[Federal Register: November 12, 2009 (Volume 74, Number 217)]
[Notices]
[Page 58334-58340]
[DOCID:fr12no09-115]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60933; File No. SR-FINRA-2008-067]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting
Accelerated Approval to a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, to Adopt Rules Governing Financial
Responsibility in the Consolidated FINRA Rulebook

November 4, 2009.

I. Introduction

    On December 30, 2008, the 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''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt a new, consolidated set
of financial responsibility rules as part of the process of developing
a new consolidated rulebook (``Consolidated FINRA Rulebook'')\3\
without material change. The proposed rule change was published for
comment in the Federal Register on January 28, 2009.\4\ The Commission
received two comment letters in response to the proposed rule
change,\5\ along with one letter from FINRA addressing certain of the
comments.\6\ FINRA filed Amendment No. 1 to the proposed rule change on
June 17, 2009.\7\ FINRA filed Amendment No. 2 to the proposed rule
change on June 30, 2009.\8\ This Order approves the proposed rule
change, as modified by Amendment No. 1 and issues notice of, and
solicits comments on, Amendment No. 2, and approves the filing, as
modified by Amendment No. 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The current FINRA rulebook includes, in addition to FINRA
Rules, (1) NASD Rules and (2) 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''). For more
information about the rulebook consolidation process, see FINRA
Information Notice, March 12, 2008 (Rulebook Consolidation Process).
    \4\ See Securities Exchange Act Release No. 59273 (January 22,
2009), 74 FR 4992 (January 28, 2009) (hereinafter the ``Proposing
Release'').
    \5\ See letters from Holly H. Smith and Eric A. Arnold of
Sutherland, Asbill & Brennan, LLP on behalf of the Committee of
Annuity Insurers dated February 18, 2009 (the ``CAI Letter'') and
Julian Rainero of Bracewell & Guiliani, LLP dated April 17, 2009
(the ``B&G Letter'').
    \6\ See letter from Adam H. Arkel of FINRA, dated April 14, 2009
(the ``FINRA Letter'').
    \7\ Amendment No. 1 is a technical amendment designed to clarify
one sentence in the rule text.
    \8\ Amendment No. 2 adds Supplementary Material to the proposed
FINRA Rules 4110, 4120 and 4521 to clarify that, for purposes of
each of those rules, all requirements that apply to a member that
clear or carry customer accounts also shall apply to any member
that, operating pursuant to the exemptive provisions of Rule 15c3-
3(k)(2)(i), either clears customer transactions pursuant to such
exemptive provisions or holds customer funds in a bank account
established thereunder. FINRA explained this aspect of the rule
change in its Notice to Members 08-23, and in greater detail in its
original filing with the Commission. Further, one of the two
commenters commented on this aspect of the proposed rule changes
(See the CAI Letter). FINRA believes that incorporating this
Supplementary Material will reduce any possible ambiguity with
respect to this issue.
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II. Description of the Proposed Rule Change

    The proposed rule change would adopt FINRA Rules 4110 (Capital
Compliance), 4120 (Regulatory Notification and Business Curtailment),
4130 (Regulation of Activities of Section 15C Members Experiencing
Financial and/or Operational Difficulties), 4140 (Audit) and 4521
(Notifications, Questionnaires and Reports) in the Consolidated FINRA
Rulebook and delete NASD Rules 3130 and 3131, NASD IM-3130,
Incorporated NYSE Rules 312(h), 313(d), 325, 326, 328, 416.20, 418,
420, 421 and NYSE Rule Interpretations 313(d)/01, 313(d)/02, 325(c)(1),
325(c)(1)/01 and 416/01. FINRA also proposed to revise FINRA Rule 9557
(Procedures for Regulating Activities Under Rules 4110, 4120 and 4130
Regarding a Member Experiencing Financial or Operational Difficulties)
and FINRA Rule 9559 (Hearing Procedures for Expedited Proceedings Under
the Rule 9550 Series). Lastly, FINRA proposed to make conforming
revisions to Section 4(g) of Schedule A to the FINRA By-Laws.

A. Background

    Currently, both NASD and NYSE Rules \9\ contain provisions
governing financial responsibility. These provisions have played an
important role in supporting the SEC's minimum net capital and other
financial responsibility requirements by establishing criteria
promoting the permanency of member's capital, requiring the review and
approval of material financial transactions and establishing criteria
intended to identify member firms approaching financial difficulty and
to monitor their financial and operational condition. For that reason,
FINRA has placed high priority on expeditiously developing the unified
set of proposed rules for inclusion in the Consolidated FINRA Rulebook.
FINRA believes that the proposed rules would incorporate many of the
provisions in the existing rules but would streamline and reorganize
the provisions. In addition, FINRA has tiered many provisions to apply
only to those firms that clear or carry customer accounts.\10\
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    \9\ For convenience, the Incorporated NYSE Rules are referred to
as the ``NYSE Rules.''
    \10\ All requirements set forth in the proposed rules that would
apply to firms that clear or carry customer accounts would also
apply to firms that operate pursuant to the exemptive provisions of
SEA Rule 15c3-3(k)(2)(i). For further clarification in response to
commenter concerns, see Section 2 under Item II C. See also infra
note 12.
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B. Proposed FINRA Rule 4110 (Capital Compliance)

1. Authority to Increase Capital Requirements
    Proposed FINRA Rule 4110(a), based primarily on NYSE Rule 325(d),
would enable FINRA to prescribe greater net capital requirements for
carrying and clearing members, or require any such member to restore or
increase its net capital or net worth, when deemed necessary for the
protection of investors or in the public interest. The authority to act
under the proposed rule would reside with FINRA's Executive Vice
President charged with oversight for financial responsibility (or his
or her written officer delegate) (referred to as ``FINRA's EVP''). To
execute such authority, FINRA would be required to issue a notice
pursuant to Proposed FINRA Rule 9557 (a ``Rule 9557 notice''). FINRA
believes that proposed FINRA Rule 9557, much like the current rule,
would afford a member adequate safeguards because, among other things,

it provides opportunity for an expedited hearing pursuant to Proposed
FINRA Rule 9559.\11\
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    \11\ See also Section F under this Item.
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    Proposed FINRA Rule 4110(a) would be a new provision for FINRA
members that are not Dual Members (``non-NYSE members'') that are
carrying or clearing members. However, it would not apply to
introducing firms or to certain firms with limited business models
(together, ``non-clearing firms'').\12\ In this regard, certain Dual
Members that currently are subject to NYSE Rule 325(d)--namely those
NYSE member firms that are not carrying or clearing members (``NYSE
non-clearing firms'')--would not be subject to the similar requirement
in the FINRA Rule. All member firms that are subject to the requirement
would have an opportunity to request an expedited hearing if they
receive a Rule 9557 notice, which would be a new procedural right not
available under NYSE Rule 325(d).
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    \12\ For clarification, introducing firms and firms with limited
business models (for example, firms that engage exclusively in
subscription-basis mutual fund transactions, direct participation
programs, or mergers and acquisitions activities) are not deemed
carrying or clearing members and therefore would not be subject to
Proposed FINRA Rule 4110(a), or for that matter any of the other
provisions of the proposed rules that would apply only to carrying
or clearing members.
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    As FINRA has explained in the Notice, the NYSE staff historically
employed NYSE Rule 325(d) in limited circumstances, and FINRA
anticipates that it would apply Proposed FINRA Rule 4110(a) in similar
fashion. The proposed rule would enable FINRA to respond promptly to
extraordinary, unanticipated or emergency circumstances. Under Proposed
FINRA Rule 4110(a), FINRA's EVP could require a carrying or clearing
member to comply with increased capital requirements in circumstances
such as where unanticipated systemic market events threaten the member
firm's capital, or where the member firm maintains an undue
concentration in illiquid products. In such instances, FINRA's EVP may,
for example, find it appropriate, in the public interest, to raise the
applicable ``haircut'' (that is, to increase the percentage of the
market value of certain securities or commodities positions by which
the member must reduce its net worth) or treat certain assets as non-
allowable in computing net capital.
2. Suspension of Business Operations
    Proposed FINRA Rule 4110(b)(1) is based in part on NASD Rule
3130(e) and would provide that, unless otherwise permitted by FINRA, a
member firm must suspend all business operations during any period of
time in which it is not in compliance with SEA Rule 15c3-1. This
requirement is consistent with current law.\13\
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    \13\ The Commission notes that the net capital rule requires
that ``every broker or dealer shall at all times have and maintain''
certain specified levels of net capital. The Commission further
notes that to the extent a broker-dealer fails to maintain at least
the amount of net capital specified in that rule, it must cease
doing a securities business. [See 72 FR 12862, at 12872.]
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    As with NASD Rule 3130(e), Proposed FINRA Rule 4110(b)(1) is self-
operative (that is, a firm would automatically be required to comply
with the provision without any direction from FINRA). Notwithstanding
that the proposed provision is self-operative, FINRA may issue a Rule
9557 notice directing a member that is not in compliance with SEA Rule
15c3-1 to suspend all or a portion of its business. Upon receipt of a
Rule 9557 notice, the firm would have the right to request an expedited
hearing. Neither the fact that FINRA may issue a Rule 9557 notice nor
the right to an expedited hearing would be a defense in any subsequent
disciplinary proceeding with respect to a member firm's non-compliance
with Proposed FINRA Rule 4110(b)(1).
3. Withdrawal of Equity Capital
    To further the goal of financial stability, Proposed FINRA Rule
4110(c)(1) would prohibit a member from withdrawing equity capital for
a period of one year, unless otherwise permitted by FINRA in writing.
In response to commenter \14\ requests for clarification of this
provision, the proposed rule expressly provides that, subject to the
requirements of Proposed FINRA Rule 4110(c)(2), members would not be
precluded from withdrawing profits earned.
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    \14\ All references to ``commenters'' are to persons that
submitted comments in response to the Notice. For further
information on this issue, see infra Item II C.
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    FINRA anticipates that approvals for the early withdrawal of equity
capital pursuant to Proposed FINRA Rule 4110(c)(1) would be granted on
a limited basis.\15\
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    \15\ See Section 4 under Item II C.
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    Proposed FINRA Rule 4110(c)(2) would apply only to carrying or
clearing members and would prohibit any such member, without the prior
written approval of FINRA, from withdrawing capital, paying a dividend
or effecting a similar distribution that would reduce the member's
equity, or making any unsecured advance or loan to a stockholder,
partner, sole proprietor, employee or affiliate, where such
withdrawals, payments, reductions, advances or loans in the aggregate,
in any rolling 35-calendar-day period, on a net basis, would exceed 10
percent of the member's excess net capital.\16\ This provision is based
in part on NYSE Rule 312(h) and SEA Rule 15c3-1(e). While it would be a
new requirement for non-NYSE members that are carrying or clearing
members, it would not apply to non-clearing firms. In this regard, NYSE
non-clearing firms that currently are subject to NYSE Rule 312(h) would
not be subject to the similar provision in the FINRA Rule. FINRA
further notes that the 10 percent limit set forth in Proposed FINRA
Rule 4110(c)(2) would provide a de minimis exception; current NYSE Rule
312(h) does not include such an exception.
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    \16\ The calculation of 10 percent of excess net capital must be
based on the member's excess net capital position as reported in its
most recently filed Form X-17A-5. The member must assure itself that
the excess net capital so reported has not materially changed since
the time the form was filed.
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4. Sale-and-Leasebacks, Factoring, Financing, Loans and Similar
Arrangements
    To ensure the permanency of net capital in contemplated sale-and-
leaseback, factoring, financing and similar arrangements, Proposed
FINRA Rule 4110(d)(1)(A) would provide that no carrying or clearing
member may consummate a sale-and-leaseback arrangement with respect to
any of its assets, or a sale, factoring or financing arrangement with
respect to any unsecured accounts receivable, where any such
arrangement would increase the member's tentative net capital by 10
percent or more,\17\ without the prior written authorization of FINRA.
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    \17\ The calculation of 10 percent of tentative net capital must
be based on the member's tentative net capital position as reported
in its most recently filed Form X-17A-5. The member must assure
itself that the tentative net capital so reported has not materially
changed since the time the form was filed.
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    Proposed FINRA Rule 4110(d)(1)(A) is based on NYSE Rule 328(a), but
would apply only to carrying and clearing members. While the provision
would be new for non-NYSE members that are carrying or clearing
members, it would not apply to non-clearing firms. In this regard, NYSE
non-clearing firms that currently are subject to NYSE Rule 328(a) would
no longer be subject to the similar provision in the FINRA Rule.
Moreover, unlike NYSE Rule 328(a), Proposed FINRA Rule 4110(d)(1)(A)
includes a de minimis exception by permitting a member to consummate,
without FINRA's prior authorization, a sale-and-leaseback arrangement
with respect to any of its assets, or a sale, factoring or financing
arrangement with

respect to any unsecured accounts receivable where the arrangement
would not increase the member firm's tentative net capital by 10
percent or more.\18\
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    \18\ See supra note 17.
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    Proposed FINRA Rule 4110(d)(1)(B), which is also based on NYSE Rule
328(a), would provide that no carrying member may consummate any
arrangement concerning the sale or factoring of customer debit
balances, irrespective of amount, without the prior written
authorization of FINRA. The provision would be new for non-NYSE members
that are carrying members.
    Proposed FINRA Rule 4110(d)(2) is based on NYSE Rule 328(b), but
would apply only to carrying and clearing members. The provision would
require FINRA's prior approval for any loan agreement entered into by
such a member, the proceeds of which exceed 10 percent of the member's
tentative net capital \19\ and that is intended to reduce the deduction
in computing net capital for fixed assets and other assets that cannot
be readily converted into cash under SEA Rule 15c3-1(c)(2)(iv). Because
the provision would apply only to carrying and clearing members, NYSE
non-clearing firms would be relieved from current requirements under
NYSE Rule 328(b). In addition, unlike NYSE Rule 328(b), the proposed
rule would include a de minimis exception.
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    \19\ See supra note 17.
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    Proposed FINRA Rule 4110(d)(3) provides that any member that is
subject to paragraphs (d)(1)(A), (d)(1)(B) or (d)(2) of Proposed FINRA
Rule 4110 would be prohibited from consummating, without FINRA's prior
written authorization, any arrangement pursuant to those paragraphs if
the aggregate of all such arrangements would exceed 20 percent of the
member's tentative net capital.\20\
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    \20\ See supra note 17.
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    Proposed FINRA Rule 4110(d)(4) implements a requirement of the
SEC's net capital rule and therefore would apply to all members. It
provides that any agreement relating to a determination of a ``ready
market'' for securities based upon the securities being accepted as
collateral for a loan by a bank under SEA Rule 15c3-1(c)(11)(ii) must
be submitted to, and be acceptable to, FINRA before the securities may
be deemed to have a ``ready market.'' When determining the
acceptability of a loan agreement, pursuant to Proposed FINRA Rule
4110(d)(4), FINRA staff would, as a general matter, consider such
factors as whether the bank would have sole recourse under the
agreement and whether the term of the loan is at least one year. FINRA
expects that a determination of acceptability can generally be made
within approximately one week.
5. Subordinated Loans, Notes Collateralized by Securities and Capital
Borrowings
    Proposed FINRA Rule 4110(e) is based in part on current NYSE Rule
420 and would address the requirements for subordinated loans and loans
made to general partners of members that are partnerships.
    Proposed FINRA Rule 4110(e)(1) would implement Appendix D of SEA
Rule 15c3-1 and require that all subordinated loans or notes
collateralized by securities must meet such standards as FINRA may
require to ensure the continued financial stability and operational
capability of a member, in addition to meeting those standards
specified in Appendix D of SEA Rule 15c3-1.\21\ Appendix D of SEA Rule
15c3-1 requires that all subordination agreements must be found
acceptable by the Examining Authority before they can become effective.
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    \21\ See SEA Rule 15c3-1d. Note that the proposed Supplementary
Material would require that, for purposes of Proposed FINRA Rule
4110(e)(1), the member must assure itself that any applicable
provisions of the Securities Act of 1933 and/or state Blue Sky laws
have been satisfied, and may be required to submit evidence thereof
to FINRA prior to approval of the subordinated loan agreement. See
Proposed FINRA Rule 4110.01 (Compliance with Applicable Law).
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    Proposed FINRA Rule 4110(e)(2) would require that, unless otherwise
permitted by FINRA, each member whose general partner enters into any
secured or unsecured borrowing, the proceeds of which will be
contributed to the capital of the member, must, in order for the
proceeds to qualify as capital acceptable for inclusion in computation
of the member's net capital, submit to FINRA for approval a signed copy
of the loan agreement. The loan agreement must have at least a 12-month
duration and provide non-recourse to the assets of the member firm.
Moreover, because a general partner's interest may allow the lender to
reach into the assets of the broker-dealer, FINRA is requiring a
provision in the loan agreement that would estop the lender from having
that right.

C. Proposed FINRA Rule 4120 (Regulatory Notification and Business
Curtailment)

1. Regulatory Notification
    Proposed FINRA Rule 4120(a) is based on current NYSE Rule 325(b),
but would apply only to carrying and clearing members. The proposed
rule would require any such member promptly, but in any event within 24
hours, to notify FINRA when certain specified financial triggers are
reached.\22\ This would be a new notification requirement for non-NYSE
members that are carrying or clearing members; it would not, however,
apply to non-clearing firms. Accordingly, NYSE non-clearing firms would
no longer be subject to these requirements.
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    \22\ The determination of whether the financial triggers were
reached must be based on the member's financial position as reported
in its most recently filed Form X-17A-5. The member must assure
itself that its financial position so reported has not materially
changed since the time the form was filed.
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2. Restrictions on Business Expansion
    Proposed FINRA Rule 4120(b) is based on NASD Rule 3130(c) and NYSE
Rule 326(a) and addresses circumstances under which a member would be
prohibited from expanding its business.
    Proposed FINRA Rule 4120(b)(1), which is self-operative, would
apply only to carrying and clearing members, and requires any such
member, unless otherwise permitted by FINRA, to refrain from expanding
its business during any period in which any of the conditions described
in Proposed FINRA Rule 4120(a)(1) continue to exist for the specified
time period. While NASD Rule 3130(c) includes comparable provisions,
the requirement would now be self-operative for non-NYSE members that
are carrying or clearing members. Proposed FINRA Rule 4120(b) also
provides that FINRA may issue a Rule 9557 notice directing any such
member not to expand its business, in which case the member would have
the right to request an expedited hearing. Neither the fact that FINRA
may issue a Rule 9557 notice nor the right to an expedited hearing
would be a defense in any subsequent disciplinary proceeding with
respect to a member's non-compliance with Proposed FINRA Rule
4120(b)(1).
    Unlike the self-operative nature of paragraph (b)(1), Proposed
FINRA Rule 4120(b)(2) authorizes FINRA, for any financial or
operational reason, to restrict any member's ability to expand its
business by the issuance of a Rule 9557 notice. In all such cases, the
member would have the right to request an expedited hearing. This same
right currently applies to NASD Rule 3130(c)(2).
3. Reduction of Business
    Proposed FINRA Rule 4120(c) is based on NASD Rule 3130(d) and NYSE

Rule 326(b) and addresses circumstances under which a member would be
required to reduce its business.
    Proposed FINRA Rule 4120(c)(1), which is self-operative, would
apply only to carrying and clearing members, requiring any such member,
unless otherwise permitted by FINRA in writing, to reduce its business
to a point enabling its available capital to exceed the standards set
forth in Proposed FINRA Rule 4120(a)(1) when any of the enumerated
conditions continue to exist for the specified time period. While NASD
Rule 3130(d) includes comparable provisions, the requirement would now
be self-operative for non-NYSE members that are carrying or clearing
members. Proposed FINRA Rule 4120(c)(1) also provides that FINRA may
issue a Rule 9557 notice directing any such member to reduce its
business, in which case the member would have the right to an expedited
hearing. Neither the fact that FINRA may issue a Rule 9557 notice nor
the right to an expedited hearing would be a defense in any subsequent
disciplinary proceeding with respect to a member's non-compliance with
Proposed FINRA Rule 4120(c)(1).
    Unlike the self-operative nature of paragraph (c)(1), proposed
FINRA Rule 4120(c)(2) authorizes FINRA, for any financial or
operational reason, to require any member firm to reduce its business
by the issuance of a notice in accordance with Rule 9557. In all such
cases, the member firm would have the right to request an expedited
hearing. This same right currently applies to NASD Rule 3130(d)(2).

D. Proposed FINRA Rule 4130 (Regulation of Activities of Section 15C
Members Experiencing Financial and/or Operational Difficulties)

    Proposed FINRA Rule 4130 would be substantially identical to NASD
Rule 3131 except that the proposed rule would reflect FINRA as the
designated examining authority and make other conforming revisions. The
proposed rule would apply only to certain firms that are subject to the
Treasury Department's liquid capital requirements.

E. Proposed FINRA Rule 4140 (Audit)

    Proposed FINRA Rule 4140 would incorporate FINRA's existing
authority under NASD Rule 3130 and NASD IM-3130 and NYSE Rule 418 to
request an audit or an agreed-upon procedures review under certain
circumstances. The proposed rule would impose a late fee of $100 for
each day that a requested report is not timely filed, up to a maximum
of 10 business days.

F. Proposed FINRA Rule 4521 (Notifications, Questionnaires and Reports)

    Drawing in part on NASD IM-3130 and Rule 3150 and NYSE Rules
325(b)(2), 416 \23\ and 421(2),\24\ Proposed FINRA Rule 4521 would
address FINRA's authority to request certain information from members
to carry out its surveillance and examination responsibilities. As
further described below, many of the provisions would apply only to
carrying and clearing members.
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    \23\ NYSE Rules 416(a), 416(c) and 416.10 will remain in the
Transitional Rulebook to be addressed later in the rulebook
consolidation process. On July 11, 2008, the SEC approved FINRA's
proposal to delete NYSE Rule 416(b). See Securities Exchange Act
Release No. 58149 (July 11, 2008), 73 FR 42385 (July 21, 2008)
(Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change; File No. SR-FINRA-2008-034).
    \24\ Because FINRA proposes to delete NYSE Rule 421(2) and its
related provision Rule 421.40, the proposed rule change would, in
combination with rule change SR-FINRA-2008-033 (which was approved
by the SEC on September 4, 2008 and took effect on December 15,
2008), delete NYSE Rule 421 in its entirety. See Securities Exchange
Act Release No. 58461 (September 4, 2008), 73 FR 52710 (September
10, 2008) (Order Approving Proposed Rule Change; File No. SR-FINRA-
2008-033); see also FINRA Regulatory Notice 08-57 (SEC Approves New
Consolidated FINRA Rules) (October 2008).
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    Proposed FINRA Rule 4521(a) would provide that each carrying or
clearing member must submit to FINRA such financial and operational
information regarding the member or any of its correspondents as FINRA
deems essential for the protection of investors and the public
interest. The provisions would be new for certain non-NYSE members that
are carrying or clearing members.\25\
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    \25\ FINRA notes that NASD Rule 3150 (Reporting Requirements for
Clearing Firms) currently requires most carrying and clearing
members to submit such data to FINRA. Rule 3150 will be addressed
later in the rulebook consolidation process.
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    Proposed FINRA Rule 4521(b) would require every member approved by
the SEC pursuant to SEA Rule 15c3-1 to use the alternative method of
computing net capital contained in Appendix E to that Rule to file such
supplemental and alternative reports as may be prescribed by FINRA.
    Proposed FINRA Rule 4521(c) would require each carrying or clearing
member to notify FINRA in writing no more than 48 hours after its
tentative net capital, as computed pursuant to SEA Rule 15c3-1, has
declined 20 percent or more from the amount reported in its most recent
FOCUS Report or, if later, the most recent such notification filed with
FINRA. This would be a new requirement for non-NYSE members that are
carrying or clearing members.
    Proposed FINRA Rule 4521(d) would require that, unless otherwise
permitted by FINRA in writing, member firms carrying margin accounts
for customers must submit, on a settlement date basis: (1) The total of
all debit balances in securities margin accounts; and (2) the total of
all free credit balances contained in cash or margin accounts. This
would be a new requirement for non-NYSE member firms that carry margin
accounts.
    In response to commenter suggestion, Proposed FINRA Rule 4521(e)
has been revised to provide that a late fee of $100 would be imposed
for each day that any report, notification or information a member is
required to file pursuant to Rule 4521 is not timely filed, up to a
maximum of 10 business days.

G. Proposed FINRA Rules 9557 (Procedures for Regulating Activities
Under Rules 4110, 4120 and 4130 Regarding a Member Experiencing
Financial or Operational Difficulties) and 9559 (Hearing Procedures for
Expedited Proceedings Under the Rule 9550 Series)

    FINRA Rules 9557 and 9559 address service of notice to member firms
that are experiencing financial or operational difficulties and the
related hearing procedures. The proposed rule change would make a
number of conforming revisions to FINRA Rules 9557 and 9559 in light of
several of the proposed financial responsibility rules (Proposed FINRA
Rules 4110, 4120 and 4130). In response to commenter concerns, FINRA
re-iterates that the proposed rule change also would include new
provisions to afford members with an appeals process that is both more
expedited than that currently provided under FINRA Rules 9557 and 9559
and provides members with adequate safeguards.\26\ For example:
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    \26\ See Section 7 under Item II.C.
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     Proposed FINRA Rule 9557(d) would provide that the
requirements referenced in a Rule 9557 notice served upon a member are
immediately effective. Under the proposed rule change, a timely request
for a hearing would stay the effective date for 10 business days after
the service of the notice or until a written order is issued pursuant
to Proposed FINRA Rule 9559(o)(4)(A) (whichever period is less), unless
it is determined that such a stay cannot be permitted with safety to
investors, creditors or other member firms;

     To ensure an expedited process, Proposed FINRA Rule
9557(e) would require a member to file with the Office of Hearing
Officers any written request for a hearing within two business days
after service of the Rule 9557 notice;
     Proposed FINRA Rule 9559(f)(1) would provide that, after a
respondent subject to a Rule 9557 notice files a written request for a
hearing with the Office of Hearing Officers, the hearing must be held
within five business days of such filing;
     Proposed FINRA Rule 9559(o)(4)(A) would provide that,
within two business days of the date of the close of the hearing, the
Office of Hearing Officers must issue the Hearing Panel's written
order. The Hearing Panel order would be effective when issued. (The
proposed rule change provides that, pursuant to Proposed FINRA Rules
9559(o)(4)(B) and 9559(p), the written decision explaining the reasons
for the Hearing Panel's determinations must be issued within seven days
of the issuance of the written order.)
    Proposed FINRA Rules 9557 and 9559 set forth a number of other
enhancements and clarifications of procedure. For example, Proposed
FINRA Rule 9557(e)(1) provides that a member served with a Rule 9557
notice may request from FINRA staff a letter of withdrawal of the
notice. The member may make this request either in lieu of or in
addition to filing with the Office of Hearing Officers the written
request for a hearing. The proposed rule change would enable FINRA
staff, in response to the member's request, either to withdraw the Rule
9557 notice or to reduce its requirements and/or restrictions.\27\ The
member may submit a request for a letter of withdrawal to FINRA staff
at any time after the notice is served. If such request is denied by
FINRA staff, the proposed rule change provides that the member shall
not be precluded from making a subsequent request or requests.\28\
---------------------------------------------------------------------------

    \27\ See Proposed FINRA Rule 9557(g)(2).
    \28\ See Proposed FINRA Rule 9557(e)(1).
---------------------------------------------------------------------------

    If a member requests a hearing within two business days after
service of a 9557 notice, the member may seek to contest (1) the
validity of the requirements and/or restrictions imposed by the notice
(as the same may have been reduced by a letter of withdrawal issued by
FINRA staff pursuant to Rule 9557(g)(2), where applicable) and/or (2)
FINRA staff's determination not to issue a letter of withdrawal of all
requirements and/or restrictions imposed by the notice, if such was
requested by the member. The Hearing Panel may then either approve or
withdraw the requirements and/or restrictions imposed by the notice. If
the Hearing Panel approves the requirements and/or restrictions and
finds the member has not complied with all of them, the Hearing Panel
shall impose an immediate suspension on the respondent that shall
remain in effect unless FINRA staff issues a letter of withdrawal of
all requirements and/or restrictions.
    FINRA intends to announce the effective date of the proposed rule
change in a Regulatory Notice to be published no later than 90 days
following Commission approval.

III. Comment Letters

    The proposed rule change was published for comment in the Federal
Register on January 28, 2009 and the comment period closed on February
18, 2009. The Commission received two comment letters in response to
the proposing release; the CAI Letter and the B&G Letter.\29\ While
neither commented generally on FINRA's rule proposal, both raised
specific, discreet issues relating to those rules.
---------------------------------------------------------------------------

    \29\ See supra, note 5.
---------------------------------------------------------------------------

A. Members Operating Pursuant to SEA Rule 15c3-3(k)(2)(i) Exemption

    FINRA stated in its filing with the Commission that ``the
requirements set forth in the proposed rules that would apply to
carrying and clearing members would also apply to members that operate
pursuant to the exemptive provisions of SEA Rule 15c3-3(k)(2)(i).\30\
'' One commenter stated that it believes the definition of ``carrying
or clearing'' firm should be revised in two respects: first, it
believes that FINRA should include firms distributing variable
annuities or life insurance within the types of firms FINRA has
described as having ``limited business models;'' and second, it
believes FINRA should take into consideration the extremely different
profile of firms that use the exemption provided in SEC Rule 15c3-
3(k)(2)(i) versus the profile of traditional carrying and clearing
firms.\31\
---------------------------------------------------------------------------

    \30\ The Notice explained that ``operating'' pursuant to the
exemptive provisions of SEA Rule 15c3-3(k)(2)(i) is not meant to
include firms that have elected the exemption but do not operate as
such.
    \31\ See the CAI Letter.
---------------------------------------------------------------------------

    With respect to the commenter's first point, FINRA, in its response
letter, stated that the commenter may have misinterpreted the purpose
of FINRA's reference to limited business models, and ``it is not
FINRA's intention to create business model or other exemptions from the
proposed rules.'' \32\ To clarify further, FINRA stated, ``[i]f a firm
engages in any carrying or clearing activity, including operating
pursuant to the exemptive provisions of 15c3-3(k)(2)(i), then such firm
would be expected to comply with all requirements set forth in the
proposed rules that apply to carrying and clearing firms. A firm that
does not engage in any such activity would not be subject to those
requirements.'' \33\
---------------------------------------------------------------------------

    \32\ See the FINRA Letter
    \33\ Id.
---------------------------------------------------------------------------

    With respect to the commenter's second point, FINRA noted that
firms that operate pursuant to the Rule 15c3-3(k)(2)(i) exemption
receive customer funds for the purpose of settling customer
transactions and perform a clearing function, irrespective of how short
the period they may hold customer funds.\34\ Accordingly, FINRA stated
that it believes that firms operating pursuant to the Rule 15c3-
3(k)(2)(i) exemption should, as a matter of investor protection, be
subject to all requirements set forth in the proposed rules that apply
to carrying and clearing firms.\35\
---------------------------------------------------------------------------

    \34\ Id.
    \35\ Id.
---------------------------------------------------------------------------

B. Ability to Increase Capital Requirements

    One commenter argued that FINRA should build objective standards
into Proposed Rule 4110(a) to ensure that firms have some
predictability in their cash management functions and so the standards
are applied equitably to all FINRA members. In response to similar
comments it received in response to its Notice to Members 08-23, FINRA
stated that it ``does not agree that it is in the public interest to
limit the rule's application by listing specific circumstances under
which FINRA would exercise its authority'' because ``Proposed Rule
4110(a) is intended to enable FINRA to respond promptly to
extraordinary, unanticipated or emergency circumstances.'' \36\ FINRA
also stated that Proposed FINRA Rule 4110(a) does not lend itself to
prescribed parameters.\37\
---------------------------------------------------------------------------

    \36\ See the Proposing Release, at 22 (74 FR at 4997). These
comments are also reiterated by FINRA in the FINRA Letter, at page
3.
    \37\ Id.
---------------------------------------------------------------------------

C. Suspension of Business Operations

    One commenter requested clarification on the interplay between
FINRA's Proposed Rule 4110(b) and Exchange Act Rule 17a-11. Proposed
Rule 4110(b) states, ``[u]nless otherwise permitted by FINRA, a member
shall suspend business operations during any period in which it is not
in compliance with applicable net capital requirements set forth in SEA
Rule 15c3-1.'' In

response, FINRA reiterated that ``the requirements set forth in the
Proposed Rule are consistent with current law.'' FINRA also highlighted
that the Commission, in the Proposing Release, stated ``the net capital
rule requires that `every broker or dealer shall at all times have and
maintain' certain specified levels of net capital,'' and further, ``to
the extent a broker-dealer fails to maintain at least the amount of net
capital specified in that rule, it must cease doing a securities
business.'' \38\
---------------------------------------------------------------------------

    \38\ See the FINRA Letter at page 4. See also, note 10 to the
Proposing Release, at page 6 (74 FR at 4994). See also, Amendments
to Financial Responsibility Rules for Broker-Dealers, Securities
Exchange Act Release No. 55431 (March 9, 2007) (72 FR 12862, at
12872 (March 19, 2007)), wherein the Commission states, ``section
15(c)(3) of the Exchange Act generally prohibits a broker-dealer
from effecting any transaction in, or inducing or attempting to
induce the purchase or sale of, any security in contravention of the
Commission's financial responsibility rules (which include Rule
15c3-1).'' (15 U.S.C. 78o)
---------------------------------------------------------------------------

D. Withdrawals of Equity Capital

    Both commenters raised issues with respect to FINRA's Proposed Rule
4110(c), arguing that it should be amended or that the Commission
should reject it because it goes further than Exchange Act Rule 15c3-
1(e). In response to this comment, FINRA noted that ``its mandate is to
design in enforce rules to ensure investor protection.'' \39\ Further,
as FINRA explained in the FINRA Letter ``regulation of withdrawal of
equity capital serves to promote the financial stability of member
firms and, accordingly, is an important element of investor
protection.'' \40\
---------------------------------------------------------------------------

    \39\ See the FINRA Letter, at page 3.
    \40\ Id. In its original filing with the Commission, FINRA
stated that financial stability was one of the goals that Proposed
FINRA Rule 4110(c) was designed to address (see Proposing Release,
at page 6 (74 FR at 4994)).
---------------------------------------------------------------------------

    One commenter also asserted that, ``if FINRA believes it must
establish a pre-approval requirement, then it needs to give member
firms certainty regarding how long firms will have to wait for FINRA's
approval.'' \41\ In response, FINRA, in the FINRA Letter, reiterated
the explanation it provided in its original filing with the Commission
that ``requests for withdrawal can be handled in a routine manner and
[..] decisions typically would be issued in approximately three
business days.'' \42\
---------------------------------------------------------------------------

    \41\ See the CAI Letter, at page 5.
    \42\ See the FINRA Letter, at page 3.
---------------------------------------------------------------------------

    Finally, one commenter requested clarification with respect to
whether the staff's review and decision will be based on an intra-month
net capital computation.\43\ FINRA, in the FINRA letter reiterated the
explanation it provided in its original filing with the Commission,
stating that, for purposes of Proposed FINRA Rule 4110(c)(2), ``the
calculation of 10 percent of excess net capital must be based on the
member's excess net capital position as reported in its most recently
filed Form X-17A-5.'' \44\ Further, FINRA stated that, ``the member
must assure itself that the excess net capital so reported has not
materially changed since the time the form was filed.'' \45\
---------------------------------------------------------------------------

    \43\ See the CAI Letter, at page 5.
    \44\ See the FINRA Letter, at page 3. See also, note 13 in the
Proposing Release, at page 7 (74 FR at 4994).
    \45\ Id.
---------------------------------------------------------------------------

    This commenter further suggests that ``it would be appropriate to
revise [Proposed FINRA Rule 4110(b)] to take into account whether the
Net Capital Rule violation actually results in the broker-dealer
currently being under-capitalized and is a continuing condition.'' \46\
In response FINRA, in the FINRA Letter, notes that ``the firm's
obligations, both under the current regulatory framework and under the
proposed rules, are clear--the firm must maintain the required net
capital at all times.'' \47\ Further, ``[t]he firm may resume its
business when it returns to net capital compliance.'' \48\
---------------------------------------------------------------------------

    \46\ See the CAI Letter, at page 6.
    \47\ See the FINRA Letter, at page 4. See also NTM 07-16, Q&A
1 (April, 2007). See also, FINRA's Interpretations of
Financial and Operational Rules, pages 1 and 13.
    \48\ See the FINRA Letter, at page 4.
---------------------------------------------------------------------------

E. Service of Notice and Hearing Procedures

    Finally, one commenter raised two issues relating to Proposed FINRA
Rules 9557 and 9559. First, this commenter argues that FINRA should
provide member firms with any or all of the documents on which FINRA
relied in imposing restrictions on the member as soon as a hearing is
requested to provide member firms with a fair opportunity to present
their cases. First, FINRA highlights the fact that, pursuant to
Proposed Rule 9559, it is the member firm that requests a hearing and
that the hearing must take place within five business days after the
member firm files the written hearing request. Further, FINRA states
that ``irrespective of document deliver, the proposed rule ensures that
a respondent would be fully informed of the factual basis of the
action'' pursuant to Proposed FINRA Rule 9557(c).\49\
---------------------------------------------------------------------------

    \49\ See the FINRA Letter, at page 4.
---------------------------------------------------------------------------

    The second issue raised by this commenter is that the Proposed
Rule, which would allow the Hearing Panel to approve or withdraw the
requirements and/or restrictions imposed by the notice, ``would have no
authority to modify any of the restrictions or limitations FINRA
imposed.'' FINRA, in the FINRA letter, disagrees with the commenter's
assertion that the Hearing Panel should have the authority to modify
the restrictions or limitations imposed by FINRA and states that
``FINRA believes that authorizing the Hearing Panel, apart from action
by FINRA staff, to modify the requirements and/or restrictions imposed
by a Rule 9557 notice would not be conducive to the efficient and
expedited resolution of the action.''

IV. Discussion and Findings

    Generally, the Commission agrees with FINRA's responses to the
commenters' issues. More specifically, with respect to the inclusion of
(k)(2)(i) firms in the definition of carrying and clearing firms, the
Commission believes that firms that operate pursuant to the Rule 15c3-
3(k)(2)(i) exemption and that receive customer funds and/or securities
for the purpose of settling customer transactions perform a clearing
function and should be subject to additional scrutiny designed to
protect investors. Further, with respect to FINRA's ability to increase
capital requirements for its members, the Commission believes that in
extraordinary, unanticipated, or emergency situations it is important
for FINRA to have flexibility to quickly impose restrictions on its
members to protect investors as the situation warrants. With respect to
FINRA's requirement that a broker-dealer cease business operations if
it is not in compliance with Exchange Act Rule 15c3-1, the Commission
notes that this is a restatement of the requirements of the Exchange
Act, which states that ``no broker or dealer [..] shall make use of the
mails or any means or instrumentality of interstate commerce to effect
any transaction in, or to induce or attempt to induce the purchase or
sale of, any security [..] in contravention of such rules and
regulations as the Commission shall prescribe as necessary or
appropriate in the public interest or for the protection of investors
to provide safeguards with respect to the financial responsibility.''
Rule 15c3-1 is considered to be a financial responsibility rule.\50\
Consequently, to the extent that a broker-dealer fails to ``have and
maintain net capital no less than the greater of the highest minimum
requirement applicable'' under Rule 15c3-1, the Act would prohibit the
broker-dealer from effecting securities transactions. With respect to
FINRA's proposed limitations on withdrawals of equity capital set forth
in FINRA

Proposed Rule 4110(c), the Commission believes that each SRO should
closely monitor significant withdrawals of capital by its members which
could have a material affect on the firm's financial position in order
to fulfill its requirement to enforce its members' compliance with the
Exchange Act, the rules promulgated thereunder and its own rules.\51\
---------------------------------------------------------------------------

    \50\ See 17 CFR 240.3a40-1.
    \51\ See Exchange Act section 19(g).
---------------------------------------------------------------------------

    After careful review of the proposed rule change, the comments, and
FINRA's response to the comments, the Commission finds that the
proposed rule change is consistent with the requirements of the Act,
and the rules and regulations thereunder that are applicable to a
national securities association.\52\ In particular, the Commission
believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act \53\ (which requires, among
other things, that FINRA rules must be designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, to protect investors and the public
interest), because the proposed rule change is designed to, among other
things, protect investors and the public interest by requiring that
each broker-dealer maintain sufficient net capital to allow it to self-
liquidate if it experiences financial difficulty. Further, as the
proposed rule change consolidates the NYSE and NASD financial
responsibility rules into one rule in the consolidated FINRA rulebook,
it should provide greater clarity with respect to financial
responsibility requirements for broker-dealers.
---------------------------------------------------------------------------

    \52\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 17c(f).
    \53\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

V. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\54\ for approving the proposed rule change, as amended by
Amendment No. 2 thereto, prior to the 30th day after the date of
publication in the Federal Register. Accordingly, the Commission finds
that good cause exists to approve the proposal, as modified by
Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78o-3(b)(2)
---------------------------------------------------------------------------

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 2, 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_ADDRESS>Please include
File Number SR-FINRA-2008-067 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-2008-067. 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-2008-067 and should be
submitted on or before December 3, 2009.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-FINRA-2008-067) be, and hereby is,
approved.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\55\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------

    \55\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. E9-27263 Filed 11-10-09; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 140 (Tuesday, July 22, 2014)]
[Notices]
[Pages 42590-42592]
[FR Doc No: 2014-17150]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72626; File No. SR-FINRA-2014-006]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 to Proposed Rule
Change Relating to Per Share Estimated Valuations for Unlisted DPP and
REIT Securities

July 16, 2014.

I. Introduction

    On January 31, 2014, 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''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend provisions in the FINRA
rulebook addressing per share estimated valuations for unlisted direct
participation program (``DPP'') and real estate investment trust
(``REIT'') securities. The proposed rule change was published for
comment in the Federal Register on February 19, 2014.\3\ The Commission
received eighteen (18) comment letters in response to the Notice of
Filing.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 71545 (Feb. 12, 2014), 79 FR 9535
(Feb. 19, 2014) (Notice of Filing of Proposed Rule Change Relating
to Per Share Estimated Valuations for Unlisted DPP and REIT
Securities) (``Notice of Filing''). The comment period closed on
March 12, 2014.
    \4\ Letters to Elizabeth Murphy, Secretary, SEC, from Mark
Goldberg, Chairman, Investment Program Association, dated February
5, 2014; David Bellaire, Executive Vice President and General
Counsel, Financial Services Institute, dated February 5, 2014; Mark
Kosanke, President, Real Estate Investment Securities Association,
dated February 11, 2014; Steven Wechsler, President and CEO,
National Association of Real Estate Investment Trusts, dated
February 14, 2014; Kirk Montgomery, Head of Regulatory Affairs, CNL
Financial Group, LLC, dated March 12, 2014; Dechert LLP, dated March
12, 2014; Jeff Johnson, CEO, Dividend Capital Diversified Property
Fund Inc., dated February 28, 2014; David Bellaire, Executive Vice
President and General Counsel, Financial Services Institute, dated
March 12, 2014; Mark Goldberg, Chairman, Investment Program
Association, dated March 12, 2014; Michael Crimmins, CEO and
Managing Director, KBS Capital Markets Group, dated February 28,
2014; Steve Morrison, Senior Vice President and Associate Counsel,
LPL Financial, dated March 12, 2014; Steven Wechsler, President and
CEO, National Association of Real Estate Investment Trusts, dated
March 12, 2014; Martel Day, Principal, NLR Advisory Services, LLC,
dated March 12, 2014; Scott Ilgerfritz, Immediate Past-President,
Public Investors Arbitration Bar Association, dated March 11, 2014;
Mark Kosanke, President, Real Estate Investment Securities
Association, dated March 12, 2014; Thomas Price, Managing Director,
Securities Industry and Financial Markets Association, dated March
12, 2014; David Hirschmann, President and CEO, U.S. Chamber of
Commerce, Center for Capital Markets Competitiveness, dated March
12, 2014; and Jacob Frydman, Chairman and CEO, United Realty Trust
Incorporated, dated March 12, 2014. Comment letters are available at
www.sec.gov.

---------------------------------------------------------------------------

    On March 14, 2014, FINRA extended the time period in which the
Commission must approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change to May 20, 2014.
    On May 20, 2014, the Commission issued an order instituting
proceedings pursuant to Section 19(b)(2)(B) of the Act \5\ to determine
whether to approve or disapprove the proposed rule change. The order
was published for comment in the Federal Register on May 27, 2014.\6\
The Commission received five (5) comment letters in response to the
order.\7\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ Exchange Act Release No. 72193 (May 20, 2014), 79 FR 30217
(May 27, 2014) (Order Instituting Proceedings to Determine Whether
to Approve or Disapprove a Proposed Rule Change Relating to Per
Share Estimated Valuations for Unlisted DPP and REIT Securities).
The comment period closed on June 26, 2014.
    \7\ Letters to Elizabeth Murphy, Secretary, SEC, from David
Bellaire, Executive Vice President and General Counsel, dated June
26, 2014; Thomas Price, Managing Director, Securities Industry and
Financial Markets Association, dated June 26, 2014; Mark Kosanke,
President, Real Estate Investment Securities Association, dated June
26, 2014; Jason Doss, President, Public Investors Arbitration Bar
Association, dated June 25, 2014; and Kenneth Mills, dated June 24,
2014. Comment letters are available at www.sec.gov.
---------------------------------------------------------------------------

    On July 11, 2014, FINRA filed a letter responding to comments and
Amendment No. 1 to the proposed rule change.\8\ The text of Amendment
No. 1 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. Amendment No. 1 is described in Item II below, which has been
substantially prepared by FINRA. The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
---------------------------------------------------------------------------

    \8\ Letter to Kevin O'Neill, Deputy Secretary, SEC, from Matthew
Vitek, Associate General Counsel, FINRA, dated July 11, 2014
(``Response Letter''). FINRA's Response Letter is available at
www.sec.gov.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Amendment

    As further described in the Notice of Filing, FINRA is proposing to
amend (1) NASD Rule 2340 (Customer Account Statements) to modify the
requirements relating to the inclusion of a per share estimated value
for unlisted DPP and REIT securities on a customer account statement;
and (2) FINRA Rule 2310 (Direct Participation Programs) to modify the
requirements applicable to members' participation in a public offering
of unlisted DPP or REIT securities.
    In response to comments received by the Commission, FINRA is
proposing to amend the proposed rule change as follows:
    1. FINRA is revising proposed NASD Rule 2340(c) to require general
securities members to include in customer account statements a per
share estimated value for a DPP or REIT security developed in a manner
reasonably designed to ensure that the per share estimated value is
reliable. Thus, FINRA is eliminating the voluntary or ``not priced''
option originally proposed. Moreover, FINRA is revising proposed NASD
Rule 2340(c)(1) to state that the per share estimated value will be
deemed to have been developed in a manner reasonably designed to ensure
that it is reliable if the member uses one of the two specified
methodologies.
    2. FINRA is eliminating the ``no reason to believe that the per
share estimated value is unreliable'' standard from the general
provision in proposed NASD Rule 2340(c). As revised, proposed NASD Rule
2340(c) would require disclosure of valuations and proposed NASD Rule
2340(c)(1) would deem valuations calculated under the two defined
methodologies to have been developed in a manner reasonably designed to
ensure that they are reliable. As a result, FINRA believes the ``no
reason to believe that the per share estimated value is unreliable''
standard in the general provision in proposed NASD Rule 2340(c) is not
necessary.
    3. FINRA is removing the ``over distribution'' deduction from the
per share estimated value in the ``net investment'' methodology in
proposed NASD Rule 2340(c)(1)(A)(ii) and replacing it with enhanced
disclosure of ``over distribution'' on customer account statements. As
revised, proposed NASD Rule 2340(c)(2)(A) would require account
statements that include a ``net investment'' per share estimated value
for a DPP or REIT security to disclose, if applicable, prominently and
in proximity to disclosure of distributions and the per share estimated
value the following: ``IMPORTANT--Part of your distribution includes a
return of capital. Any distribution that represents a return of capital
reduces the estimated per share value shown on your account
statement.''
    4. FINRA is revising the ``net investment'' methodology in proposed
NASD Rule 2340(c)(1)(A) to make clear that firms may use the maximum
offering percentage when the issuer provides a range of amounts
available for investment unless the member has reason to believe that
such percentage is unreliable, in which case the member must use the
minimum offering percentage.
    5. FINRA is modifying the ``net investment'' methodology in
proposed NASD Rule 2340(c)(1)(A) to lengthen the time period in which
members may use the ``net investment'' methodology. The proposed rule
change, as amended, would allow ``net investment'' values to be
included on customer account statements at any time before 150 days
following the second anniversary of breaking escrow. FINRA is making a
parallel change to proposed FINRA Rule 2310(b)(5)(B)(i).
    6. FINRA is modifying proposed FINRA Rule 2310(b)(5)(B) to clarify
issuer disclosure requirements, including the elimination of the
requirement to identify the service used to obtain a valuation, and
require more frequent valuations. As revised, proposed FINRA Rule
2310(b)(5)(D)(i) would require that the per share estimated value be
based on valuations of the assets and liabilities of the DPP or REIT
performed at least annually by, or with the material assistance or
confirmation of, a third-party valuation expert or service.
    7. FINRA is modifying proposed FINRA Rule 2310(b)(5) to
specifically except DPPs that are subject to the Investment Company Act
of 1940 (``1940 Act'') from the requirements under the rule in
recognition that business development companies that fall under the
definition of DPP are subject to an existing regulatory framework under
the 1940 Act for determining and publishing net asset value on a
regular basis. In addition, FINRA is revising proposed NASD Rule
2340(c)(1)(B) to state, in the case of DPPs subject to the 1940 Act,
the appraised value methodology under Rule 2340(c)(1)(B) shall be
consistent with the valuation requirements of the 1940 Act and the
rules thereunder.
    8. FINRA is extending the effective date of the proposed rule
change to no earlier than 18 months following Commission approval.
FINRA believes this extended timeframe will give industry participants
time to make adjustments to product structures and any necessary
operational changes.
    FINRA is also proposing the following changes:

    1. FINRA is proposing to change the title of NASD Rule 2340(c) from
``Unlisted DPP/REIT Securities'' to ``DPP and Unlisted REIT
Securities'' to more accurately reflect the types of securities that
are subject to the rule. FINRA also is changing the title of proposed
NASD Rule 2340(c)(1)(B) from ``independent valuation'' to ``appraised
value'' to more accurately reflect the per share estimated value
methodology.
    2. FINRA is revising the ``net investment'' methodology in proposed
NASD Rule 2340(c)(1)(A)(i) to clarify that ``another equivalent
disclosure'' means ``another equivalent disclosure that reflects the
estimated percentage deduction from the aggregate dollar amount of
securities registered for sale to the public of sales commissions,
dealer manager fees, and estimated issuer offering and organization
expenses.''
    3. FINRA is modifying the ``appraised value'' methodology to
clarify in proposed NASD Rule 2340(c)(1)(B) that the member may include
a per share estimated value reflecting an appraised valuation disclosed
in the Issuer Report based on the valuations of the assets and
liabilities of the DPP or REIT performed at least annually by, or with
the material assistance or confirmation of, a third-party valuation
expert or service and derived from a methodology that conforms to
standard industry practice.
    4. FINRA is eliminating the required disclosures in proposed NASD
Rule 2340(c)(2)(A)(i) regarding characteristics of the per share
estimated value and proposed NASD Rule 2340(c)(2)(B) on the ``not
priced'' option. FINRA believes that streamlined disclosure will be
more effective than also requiring an account statement to describe per
share estimated value, its source, and the method by which it was
developed, as would have been required under the originally proposed
NASD Rule 2340(c)(2)(A)(i). In addition, FINRA believes the disclosures
in proposed NASD Rule 2340(c)(2)(B) are no longer necessary because the
revised proposal requires a general securities member to include in a
customer account statement a per share estimated value of a DPP or REIT
security.
    5. FINRA is modifying proposed FINRA Rule 2310(b)(5) to state that
a member shall not participate in a public offering of the securities
of a DPP that is not subject to the requirements of the 1940 Act or of
a REIT unless they meet the requirements under the rule. In addition,
FINRA is revising proposed FINRA Rule 2310(b)(5)(A) to clarify that the
issuer of the DPP or REIT must agree to disclose a per share estimated
value of the DPP or REIT security, developed in a manner reasonably
designed to ensure it is reliable, in the DPP or REIT periodic reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act.
    6. FINRA is clarifying in proposed FINRA Rule 2310(b)(5)(D)(iii)
that the valuation must be accompanied by a written opinion or report
by the issuer, delivered at least annually to the broker-dealer, that
explains the scope of the review, the methodology used to develop the
valuation or valuations, and the basis for the value or values
reported.
    7. FINRA is making a technical change to delete FINRA Rule
5110(f)(2)(L) instead of the originally proposed deletion of FINRA Rule
5110(f)(2)(M) because FINRA renumbered the subparagraphs of FINRA Rule
5110(f)(2) after the filing of the proposed rule change.\9\
---------------------------------------------------------------------------

    \9\ See Exchange Act Release No. 72114 (May 7, 2014), 79 FR
27355 (May 13, 2014) (Order Approving a Proposed Rule Change; SR-
FINRA-2014-004).
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended by Amendment No. 1, 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 email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2014-006 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2014-006. This
file number should be included on the subject line if email 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
10:00 a.m. and 3:00 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-2014-006 and
should be submitted on or before August 12, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17150 Filed 7-21-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Notices]
[Pages 10067-10069]
[FR Doc No: 2019-05157]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OPP-2018-0014; FRL-9989-85]

Product Cancellation Order for Certain Pesticide Registrations
and Amendments To Terminate Uses

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This notice announces EPA's order for the cancellations and
amendments to terminate uses, voluntarily requested by the registrants
and accepted by the Agency, of the products listed in Table 1 and Table
2 of Unit II, pursuant to the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA). This cancellation order follows a July 10,
2018 Federal Register Notice of Receipt of Requests from the
registrants listed in Table 3 of Unit II to voluntarily cancel and
amend to terminate uses of these product registrations. In the July 10,
2018 notice, EPA indicated that it would issue an order implementing
the cancellations and amendments to terminate uses, unless the Agency
received substantive comments within the 180-day comment period that
would merit its further review of these requests, or unless the
registrants withdrew their requests. The Agency received one anonymous
public comment on the notice, but it didn't merit its further review of
the requests. Two registrants requested to withdraw their requests to
cancel registrations. The registrant for 81964-4, requested via letter
to withdraw their voluntary cancellation request. Also, the registrant
for 2596-150 and 2596-151, requested via letter to withdraw their
voluntary cancellation requests. Accordingly, EPA

hereby issues in this notice a cancellation order granting the
requested cancellations and amendments to terminate uses. Any
distribution, sale, or use of the products subject to this cancellation
order is permitted only in accordance with the terms of this order,
including any existing stocks provisions.

DATES: The cancellations and amendments are effective March 19, 2019.

FOR FURTHER INFORMATION CONTACT: Christopher Green, Information
Technology and Resources Management Division (7502P), Office of
Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania
Ave. NW, Washington, DC 20460-0001; telephone number:<PHONE_NUMBER>;
email address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

    This action is directed to the public in general, and may be of
interest to a wide range of stakeholders including environmental, human
health, and agricultural advocates; the chemical industry; pesticide
users; and members of the public interested in the sale, distribution,
or use of pesticides. Since others also may be interested, the Agency
has not attempted to describe all the specific entities that may be
affected by this action.

B. How can I get copies of this document and other related information?

    The docket for this action, identified by docket identification
(ID) number EPA-HQ-OPP-2018-0014, is available at http://www.regulations.gov or at the Office of Pesticide Programs Regulatory
Public Docket (OPP Docket) in the Environmental Protection Agency
Docket Center (EPA/DC), West William Jefferson Clinton Bldg., Rm. 3334,
1301 Constitution Ave. NW, Washington, DC 20460-0001. The Public
Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through
Friday, excluding legal holidays. The telephone number for the Public
Reading Room is<PHONE_NUMBER>, and the telephone number for the OPP
Docket is<PHONE_NUMBER>. Please review the visitor instructions and
additional information about the docket available at http://www.epa.gov/dockets.

II. What action is the agency taking?

    This notice announces the cancellations and amendments to terminate
uses, as requested by registrants, of products registered under FIFRA
section 3 (7 U.S.C. 136a). These registrations are listed in sequence
by registration number in Tables 1 and 2 of this unit.

                     Table 1--Product Cancellations
------------------------------------------------------------------------
                                                              Active
   Registration No.      Company No.     Product name      ingredients
------------------------------------------------------------------------
264-736..............             264  Bayleton          Triadimefon.
                                        Technical
                                        Fungicide.
264-740..............             264  Bayleton 50%      Triadimefon.
                                        Concentrate.
264-743..............             264  Baytan Technical  Triadimenol.
50830-1..............           50830  The 10-Hour       Diethyl
                                        Insect            toluamide.
                                        Repellent.
52564-1..............           52564  Sodium Chlorite   Sodium
                                        Technical 80      chlorite.
                                        PCT.
91974-2..............           91974  Kangaroo Old      Naphthalene.
                                        Fashioned Moth
                                        Balls.
AR-130010............             352  DuPont Realm Q    Mesotrione &
                                        Herbicide.        Rimsulfuron.
AR-940002............           59639  Valent Bolero 8   Thiobencarb.
                                        EC.
AR-940003............           59639  Valent Bolero 8   Thiobencarb.
                                        EC.
AR-950004............           59639  Valent Bolero 8   Thiobencarb.
                                        EC.
CO-990010............           62719  Kerb 50W          Propyzamide.
                                        Herbicide in
                                        WSP.
NC-170005............           62719  GF-3335.........  2,4-D, Choline
                                                          salt.
OR-020029............           62719  Kerb 50W          Propyzamide.
                                        Herbicide in
                                        WSP.
OR-040029............           62719  Kerb 50W          Propyzamide.
                                        Herbicide in
                                        WSP.
OR-950033............            7969  Basagran          Sodium
                                        Herbicide.        bentazon.
OR-990008............           62719  Kerb 50W          Propyzamide.
                                        Herbicide in
                                        WSP.
------------------------------------------------------------------------

                           Table 2--Product Registration Amendments to Terminate Uses
----------------------------------------------------------------------------------------------------------------
      Registration No.         Company No.        Product name        Active Ingredients   Uses to be terminated
----------------------------------------------------------------------------------------------------------------
92564-37...................           92564  Ant & Roach Killer     beta-Cyfluthrin & o-   Outdoors.
                                              Pump Spray B.          Phenylphenol, sodium
                                                                     salt.
----------------------------------------------------------------------------------------------------------------

    Table 3 of this unit includes the names and addresses of record for
all registrants of the products in Tables 1 and 2 of this unit, in
sequence by EPA company number. This number corresponds to the first
part of the EPA registration numbers of the products listed above.

         Table 3--Registrants of Cancelled and Amended Products
------------------------------------------------------------------------
          EPA company No.                 Company name and address
------------------------------------------------------------------------
264...............................  Bayer CropScience, LP., 2 T.W.
                                     Alexander Drive, P.O. Box 12014,
                                     Research Triangle Park, NC 27709.
352...............................  E. I. Du Pont De Nemours and
                                     Company, Attn: Manager, US
                                     Registration, DuPont Crop
                                     Protection, Chestnut Run Plaza (CRP
                                     720/2E5), 974 Centre Rd.,
                                     Wilmington, DE 19805.
7969..............................  BASF Corporation, Agricultural
                                     Products, 26 Davis Drive, P.O. Box
                                     13528, Research Triangle Park, NC
                                     27709-3528.
50830.............................  Tec Laboratories, Inc., 7100 Tec
                                     Labs Way, SW, Albany, OR 97321.
52564.............................  Ercros, S.A., Agent Name: Laird's
                                     Regulatory Consultants, Inc., 17804
                                     Braemar Place, Leesburg, VA 20175-
                                     7046.
59639.............................  Valent U.S.A., LLC., 1600 Riviera
                                     Avenue, Suite 200, Walnut Creek, CA
                                     94596-8025.

62719.............................  Dow Agrosciences, LLC., 9330
                                     Zionsville Rd., Indianapolis, IN
                                     46268-1054.
91974.............................  American Eagle Home Products, LLC.,
                                     P.O. Box 691072, Orlando, FL 32869.
92564.............................  SBM Life Science Corp., 1001
                                     Winstead Drive, Suite 500, Cary, NC
                                     27513.
------------------------------------------------------------------------

III. Summary of Public Comments Received and Agency Response to
Comments

    The Agency received one anonymous public comment on the notice, but
it didn't merit its further review of the request. However, two
registrants requested to withdraw their requests to cancel
registrations. The registrant for 81964-4, Chemstarr, LLC, requested
via letter to withdraw their voluntary cancellation request for 81964-
4. Also, the registrant for 2596-150 and 2596-151, The Hartz Mountain
Corporation, requested via letter to withdraw their voluntary
cancellation requests for 2596-150 and 2596-151: For these reasons, the
Agency will not cancel these three registrations and the requests have
been removed from this notice.

IV. Cancellation Order

    Pursuant to FIFRA section 6(f) (7 U.S.C. 136d(f)(1)), EPA hereby
approves the requested cancellations and amendments to terminate uses
of the registrations identified in Tables 1 and 2 of Unit II.
Accordingly, the Agency hereby orders that the product registrations
identified in Tables 1 and 2 of Unit II are canceled and amended to
terminate the affected uses. The effective date of the cancellations
that are subject of this notice is March 19, 2019. Any distribution,
sale, or use of existing stocks of the products identified in Tables 1
and 2 of Unit II in a manner inconsistent with any of the provisions
for disposition of existing stocks set forth in Unit VI, will be a
violation of FIFRA.

V. What is the agency's authority for taking this action?

    Section 6(f)(1) of FIFRA (7 U.S.C. 136d(f)(1)) provides that a
registrant of a pesticide product may at any time request that any of
its pesticide registrations be canceled or amended to terminate one or
more uses. FIFRA further provides that, before acting on the request,
EPA must publish a notice of receipt of any such request in the Federal
Register. Thereafter, following the public comment period, the EPA
Administrator may approve such a request. The notice of receipt for
this action was published for comment in the Federal Register of July
10, 2018 (83 FR 31969) (FRL-9979-71). The comment period closed on
January 7, 2019.

VI. Provisions for Disposition of Existing Stocks

    Existing stocks are those stocks of registered pesticide products
which are currently in the United States and which were packaged,
labeled, and released for shipment prior to the effective date of the
action. The existing stocks provision for the products subject to this
order is as follows.
    For voluntary cancellations, the registrants may continue to sell
and distribute existing stocks of products listed in Table 1 until
March 18, 2020, which is 1 year after publication of this cancellation
order in the Federal Register. Thereafter, the registrants are
prohibited from selling or distributing products listed in Table 1 of
Unit II, except for export in accordance with FIFRA section 17 (7
U.S.C. 136o) or for proper disposal.
    Now that EPA has approved product labels reflecting the requested
amendments to terminate uses, registrants are permitted to sell or
distribute products listed in Table 2 of Unit II, under the previously
approved labeling until September 17, 2020, a period of 18 months after
publication of the cancellation order in this Federal Register, unless
other restrictions have been imposed. Thereafter, registrants will be
prohibited from selling or distributing the products whose labels
include the terminated uses identified in Table 2 of Unit II, except
for export consistent with FIFRA section 17 or for proper disposal.
    Persons other than the registrant may sell, distribute, or use
existing stocks of canceled products and products whose labels include
the terminated uses until supplies are exhausted, provided that such
sale, distribution, or use is consistent with the terms of the
previously approved labeling on, or that accompanied, the canceled
products and terminated uses.

    Authority: 7 U.S.C. 136 et seq.

    Dated: March 5, 2019.
Delores Barber,
Director, Information Technology and Resources Management Division,
Office of Pesticide Programs.
[FR Doc. 2019-05157 Filed 3-18-19; 8:45 am]
BILLING CODE 6560-50-P