[Federal Register Volume 76, Number 180 (Friday, September 16, 2011)]
[Notices]
[Pages 57784-57787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23792]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65313; File No. SR-FINRA-2011-043]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend 
FINRA Rule 0160 (Definitions in FINRA By-Laws)

September 12, 2011.
    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 August 31, 2011, 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, 
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 0160 (Definitions in FINRA 
By-Laws). The proposed rule change would transfer certain defined terms 
from NASD Rule 0120 (Definitions) to FINRA Rule 0160, subject to 
certain amendments, as well as add new defined terms to reflect the 
conventions of the consolidated FINRA rulebook. The proposed rule 
change also would eliminate as unnecessary or duplicative certain 
definitions contained in NASD Rule 0120.
    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, at the 
Commission's Public Reference Room, and at the Commission's Web site at 
http://www.sec.gov.

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
Background
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ the proposed rule change would 
amend FINRA Rule 0160 (Definitions in FINRA By-Laws). FINRA Rule 0160 
provides that a term defined in the FINRA By-Laws shall have the 
meaning provided in the By-Laws when used in the rules, unless the term 
is defined differently in a rule, or unless the context of the term 
within a rule requires a different meaning. NASD Rule 0120 
(Definitions) sets forth additional defined terms that apply generally 
throughout the rules unless the context otherwise requires. Certain 
rules throughout the FINRA rulebook include defined terms that apply 
specifically for the purposes of a particular rule.
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    \3\ 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 Information Notice, March 12, 2008 (Rulebook 
Consolidation Process). For convenience, the Incorporated NYSE Rules 
are referred to as the NYSE Rules.
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    As further described below, the proposed rule change would transfer 
certain defined terms from NASD Rule 0120 to FINRA Rule 0160, subject 
to certain amendments, as well as add new defined terms to reflect the 
conventions of the Consolidated FINRA Rulebook.\4\ The proposed rule 
change also would eliminate as unnecessary or duplicative certain 
definitions contained in NASD Rule 0120. Upon Commission approval and 
implementation by FINRA of the proposed rule change, NASD Rule 0120 
will be eliminated from the current FINRA rulebook.\5\
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    \4\ FINRA Rule 0160 would be reorganized so that the defined 
terms are arranged alphabetically, as amended.
    \5\ Notwithstanding the proposed transfer of certain defined 
terms from NASD Rule 0120 to FINRA Rule 0160 in the Consolidated 
FINRA Rulebook, the defined terms in FINRA Rule 0160 would continue 
to apply equally to both the Transitional Rulebook and the 
Consolidated FINRA Rulebook, as applicable. See also Securities 
Exchange Act Release No. 58643 (September 25, 2008), 73 FR 57174 
(October 1, 2008) (Order Approving File No. SR-FINRA-2008-021), 
discussing ``Rules of General Applicability.''
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    FINRA notes that NYSE Rules 1 through 12 (with the exception of 
NYSE Rules 2A, 2B and 11) \6\ set forth defined terms generally 
applicable throughout the NYSE rules. NYSE Rule 11 provides that unless 
the context requires otherwise, the terms defined in NYSE rules shall, 
for all purposes of the NYSE rules, have the meanings therein 
specified. FINRA will address NYSE Rules 1 (``The Exchange''), 2 
(``Member,'' ``Membership,'' ``Member Firm,'' etc.), 3 (``Security''), 
4 (``Stock''), 5 (``Bond''), 6 (``Floor''), 8 (``Delivery''), 9 
(``Branch Office Manager''), 11 (Effect of Definitions) and 12 
(``Business Day'') as part of a separate phase of the rulebook 
consolidation process.
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    \6\ As part of the process of developing a Consolidated FINRA 
Rulebook, FINRA repealed NYSE Rule 2B (No Affiliation between 
Exchange and any Member Organization) (see Securities Exchange Act 
Release No. 61473 (February 2, 2010), 75 FR 6422 (February 9, 2010) 
(Order Approving File No. SR-FINRA-2009-087). FINRA will address 
NYSE Rule 2A (Jurisdiction) as part of a separate rule proposal. 
Also, FINRA is proposing to delete NYSE Rule 10 (``Registered 
Representative'') as part of the proposed changes to the 
consolidated FINRA rules addressing registration requirements. See 
Regulatory Notice 09-70 (December 2009).
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Defined Terms Transferring Without Substantive Change to FINRA Rule 
0160
    The proposed rule change would transfer the following defined terms

[[Page 57785]]

from NASD Rule 0120 to FINRA Rule 0160 without substantive change 
because they are achieving their intended purpose and are appropriate 
in their application to the consolidated FINRA rules. The proposed rule 
change would make non-substantive changes, where needed, to reflect 
FINRA's corporate name, as reflected below in the proposed definitions:
     ``Code of Procedure'': The term ``Code of Procedure'' 
means the procedural rules contained in the Rule 9000 Series. (proposed 
FINRA Rule 0160(b)(2))
     ``Customer'': The term ``customer'' shall not include a 
broker or dealer. (proposed FINRA Rule 0160(b)(4))
     ``Member'': The term ``member'' means any individual, 
partnership, corporation or other legal entity admitted to membership 
in FINRA under the provisions of Articles III and IV of the FINRA By-
Laws. (proposed FINRA Rule 0160(b)(9))
     ``Person'': The term ``person'' shall include any natural 
person, partnership, corporation, association or other legal entity. 
(proposed FINRA Rule 0160(b)(10))
     ``Selling Group'': The term ``selling group'' means any 
group formed in connection with a public offering, to distribute all or 
part of an issue of securities by sales made directly to the public by 
or through members of such selling group, under an agreement which 
imposes no financial commitment on the members of such group to 
purchase any such securities except as they may elect to do so. 
(proposed FINRA Rule 0160(b)(13))
     ``Selling Syndicate'': The term ``selling syndicate'' 
means any syndicate formed in connection with a public offering, to 
distribute all or part of an issue of securities by sales made directly 
to the public by or through participants in such syndicate under an 
agreement which imposes a financial commitment upon participants in 
such syndicate to purchase any such securities. (proposed FINRA Rule 
0160(b)(14))
Defined Terms Transferring With Minor Changes to FINRA Rule 0160
    The term ``Act'' is defined in NASD Rule 0120(a) to mean the 
Securities Exchange Act of 1934, as amended. The proposed rule change 
would modify this term to ``Exchange Act'' or ``SEA'' in proposed FINRA 
Rule 0160(b)(5) to reflect the conventions of the Consolidated FINRA 
Rulebook.
    The term ``By-Laws'' is defined in NASD Rule 0120(c) to mean the 
By-Laws of the Corporation.\7\ The proposed rule change would add to 
this definition in proposed FINRA Rule 0160(b)(1) the language ``or the 
FINRA By-Laws'' to clarify that the By-Laws are commonly referred to as 
either the By-Laws of the Corporation or the FINRA By-Laws.
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    \7\ In Article I (i) of the FINRA By-Laws, the term 
``Corporation'' is defined to mean ``the National Association of 
Securities Dealers, Inc. or any future name of this entity'' (i.e., 
FINRA).
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    The term ``Commission'' is defined in NASD Rule 0120(e) to mean the 
Securities and Exchange Commission (SEC), established pursuant to the 
Act. The proposed rule change would amend this provision in proposed 
FINRA Rule 0160(b)(11) to define the term ``SEC'' to mean the 
Securities and Exchange Commission, which reflects the conventions of 
the Consolidated FINRA Rulebook.
    The term ``completion of the transaction'' is defined in NASD Rule 
0120(f)(1) through (f)(4). The proposed rule change would transfer NASD 
Rule 0120(f)(1) unchanged to proposed FINRA Rule 0160(b)(3)(A) to 
provide that in the case of a customer who purchases a security through 
or from a member, except as provided in proposed subparagraph (B), the 
transaction is complete at the time when such customer pays the member 
any part of the purchase price, or, if payment is effected by a 
bookkeeping entry, the time when such bookkeeping entry is made by the 
member for any part of the purchase price.
    The proposed rule change would make minor changes to NASD Rule 
0120(f)(2) and (f)(3) to clarify these provisions. The proposed rule 
change would amend NASD Rule 0120(f)(2) in proposed FINRA Rule 
0160(b)(3)(B) to provide that in the case of a customer who purchases a 
security through or from a member and who makes payment therefore prior 
to the time when payment is requested or notification is given that 
payment is due, the transaction is complete at the time when such 
member delivers, or credits such delivery of, the security to or into 
the account of such customer. Additionally, the proposed rule change 
would amend NASD Rule 0120(f)(3) in proposed FINRA Rule 0160(b)(3)(C) 
to provide that in the case of a customer who sells a security through 
or to a member, except as provided in proposed subparagraph (D), if any 
security is not in the custody of the member at the time of sale, the 
transaction is complete at the time when the security is delivered to 
the member, and if the security is in the custody of the member at the 
time of the sale, the transaction is complete the earlier of when the 
member transfers the security from the account of such customer or the 
closing date of the transaction.
    NASD Rule 0120(f)(4) would transfer unchanged into proposed FINRA 
Rule 0160(b)(3)(D) to provide that in the case of a customer who sells 
a security through or to a member and who delivers such security to 
such member prior to the time when delivery is requested or 
notification is given that delivery is due, the transaction is complete 
at the time when such member makes payment to or into the account of 
such customer.
Defined Terms To Be Added to FINRA Rule 0160
    The proposed rule change would add the following defined terms to 
FINRA Rule 0160 because the terms are used throughout the Consolidated 
FINRA Rulebook:
     ``FINRA'' would be defined in proposed FINRA Rule 
0160(b)(6) to mean, collectively, FINRA, Inc., FINRA Regulation, Inc. 
and FINRA Dispute Resolution, Inc.
     ``Investment Advisers Act'' would be defined in proposed 
FINRA Rule 0160(b)(7) to mean the Investment Advisers Act of 1940, as 
amended.
     ``Investment Company Act'' would be defined in proposed 
FINRA Rule 0160(b)(8) to mean the Investment Company Act of 1940, as 
amended.
     ``Securities Act'' would be defined in proposed FINRA Rule 
0160(b)(12) to mean the Securities Act of 1933, as amended.
     ``State'' would be defined in proposed FINRA Rule 
0160(b)(15) to mean any state of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, or any other possession of 
the United States.\8\
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    \8\ The proposed definition of ``State'' mirrors the definition 
for the term ``State'' in Section 3(a)(16) of the Exchange Act, as 
well as in NYSE Rule 2(g).
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Defined Terms Not Transferring to FINRA Rule 0160
    The proposed rule change would not incorporate certain defined 
terms in NASD Rule 0120; however, it would not eliminate any 
substantive FINRA requirements.
    The term ``Association'' is defined in NASD Rule 0120(b) to mean, 
collectively, the NASD, NASD Regulation, and NASD Dispute Resolution. 
The proposed rule change would delete this term as unnecessary due to 
the change in NASD's corporate name to FINRA. The term ``Association''

[[Page 57786]]

is not used in the consolidated FINRA rules.\9\
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    \9\ Notwithstanding the proposed elimination of this defined 
term from the FINRA rulebook, the term would continue to have the 
meaning stated in NASD Rule 0120 for purposes of the remaining NASD 
rules.
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    The term ``NASD'' is defined in NASD Rule 0120(j) to mean, 
collectively, NASD Inc., NASD Regulation, and NASD Dispute Resolution. 
The proposed rule change would delete this term because it is outdated 
in light of the change in NASD's corporate name to FINRA.\10\
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    \10\ See supra note 9.
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    The term ``Nasdaq'' is defined in NASD Rule 0120(k) to mean The 
Nasdaq Stock Market, Inc. This term was appropriate for inclusion in 
the FINRA rulebook when Nasdaq was an affiliate of FINRA. Since FINRA 
is no longer affiliated with Nasdaq, the proposed rule change would 
delete this term from the FINRA rulebook.\11\
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    \11\ See supra note 9.
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    The term ``NASD Regulation'' is defined in NASD Rule 0120(l) to 
mean NASD Regulation, Inc. The proposed rule change would delete this 
term as duplicative because it is defined in the FINRA By-Laws.\12\ In 
Article I (ll) of the FINRA By-Laws, ``NASD Regulation'' is defined to 
mean NASD Regulation, Inc. or any future name of this entity. The 
definition in the By-Laws reflects the change in NASD's corporate name 
to FINRA with the language ``or any future name of this entity.''
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    \12\ As noted above, pursuant to FINRA Rule 0160, a term defined 
in the FINRA By-Laws shall have the meaning provided in the By-Laws 
when used in the rules, unless the term is defined differently in a 
rule, or unless the context of the term within a rule requires a 
different meaning.
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    The term ``National Adjudicatory Council'' (``NAC'') is defined in 
NASD Rule 0120(m) to mean the committee of NASD Regulation which may be 
authorized and directed to act for the Board of Directors of NASD 
Regulation in a manner consistent with the By-Laws of NASD Regulation, 
the Rules of the Association, and the Delegation Plan with respect to 
(1) an appeal or review of a disciplinary proceeding; (2) a statutory 
disqualification decision; (3) a review of a membership proceeding; (4) 
a review of an offer of settlement, a letter of acceptance, waiver, and 
consent, and a minor rule violation plan letter; (5) the exercise of 
exemptive authority; and (6) such other proceedings or actions 
authorized by the Rules of the Association. The proposed rule change 
would delete this term as duplicative because it is defined in Article 
I (nn) of the FINRA By-Laws.\13\ The By-Laws definition provides that 
the NAC means a body appointed pursuant to Article V of the FINRA 
Regulation By-Laws. Article V of the FINRA Regulation By-Laws sets 
forth in detail the scope of the NAC's authority and includes language 
that is identical to NASD Rule 0120(m). Article V also sets forth NAC 
member qualification requirements and meetings specifications, among 
other things.
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    \13\ See supra note 12.
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    The terms ``Rules'' or ``Rules of the Association'' are defined in 
NASD Rule 0120(o) to mean the numbered rules set forth in the NASD 
Manual beginning with the Rule 0100 Series, as adopted by the Board of 
Governors of the NASD pursuant to the By-Laws of the NASD, as hereafter 
amended or supplemented. The proposed rule change would delete this 
provision because Article I (vv) of the FINRA By-Laws includes an 
identical definition for the terms ``Rules of the Corporation'' or 
``Rules.'' \14\
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    \14\ See supra note 12.
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    As noted above, FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following Commission approval. The effective date will be 
no later than 150 days following 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,\15\ 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 will 
provide clarity with respect to the defined terms for the Consolidated 
FINRA Rulebook by transferring certain defined terms from NASD Rule 
0120 to FINRA Rule 0160 (subject to certain amendments), adding new 
defined terms to FINRA Rule 0160 to reflect the conventions of the 
Consolidated FINRA Rulebook and eliminating as unnecessary or 
duplicative certain definitions contained in NASD Rule 0120.
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    \15\ 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 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

    Within 45 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 FINRA consents, the Commission shall: (a) by order approve or 
disapprove 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-2011-043 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-2011-043. 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

[[Page 57787]]

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 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 publicly available. All 
submissions should refer to File Number SR-FINRA-2011-043 and should be 
submitted on or before October 7, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-23792 Filed 9-15-11; 8:45 am]
BILLING CODE 8011-01-P