[Federal Register Volume 74, Number 203 (Thursday, October 22, 2009)]
[Notices]
[Pages 54614-54616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25431]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60836; File No. SR-FINRA-2009-060]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend 
FINRA Rule 8210 (Provision of Information and Testimony and Inspection 
and Copying of Books)

October 16, 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 September 10, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been 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 FINRA Rule 8210 to clarify the scope of 
the rule and to clarify certain issues with regard to service of 
requests made pursuant to the rule.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

8200. INVESTIGATIONS

8210. Provision of Information and Testimony and Inspection and Copying 
of Books

(a) Authority of Adjudicator and FINRA Staff

    For the purpose of an investigation, complaint, examination, or 
proceeding authorized by the FINRA By-Laws or rules, an Adjudicator or 
FINRA staff shall have the right to:
    (1) Require a member, person associated with a member, or any other 
person subject to FINRA's jurisdiction to provide information orally, 
in writing, or electronically (if the requested information is, or is 
required to be, maintained in electronic form) and to testify at a 
location specified by FINRA staff, under oath or affirmation 
administered by a court reporter or a notary public if requested, with 
respect to any matter involved in the investigation, complaint, 
examination, or proceeding; and
    (2) Inspect and copy the books, records, and accounts of such 
member or person with respect to any matter involved in the 
investigation, complaint, examination, or proceeding that is in such 
member's or person's possession, custody or control.
    (b) through (c) No Change.

(d) Notice

    A notice under this Rule shall be deemed received by the member or 
currently or formerly registered person to whom it is directed by 
mailing or otherwise transmitting the notice to the last known business 
address of the member or the last known residential address of the 
person as reflected in the Central Registration Depository. With 
respect to a person who is currently associated with a member in an 
unregistered capacity, a notice under this Rule shall be deemed 
received by the person by mailing or otherwise transmitting the notice 
to the last known business address of the member as reflected in the 
Central Registration Depository. With respect to a person subject to 
FINRA's jurisdiction who was formerly associated with a member in an 
unregistered capacity, a notice under this Rule shall be deemed 
received by the person upon personal service, as set forth in Rule 
9134(a)(1).
    If the Adjudicator or FINRA staff responsible for mailing or 
otherwise transmitting the notice to the member or person has actual 
knowledge that the address in the Central Registration Depository is 
out of date or inaccurate, then a copy of the notice shall be mailed or 
otherwise transmitted to:
    (1) The last known business address of the member or the last known 
residential address of the person as reflected in the Central 
Registration Depository; and
    (2) Any other more current address of the member or the person 
known to the Adjudicator or FINRA staff who is responsible for mailing 
or otherwise transmitting the notice.
    If the Adjudicator or FINRA staff responsible for mailing or 
otherwise transmitting the notice to the member or person knows that 
the member or person is represented by counsel regarding the 
investigation, complaint, examination, or proceeding that is the 
subject of the notice, then the notice shall be served upon counsel by 
mailing or otherwise transmitting the notice to the counsel in lieu of 
the member or person, and any notice served upon counsel shall be 
deemed received by the member or person.
    (e) through (f) No Change.
* * * * *

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 Rule 8210 (Provision of Information and Testimony and 
Inspection and Copying of Books) confers on FINRA staff the authority 
to compel a member, person associated with a member, or other person 
over whom FINRA has jurisdiction, to produce documents, provide 
testimony, or supply written responses or electronic data in connection 
with an investigation, complaint, examination or adjudicatory 
proceeding. The proposed rule change would clarify the scope of FINRA's 
authority in this regard, specify the method of service for certain 
unregistered persons under the rule, and authorize service on attorneys 
who are representing clients, as described more fully below.
    The rule applies to all members, associated persons, and other 
persons over which FINRA has jurisdiction, including former associated 
persons subject to FINRA's jurisdiction as described in the FINRA By-
Laws.\3\ FINRA Rule 8210(c) provides that a member's or associated 
person's failure to provide information or testimony or to permit an 
inspection and copying of books, records, or accounts is a violation of 
the rule.
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    \3\ See FINRA By-Laws, Article V, Section 4(a) (Retention of 
Jurisdiction).
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Information in a Member's or Person's Possession, Custody or Control

    FINRA Rule 8210(a)(2) currently provides that FINRA staff shall 
have the right to inspect and copy the books, records and accounts of 
all applicable members and persons with respect to any matter involved 
in the investigation, complaint, examination or proceeding. The 
proposed rule change would clarify

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that the information must be in the member's or person's ``possession, 
custody or control.'' \4\ This language parallels the Federal Rules of 
Civil Procedure regarding document requests and subpoenas for 
documents.\5\
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    \4\ In using the word ``control,'' in addition to possession and 
custody, FINRA intends to require members or persons covered by the 
rule to provide, for example, records that they have the legal 
right, authority, or ability to obtain upon demand. See Camden Iron 
& Metal v. Marubeni Am. Corp., 138 F.R.D. 438, 441 (D.N.J. 1991) 
(``Federal courts construe `control' very broadly under [Federal] 
Rule [of Civil Procedure] 34.''). Moreover, the proposed addition of 
``possession, custody or control'' will address questions that have 
arisen in litigation regarding the scope of the rule. See, e.g., In 
re: Jay Alan Ochanpaugh, Securities Exchange Act Release No. 54363 
(August 25, 2006).
    \5\ See Fed. R. Civ. P. 34 and 35.
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Notice to Associated but Unregistered Persons

    FINRA Rule 8210 addresses the legal concept of service of a written 
request by using the term ``notice'' of a request. Currently, FINRA 
Rule 8210(d) states that notice shall be deemed received by the member 
or associated person when a copy of the notice is mailed or otherwise 
transmitted to the last known relevant address as reflected in the 
Central Registration Depository (``CRD[reg]''). The CRD system contains 
information concerning registered members and persons,\6\ but in most 
instances it does not contain information concerning unregistered 
persons who are or were associated with a member.\7\
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    \6\ Indeed, members and registered persons have an affirmative 
duty to update CRD with their current address for at least two years 
after they have had their registration terminated. See Notice to 
Members 99-77 (noting that FINRA requests for information and 
disciplinary complaints issued during the period of FINRA's retained 
jurisdiction will be mailed to a person's last address in FINRA's 
records).
    \7\ In some limited instances, CRD may contain information 
concerning unregistered associated persons who were required to 
submit information, including fingerprint information, to CRD in 
connection with their employment.
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    Although not routine, some investigations require FINRA examiners 
or investigators to request information from persons currently or 
formerly associated with a member in an unregistered capacity.\8\ The 
current rule is unclear as to what would constitute proper notice on 
such persons for whom information is not available in CRD. The proposed 
rule change would explicitly address the methods by which notice will 
be deemed received by persons currently or formerly associated with a 
member in an unregistered capacity.
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    \8\ Persons associated with a member who are unregistered may 
include persons exempt from registration, e.g., those whose 
functions are solely and exclusively clerical or ministerial; those 
whose functions are related solely and exclusively to the member's 
need for nominal corporate officers or for capital participation; 
and those whose functions are related solely and exclusively to 
transactions in municipal securities, transactions in commodities, 
or transactions in security futures (provided they are registered 
with a registered futures association). See, e.g., NASD Rule 
1060(a). For purposes of FINRA Rule 8210, unregistered persons 
associated with a member may also include direct owners and 
executive officers listed in Schedule A of Form BD of a member whose 
job functions do not otherwise require them to register with FINRA. 
See FINRA By-Laws, Article I(rr) (definition of ``person associated 
with a member'').
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    With respect to unregistered persons currently associated with a 
member, the proposed rule change would provide that notice shall be 
deemed received by mailing or otherwise transmitting the notice to the 
last known business address of the member as reflected in CRD. In 
addition, the proposed rule change would retain the provision that, if 
FINRA staff responsible for transmitting the notice has actual 
knowledge that the member's address provided through CRD is out of date 
or inaccurate, then a copy of the notice must be transmitted to both 
the address provided through CRD, as well as any more current address 
known to FINRA staff.
    With respect to unregistered persons formerly associated with a 
member, the proposed rule change would provide that notice shall be 
deemed received upon personal service, which is defined as set forth in 
FINRA Rule 9134(a)(1).\9\ FINRA Rule 9134(a)(1) is based on traditional 
concepts for serving a summons under Rule 4 of the Federal Rules of 
Civil Procedure.
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    \9\ FINRA Rule 9134(a)(1) provides as follows:
    Personal service may be accomplished by handing a copy of the 
papers to the person required to be served; leaving a copy at the 
person's office with an employee or other person in charge thereof; 
or leaving a copy at the person's dwelling or usual place of abode 
with a person of suitable age and discretion then residing therein.
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Notice to Members and Persons Represented by Counsel

    The proposed rule change would amend FINRA Rule 8210 to explicitly 
address issues of service on members or persons that are known to be 
represented by counsel. Currently, the rule does not explicitly permit 
FINRA staff to serve notice on a member's or person's counsel in 
situations in which FINRA staff knows that the member or person is 
represented by counsel regarding the matter in question. The proposed 
rule change would allow FINRA staff to recognize that counsel can act 
as an authorized agent on behalf of a member or person. It would 
provide that, if FINRA staff knows that a member or person is 
represented by counsel regarding the matter in question, then notice 
shall be provided to counsel rather than to the member or person. The 
proposed rule change would harmonize FINRA's rule in this regard with 
Codes of Professional Conduct in many states regarding service on 
counsel.\10\
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    \10\ See, e.g., American Bar Association model Rule of 
Professional Conduct 4.2 (``ABA Rule 4.2''). ABA Rule 4.2 provides 
as follows:
    [i]n representing a client, a lawyer shall not communicate about 
the subject of the representation with a person the lawyer knows to 
be represented by another lawyer in the matter, unless the lawyer 
has the consent of the other lawyer or is authorized to do so by law 
or a court order.
    Many states have rules regarding communication with a person 
represented by counsel that are based on ABA Rule 4.2.
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be 30 days following 
publication of the Regulatory Notice announcing Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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. Vigorous enforcement of the rule has been described as 
``help[ing to] ensure the continued strength of the self-regulatory 
system--and thereby enhanc[ing] the integrity of the securities markets 
and protect[ing] investors.'' \12\ FINRA believes that the proposed 
rule change will clarify the scope of its authority regarding requests 
pursuant to FINRA Rule 8210, and explicitly provide FINRA staff with a 
method to effectively serve notice on persons currently or formerly 
associated with a member in an unregistered capacity, as well as to 
members and persons represented by counsel. Thus, FINRA believes the 
proposed rule change will benefit its enforcement program by providing 
clarity regarding both scope of requests and service of requests 
pursuant to FINRA Rule 8210, consistent with the statutory provisions 
noted above.
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    \11\ 15 U.S.C. 78o-3(b)(6).
    \12\ In re: Charles C. Fawcett, IV, Securities Exchange Act 
Release No. 56770 (November 8, 2007).
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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

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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

    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-2009-060 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-2009-060. 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-2009-060 and should be 
submitted on or before November 12, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-25431 Filed 10-21-09; 8:45 am]
BILLING CODE 8011-01-P