 1829b, 12
U.S.C. 1951-1959, and 31 U.S.C. 5311-5330.
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FINRA Rule 3310.01 (Independent Testing Requirements) is
substantially similar to NASD IM-3011-1 (the predecessor to FINRA Rule
3310.01) in that: (1) Members should undertake more frequent testing
than required if circumstances warrant; (2) the person conducting the
independent test must have a working knowledge of applicable
requirements under the BSA and its implementing regulations; and (3)
the testing cannot be conducted by any person who performs the
functions being tested, by the AML compliance person(s), or by any
person who reports to any of these persons.
However, NASD IM-3011-1 permitted the AML compliance program
testing to be conducted by persons who report to either the AML
compliance person or persons performing the functions being tested if:
(1) The member has no other qualified internal personnel to conduct the
test; (2) the member establishes written policies and procedures to
address conflicts that may arise from allowing the test to be conducted
by a person who reports to the person(s) whose activities he or she is
testing (e.g., anti-retaliation procedures); (3) to the extent
possible, the person conducting the test reports the results of the
test to someone who is senior to the AML compliance person or persons
performing the functions being tested; and (4) the member documents its
rationale, which must be reasonable, for determining there is no other
alternative than to comply in this manner. In addition, if the person
does not report the results consistent with (3) above, the member must
document a reasonable explanation for not doing so.
This provision is referred to as the ``independent testing
exception.'' When it renumbered NASD IM-3011-1 as FINRA Rule 3310.01,
FINRA eliminated the independent testing exception, because the
Financial Crimes Enforcement Network (``FinCEN''), a bureau within the
Department of the Treasury that is responsible for administering the
BSA and its implementing regulations, has stated that the independent
testing provision of the BSA precludes AML program testing by personnel
with an interest in the outcome of the testing and that an independent
testing exception, such as the one previously in NASD IM-3011-1, is
inconsistent with the BSA's independent testing provision and FinCEN's
interpretive guidance on the BSA's independent testing requirement. In
light of this, NASDAQ proposes to adopt FINRA Rule 3310.01, which
eliminates the independent testing exception, in the same form as
NASDAQ Rule 3011.01.
Finally, FINRA Rule 3310.02 (Review of AML Compliance Person
Information) requires each member to identify, review, and if
necessary, update the information regarding its AML compliance person
in the manner prescribed in NASD Rule 1160. NASDAQ is proposing to
adopt this in the same form as NASDAQ Rule 3011.02.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b)(5) of the Act,\6\ in that it is designed 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. The proposed
changes will conform NASDAQ Rule 3011 to recent changes made to a
corresponding FINRA rule in order to promote application of consistent
regulatory standards.
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\6\ 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
impose any burden on competition 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
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) \8\ thereunder.
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\7\ 15 U.S.C. 78s(b)(3)(A).
\8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
[[Page 20409]]
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-NASDAQ-2011-045 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-NASDAQ-2011-045. 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 the 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-
NASDAQ-2011-045 and should be submitted on or before May 3, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8633 Filed 4-11-11; 8:45 am]
BILLING CODE 8011-01-P