[Federal Register Volume 74, Number 70 (Tuesday, April 14, 2009)]
[Notices]
[Pages 17263-17264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-8426]



[[Page 17263]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59726; File No. SR-FINRA-2009-025]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Incorporated NYSE Rules 2, 2A and 325 To 
Conform to Amendments Made by NYSE

April 8, 2009.
    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 7, 2009, 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'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by 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

    FINRA is proposing to amend Incorporated NYSE Rules 2 (``Member,'' 
``Membership,'' ``Member Firm,'' etc.), 2A (Jurisdiction) and 325 
(Capital Requirements Member Organizations) \4\ to conform to rule 
changes by the New York Stock Exchange, LLC (``NYSE'') to its versions 
of Rules 2, 2A and 325.\5\
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    \4\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``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 FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \5\ See File No. SR-NYSE-2008-46; File No. SR-NYSE-2008-127.
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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 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
    FINRA is proposing changes to Incorporated NYSE Rules 2,\6\ 2A \7\ 
and 325 \8\ to conform these rules to amendments made by NYSE which 
established a new market model (``New Model'').\9\ As described by the 
NYSE in its filing,\10\ the New Model: (i) Provides market participants 
with additional abilities to post hidden liquidity on Exchange systems; 
(ii) creates a Designated Market Maker (``DMM''), and phases out the 
NYSE specialist; and (iii) enhances the speed of execution through 
technological enhancements and reduces message traffic between Exchange 
systems and its DMMs.
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    \6\ Incorporated NYSE Rule 2 defines terms including ``member,'' 
``member organization,'' and ``approved person.''
    \7\ Incorporated NYSE Rule 2A sets forth the jurisdiction of the 
Exchange.
    \8\ Incorporated NYSE Rule 325 sets forth capital requirements 
for member organizations.
    \9\ See Securities Exchange Act Release No. 58845 (October 24, 
2008), 73 FR 64379 (October 29, 2008) (Order Approving File No. SR-
NYSE-2008-46); Securities Exchange Act Release No. 59077 (December 
10, 2008), 73 FR 76691 (December 17, 2008) (Order Approving File No. 
SR-NYSE-127). [sic]
    \10\ See File No. SR-NYSE-2008-46.
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    The NYSE believes that its New Model requires a new type of market 
maker \11\ with the ability to contribute liquidity in a security by 
trading competitively for its dealer account. The NYSE proposed to 
phase out the existing specialist system and to replace specialists 
with Designated Market Makers who will be employees of Designated 
MarketMaker Units (``DMM Units''). According to the NYSE, although the 
specialist system has served a central role in equities trading at the 
NYSE for well over a century, specialist trading is, by nature, well-
suited to manual trading, and less suitable for electronic trading. The 
NYSE recognizes that the scheme of rules and obligations governing 
specialists can unduly hamstring them in an electronic market and 
prevent them from easily fulfilling their appointed role. To address 
this new reality, DMM Units will be given tools and opportunities that 
are not available to specialists, but that are more commensurate with 
trading in electronic markets.
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    \11\ The term ``market maker'' shall have the same meaning as 
that term in Section (3)(a)(38) of the Act.
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    Under the NYSE filings, definitions of ``Designated Market Maker'' 
and ``DMM Unit'' were added to NYSE Rule 2 (``Member,'' ``Membership,'' 
``Member Firm,'' etc.) and a reference to specialist was changed to DMM 
under NYSE Rule 325 (Capital Requirements Member Organizations) to 
conform these rules to the operation of the New Model.\12\
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    \12\ See supra note 5.
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    Given these changes, FINRA is proposing to make conforming changes 
to Incorporated NYSE Rules 2, 2A and 325 to ensure consistency with 
NYSE's versions of Rules 2, 2A and 325.\13\
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    \13\ Pursuant to Rule 17d-2 under the Exchange Act, NASD, NYSE, 
and NYSE Regulation, Inc. entered into an agreement (``Agreement'') 
to reduce regulatory duplication for firms that are Dual Members by 
allocating certain regulatory responsibilities for selected NYSE 
rules from NYSE Regulation to FINRA. The Agreement includes a list 
of all those rules (``Common Rules'') for which FINRA has assumed 
examination, enforcement and surveillance responsibilities under the 
Agreement relating to compliance by Dual Members to the extent that 
such responsibilities involve member firm regulation. See Securities 
Exchange Act Release No. 56148 (July 26, 2007), 72 FR 42146 (August 
1, 2007) (Notice of Filing and Order Approving and Declaring 
Effective a Plan for the Allocation of Regulatory Responsibilities).
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2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\14\ 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 is 
necessary and appropriate to conform these rules to the operation of 
NYSE's New Model and to maintain consistency with the NYSE's amendments 
to its Rules 2, 2A and 325.
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    \14\ 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

[[Page 17264]]

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

    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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \17\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\18\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. FINRA has asked the 
Commission to waive the 30-day operative delay so that the proposal may 
become operative immediately upon filing. Such waiver would permit 
FINRA to implement these changes without delay, thereby allowing 
FINRA's Incorporated NYSE Rules to maintain their status as Common 
Rules under the Agreement upon filing of the proposed rule change with 
the Commission. The Commission believes it is consistent with the 
protection of investors and the public interest to waive the 30-day 
operative delay for this reason, and hereby grants such waiver.\19\
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    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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.

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-2009-025 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-2009-025. 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 inspection 
and copying 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-2009-025 and should be 
submitted on or before May 5, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-8426 Filed 4-13-09; 8:45 am]
BILLING CODE 8010-01-P