[Federal Register: October 18, 2007 (Volume 72, Number 201)]
[Notices]
[Page 59127-59129]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc07-87]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56653; File No. SR-NASD-2007-056]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.);
Order Approving Proposed Rule Change To Establish a Membership Waive-In
Process for Certain NYSE Member Organizations
October 12, 2007.
I. Introduction
On July 25, 2007, the National Association of Securities Dealers,
Inc. (``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc.
(``FINRA'')) \1\ filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \2\ and Rule 19b-4
thereunder,\3\ a proposed rule change to adopt Interpretive Material
1013-1 (``IM-1013-1''), a membership waive-in process for certain New
York Stock Exchange (``NYSE'') member organizations, and Interpretive
Material Section 4(b)(1) and 4(e) (``IM-Section 4(b)(1) and 4(e)'') to
Schedule A of the By-Laws, a membership application fee waiver for
those NYSE member organizations that apply for membership pursuant to
IM-1013-1. The proposed rule change was published for comment in the
Federal Register on September 7, 2007.\4\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change.
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\1\ On July 26, 2007, the Commission approved a proposed rule
change filed by NASD to amend NASD's Certificate of Incorporation to
reflect its name change to the Financial Industry Regulatory
Authority, Inc., or FINRA, in connection with the consolidation of
the member firm regulatory functions of NASD and NYSE Regulation,
Inc. (``NYSE Regulation''). See Securities Exchange Act Release No.
56146 (July 26, 2007), 72 FR 42190 (August 1, 2007).
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 56347 (August 31,
2007), 72 FR 51483 (``Notice'').
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[[Page 59128]]
II. Description of the Proposed Rule Change
In connection with the recently approved plan to consolidate the
member regulation operations of NASD and NYSE Regulation into a single
organization (``Transaction''),\5\ NASD proposed to establish a waive-
in process to enable approximately 95 NYSE member organizations that
are not also NASD members to become members of FINRA. The proposed
waive-in process would apply to firms that, as of July 25, 2007: (1)
Are approved NYSE member organizations; or (2) have submitted an
application to become an NYSE member organization and are subsequently
approved for NYSE membership (together, ``NYSE-only member
organizations''), provided that such firms were not also NASD members
as of the closing of the Transaction (i.e., as of July 30, 2007).\6\
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\5\ On July 26, 2007, the Commission approved amendments to
NASD's By-Laws to implement governance and related changes to
accommodate the consolidation of the member firm regulatory
functions of NASD and NYSE Regulation, Inc. See Securities Exchange
Act Release No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007).
The date of closing of the Transaction was July 30, 2007.
\6\ The NYSE filed a companion proposal to amend NYSE Rule 2(b)
to require its member organizations to be members of FINRA, which
the Commission approved today. See Securities Exchange Act Release
No. 56654 (SR-NYSE-2007-67) (``Release No. 34-56654'').
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IM-1013-1 would establish a process to allow NYSE-only member
organizations to become automatically FINRA members and to register
automatically all associated persons whose registrations are approved
with NYSE in registration categories recognized by FINRA, upon
submission to FINRA's Member Regulation Department (``Department'') of
a signed waive-in membership application (``Waive-In Application'').\7\
The Department would review the Waive-In Application within three
business days of receipt and, if complete, issue a letter notifying the
applicant that it has been approved for membership. The Membership
Agreement would become effective on the date of such notification
letter.\8\ In addition, the proposed rule change would create IM-
Section 4(b)(1) and 4(e) to Schedule A of the NASD By-Laws, which would
exempt the applicants from the fee for each initial Form U-4 for the
registration of any representative or principal associated with the
firm at the time it submits its application for FINRA membership
pursuant to IM-1013-1 and from the FINRA membership application fee.
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\7\ The Waive-In Application would require information such as:
(1) General company information (including the Central Registration
Depository (``CRD'') Number and contact person); (2) an attestation
that all information on the applicant's CRD form, as of the date of
submission of the Waive-In Application is accurate and complete and
fully reflects all aspects of the applicant's current business,
including, but not limited to, ownership structure, management,
product lines and disclosures; (3) the identity of the firm's
Executive Representative; (4) completed and signed Entitlement
Forms; (5) a signed FINRA Membership Agreement; and (6)
representations that the applicant's Uniform Application for Broker-
Dealer Registration (Form BD) will be amended as needed to keep
current and accurate, that all individual and entity registrations
with FINRA will be kept current; and that all information and
statements contained in the Waive-In Application are current, true
and complete.
\8\ The Commission notes that, under the amendment to NYSE Rule
2(b), which was approved today, NYSE-only member organizations are
provided a 60 day grace period within which they must apply for and
be approved for FINRA membership. See Release No. 34-56654, supra
note 6.
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As set forth in proposed IM-1013-1, the NYSE-only member
organizations admitted to FINRA membership would be subject to the NYSE
rules incorporated by FINRA, FINRA's By-Laws and Schedules to By-Laws,
including Schedule A (Assessments and Fees), and NASD Rule 8000
(Investigations and Sanctions) and Rule 9000 (Code of Procedure)
Series, provided that their securities business is limited to floor
brokerage on the NYSE, or routing away to other markets orders that are
ancillary to their core floor business under NYSE Rule 70.40
(``permitted floor activities'').\9\ If an NYSE-only member
organization admitted pursuant to proposed IM-1013-1 seeks to expand
its business operations to include any activities other than the
permitted floor activities, such firm must apply for and receive
approval to engage in such business activity pursuant to NASD Rule
1017. Upon approval of such business expansion, the firm would become
subject to all NASD rules, in addition to those NYSE rules incorporated
by FINRA.
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\9\ For purposes of this filing, activities that are ancillary
to a Floor broker's core business include: (i) Routing orders in
NYSE-traded securities to an away market for any reason relating to
their ongoing Floor activity, including regulatory compliance or
meeting best-execution obligations; or (ii) provided that the
majority of transactions effected by the firm are effected on the
NYSE, sending to other markets orders in NYSE-traded or non-NYSE-
traded securities and/or futures if such orders relate to hedging
positions in NYSE-traded securities, or are part of arbitrage or
program trade strategies that include NYSE-traded securities.
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In addition, associated persons of an NYSE-only member organization
admitted to FINRA pursuant to IM-1013-1 would be subject to the same
set of rules as the firm with which they are associated, namely the
NYSE rules incorporated by FINRA, FINRA's By-Laws and Schedules to By-
Laws, and the NASD Rule 8000 and 9000 Series.
III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Exchange Act and the
rules and regulations thereunder applicable to a national securities
association.\10\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(2) of the Exchange
Act,\11\ which requires a national securities association to be so
organized and have the capacity to carry out the purposes of the
Exchange Act and to enforce compliance by its members and persons
associated with its members with the provisions of the Exchange Act.
Further, the Commission finds that the proposed rule change is
consistent with Section 15A(b)(6) of the Exchange Act,\12\ in that it
is designed, among other things, 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.
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\10\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\11\ 15 U.S.C. 78o-3(b)(2).
\12\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that the proposed rule change is intended
to facilitate the consolidation of the member firm regulation functions
of NASD and NYSE Regulation under a single self-regulatory
organization, thereby encouraging more effective and efficient
regulation of brokers and dealers and their associated persons. The
Commission notes that NYSE has a comprehensive membership application
and review process.\13\ Accordingly, eligible NYSE-only member
organizations that will become FINRA members pursuant to the waive-in
process already have been subject to NYSE's extensive screening
process.
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\13\ See, e.g., NYSE Rules 301 (Qualifications for Membership)
and 304A (Member and Allied Member Examination Requirements).
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The proposed rule change provides eligible NYSE-only member
organizations (and their associated persons) with an expedited process
to become FINRA members, provided that they engage in permitted floor
activities only. Moreover, an eligible NYSE-only member organization
would not be assessed either FINRA's membership application fee or the
initial Form U-4 registration fee when it submits its application for
FINRA membership.
[[Page 59129]]
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-NASD-2007-056), be, and it
hereby is, approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-20523 Filed 10-17-07; 8:45 am]
BILLING CODE 8011-01-P