[Federal Register Volume 76, Number 22 (Wednesday, February 2, 2011)]
[Notices]
[Pages 5850-5856]
[FR Doc No: 2011-2292]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63784; File No. SR-FINRA-2010-052]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change Adopting FINRA
Rules Regarding Books and Records in the Consolidated FINRA Rulebook

January 27, 2011.

I. Introduction

    On October 20, 2010, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change adopting FINRA rules regarding
books and records in the consolidated FINRA Rulebook. The proposed rule
change was published for comment in the Federal Register on November 1,
2010.\3\ The Commission received three comments on the proposed rule
change.\4\ On January 13, 2011, FINRA responded to the comments.\5\
This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 63181 (October 26,
2010), 75 FR 67155 (November 1, 2010).
    \4\ See Letter from Holly H. Smith and Susan S. Krawczyk,
Sutherland Asbill & Brennan LLP, for the Committee of Annuity
Insurers, to Elizabeth M. Murphy, Secretary, SEC, dated November 22,
2010 (``CAI''); Letter from William A. Jacobson, Associate Clinical
Professor of Law and Director, the Cornell Securities Law Clinic,
Cornell University Law School, to Elizabeth M. Murphy, Secretary,
SEC, dated November 22, 2010 (``Cornell''); and Letter from Melissa
MacGregor, Managing Director and Associate General Counsel, the
Securities Industry and Financial Markets Association, to Elizabeth
M. Murphy, Secretary, SEC, dated November 23, 2010 (``SIFMA'').
(Available at http://www.sec.gov/comments/sr-finra-2010-052/finra2010052.shtml).
    \5\ See Letter from Afshin Atabaki, FINRA, to Elizabeth M.
Murphy, Secretary, SEC, dated January 13, 2011 (``Response to
Comments'').
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II. Description of Proposed Rule Change

    FINRA is proposing to adopt certain paragraphs, as specified below,
of NASD Rule 3110 (Books and Records), subject to certain amendments,
as FINRA Rules in the consolidated FINRA rulebook and to adopt
Incorporated NYSE Rule Interpretations 410/01 (Pre-Time Stamping) and
410/02 (Allocations of Block Orders), subject to certain amendments, as
FINRA Rules in the consolidated FINRA rulebook.
    The proposed rule change would delete NASD IM-3110 (Customer
Account Information) and Incorporated NYSE Rule 410 (Records of
Orders). In addition, the proposed rule change would delete
Incorporated NYSE Rule 440 (Books and Records), with the exception of
Incorporated NYSE Rules 440.10 (Periodic Security Counts,
Verifications, Comparisons, etc.) and 440.20 (Identification of
Suspense Accounts and Assignment of Responsibility for General Ledger
Accounts) and NYSE Rule Interpretation 440.20/01 (Suspense Accounts).
    The proposed rule change would renumber NASD Rule 3110(a)
(Requirements) as FINRA Rule 4511 (General Requirements), NASD Rule
3110(c) (Customer Account Information) as FINRA Rule 4512 (Customer
Account Information), NASD Rules 3110(d) (Record of Written Complaints)
and 3110(e) (``Complaint'' Defined) as FINRA Rule 4513 (Records of
Written Customer Complaints), NASD Rule 3110(f) (Requirements When
Using Predispute Arbitration Agreements for Customers Accounts) as
FINRA Rule 2268 (Requirements When Using Predispute Arbitration
Agreements for Customer Accounts), NASD Rule 3110(g) (Negotiable
Instruments Drawn From A Customer's Account) as FINRA Rule 4514
(Authorization Records for Negotiable Instruments Drawn From a
Customer's Account), NASD Rule 3110(h) (Order Audit Trail System Record
Keeping Requirements) as paragraph (a)(4) of FINRA Rule 7440 (Recording
of Order Information) and NASD Rule 3110(j) (Changes in Account Name or
Designation) as FINRA Rule 4515 (Approval and Documentation of Changes
in Account Name or Designation) in the consolidated FINRA rulebook. The
proposed rule change also would renumber NYSE Rule Interpretation 410/
01 as FINRA Rule 5340 (Pre-Time Stamping) and NYSE Rule Interpretation
410/02 as FINRA Rule 4515.01 (Allocations of Orders Made by Investment
Advisers).

A. Background

1. Purpose
    As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\6\ FINRA is proposing to adopt NASD
Rules 3110(a), 3110(c), 3110(d) and (e), 3110(f), 3110(g), 3110(h) and
3110(j) as FINRA Rules 4511, 4512, 4513, 2268, 4514, 7440(a)(4) and
4515, respectively, in the Consolidated FINRA Rulebook, with certain
changes as described below.\7\ FINRA also is proposing to adopt
Incorporated NYSE Rule Interpretations 410/01 and 410/02 as FINRA Rules
5340 and 4515.01,\8\ respectively, in the Consolidated FINRA
Rulebook.\9\ FINRA is proposing to delete NASD IM-3110 and NYSE Rules
410 and 440, provided, however, NYSE Rules 440.10 and 440.20 and NYSE
Rule Interpretation 440.20/01 are being addressed as part of a separate
proposal.\10\
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    \6\ The current FINRA rulebook consists of (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules
are referred to as the ``Transitional Rulebook''). While the NASD
Rules generally apply to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that are also members of
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA
members, unless such rules have a more limited application by their
terms. For more information about the rulebook consolidation
process, see Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
    \7\ NASD Rule 3110(b) (Marking of Customer Order Tickets)
requires that members indicate on the order ticket for each
transaction in a non-exchange-listed security the name of each
dealer contacted and the quotations received to determine the best
inter-dealer market as required by NASD Rule 2320(g) (commonly
referred to as the ``Three Quote Rule''), unless the member can
establish and document its reliance on the exclusions to the Three
Quote Rule. FINRA is proposing to replace NASD Rule 3110(b) with a
more general documentation requirement in the supplementary material
to proposed FINRA Rule 5310. See Regulatory Notice 08-80 (December
2008) (Proposed FINRA Rule Addressing Best Execution). NASD Rule
3110(i) (Holding of Customer Mail) specifies the circumstances under
which members may hold mail for a customer. FINRA is proposing that
NASD Rule 3110(i) be rewritten as a standalone rule and relocated to
the supervision section of the Consolidated FINRA Rulebook. See
Regulatory Notice 08-24 (May 2008) (Proposed Consolidated FINRA
Rules Governing Supervision and Supervisory Controls).
    \8\ For convenience, the Incorporated NYSE Rules are referred to
as the NYSE Rules.
    \9\ NYSE Rule Interpretation 410(a)(ii)(5)/01 was deleted as
part of a prior rule change. See Securities Exchange Act Release No.
61473 (February 2, 2010), 75 FR 6422 (February 9, 2010) (Order
Approving File No. SR-FINRA-2009-087).
    \10\ See Regulatory Notice 09-03 (January 2009) (Proposed
Consolidated FINRA Rules Governing Financial Responsibility and
Operational Requirements).
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    Current NASD Rules and NYSE Rules require members to make and
preserve

certain books and records to evidence compliance with federal
securities laws and FINRA and SEC rules, as well as to enable FINRA and
SEC staffs to conduct effective examinations. Based in large part on
the current rules, the proposed rule change would rewrite the FINRA
books and records rules with three goals in view:
     To streamline the rules to make them as clear as possible;
     To group the requirements along similar subject matter
lines to make finding them a more intuitive process and to provide
members with a better understanding of the regulatory scheme; and
     To eliminate those requirements contained in the current
rules that have become obsolete or otherwise duplicative.
2. Proposed Amendments
    FINRA proposes the following amendments to the books and records
rules.
a. General Requirements (Proposed FINRA Rule 4511)
    Currently, there are two general recordkeeping rules in effect
under NASD Rules and NYSE Rules. NASD Rule 3110(a) requires each member
to make and preserve books, accounts, records, memoranda, and
correspondence in conformity with all applicable laws, rules,
regulations and statements of policy promulgated thereunder, with
FINRA's Rules, and as prescribed by Exchange Act Rule 17a-3. NASD Rule
3110(a) further states that the record keeping format, medium, and
retention period shall comply with Exchange Act Rule 17a-4. NYSE Rule
440 also sets forth the general obligation of members to make and
preserve books and records.\11\
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    \11\ In addition, NYSE Rules 440.10 and 440.20 and NYSE Rule
Interpretation 440.20/01 set forth financial and operational
recordkeeping requirements for which there are no equivalent NASD
Rules.
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    NYSE Rule 410 is a separate NYSE recordkeeping rule for which there
is no comparable NASD Rule.\12\ NYSE Rule 410, in main part, requires
members to make and preserve specific records for every order received
(either orally or in writing) and every order entered into the NYSE's
Off-Hours Trading Facility.\13\ NYSE Rule 410 also permits the NYSE to
waive the rule's recordkeeping requirements under exceptional
circumstances upon written request.
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    \12\ Previously, NYSE Rule 410 applied only to orders
transmitted or carried to the NYSE Trading Floor (``Floor''), but
was amended in 2004 to apply to all orders sent to any marketplace,
not just those carried or transmitted to the Floor. See NYSE
Information Memo 04-38 (July 26, 2004) (Amendments to NYSE Rules
342, 401, 408 and 410 Relating to Supervision and Internal
Controls).
    \13\ The ``Off-Hours Trading Facility'' is the NYSE facility
that permits members to effect securities transactions on the NYSE
pursuant to the NYSE Rule 900 Series. See NYSE Rule 900(e)(v).
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    FINRA Rule 4511 streamlines, and replaces, the language of NASD
Rule 3110(a) to clarify that members are obligated to make and preserve
books and records as required under the FINRA rules, the Exchange Act
and the applicable Exchange Act rules.\14\ Additionally, the proposed
rule requires members to preserve for a period of at least six years
those FINRA books and records for which there is no specified retention
period under the FINRA Rules or applicable Exchange Act rules. The
proposed rule also clarifies that members are required to preserve the
books and records required to be made pursuant to the FINRA Rules in a
format and media that complies with Exchange Act Rule 17a-4.
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    \14\ As proposed in Regulatory Notice 08-25 (discussed in Item 5
of this filing), FINRA Rule 4511 would have required members to make
and preserve books and records as required under FINRA rules,
Section 17(a) of the Exchange Act and the applicable associated
Exchange Act rules; however, FINRA has modified proposed FINRA Rule
4511 to eliminate the specific reference to Section 17(a) of the Act
given that certain Exchange Act recordkeeping requirements are
located outside of Section 17(a).
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    FINRA proposes to delete the general recordkeeping provisions of
NYSE Rule 440 because its provisions are substantially similar to FINRA
Rule 4511. As noted above, NYSE Rules 440.10 and 440.20 and NYSE Rule
Interpretation 440.20/01 are being addressed as part of a separate
proposal.\15\
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    \15\ See supra note 10.
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    In addition, the proposed rule change would delete NYSE Rules
410(a)(1)-(3) and (b) as the provisions' requirements are largely
duplicative of the Exchange Act requirements that are incorporated by
reference into FINRA Rule 4511\16\ or, in some instances, are directed
at orders on an exchange facility. FINRA Rule 7440 (Recording of Order
Information) also mandates requirements that are substantially similar
to those in Exchange Act Rules 17a-3 and 17a-4 for members that must
report order information via FINRA's Order Audit Trail System
(``OATS'') for over-the-counter (``OTC'') and Nasdaq equity
securities.\17\
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    \16\ See generally 17 CFR 240. 17a-3(a)(6)-(a)(8).
    \17\ The FINRA Rule 7400 Series (Order Audit Trail System)
requires members to capture, record, and report via OATS specific
data elements related to the handling or execution of orders in OTC
and Nasdaq equity securities, including recording all times of these
events in hours, minutes, and seconds, and to synchronize their
business clocks. FINRA is proposing to extend the recording and
reporting requirements in the OATS rules to include all NMS stocks.
See Securities Exchange Act Release No. 62739 (August 18, 2010), 75
FR 52380 (August 25, 2010) (Notice of Filing of SR-FINRA-2010-044).
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b. Customer Account Information (Proposed FINRA Rule 4512)
    NASD Rule 3110(c)(1) requires that members maintain certain
information relating to customer accounts, including, among other
things, the signature of the registered representative introducing the
account and signature of the member, partner, officer or manager who
accepts the account. FINRA proposes to simplify this provision by
instead requiring members to maintain the name of the associated
person, if any, responsible for the account. As discussed in more
detail below, the proposed rule change would require that where a
member designates multiple individuals as being responsible for an
account, the member maintain each of their names and a record
indicating the scope of their responsibilities with respect to the
account. The proposed rule change also would clarify that members
maintain the signature of the partner, officer or manager denoting that
the account has been accepted in accordance with the member's policies
and procedures for acceptance of accounts.
    NASD Rule 3110(c)(3) requires that for discretionary accounts, in
addition to the requirements set forth in NASD Rules 3110(c)(1) and
(2), members must: Obtain the signature of each person authorized to
exercise discretion in the account; record the date such discretion is
granted; and, in connection with exempted securities (other than
municipals), record the age or approximate age of the customer. FINRA
proposes to simplify and clarify NASD Rule 3110(c)(3) in the following
ways:
     Consistent with the Exchange Act requirements,\18\ the
rule would be amended to require members to maintain a record of the
dated signature of each named, natural person authorized to exercise
discretion in the account;
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    \18\ See 17 CFR 240.17a-3(a)(17)(ii).
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     The proposed rule change would delete the requirement to
record the date discretion was granted \19\ and the requirement to
record the age or

approximate age of the customer in connection with exempted securities;
\20\
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    \19\ Pursuant to NASD Rule 2510 (Discretionary Accounts),
members would still be required to obtain the customer's prior
written authorization. As part of the proposed changes to NASD Rule
2510, FINRA is proposing to require members to obtain the customer's
dated prior written authorization. See Regulatory Notice 09-63
(November 2009) (Proposed Consolidated FINRA Rule Governing
Discretionary Accounts and Transactions).
    \20\ This would be a conforming revision. The requirement that
for discretionary accounts generally members must record the age or
approximate age of the customer was eliminated effective in 1991.
See Notice to Members 90-52 (August 1990) (SEC Approval of
Amendments to Article III, Sections 2 and 21 (c) of the Rules of
Fair Practice Re: Customer Account Information).
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     The rule would be amended to provide that its requirements
do not apply to investment discretion granted by a customer as to the
price at which or the time to execute an order given by the customer
for the purchase or sale of a definite dollar amount or quantity of a
specified security; and
     The proposed rule change would clarify that nothing in the
rule shall be construed as allowing members to maintain discretionary
accounts or exercise discretion in such accounts except to the extent
permitted under the federal securities laws.
    In addition, as discussed in more detail below, the proposed rule
change would require that members obtain a ``manual'' dated signature
of each named, natural person authorized to exercise discretion in the
account.
    NASD Rule 3110(c)(4) sets forth the definition of ``institutional
account'' for purposes of NASD Rule 3110 as well as for NASD Rules 2310
(Recommendations to Customers (Suitability)) and 2510. FINRA proposes
to amend this definition of ``institutional account'' to delete the
cross-references to NASD Rules 2310 and 2510 because these rules
already include cross-references to this definition.
    FINRA also proposes to amend NASD Rule 3110(c) to provide that with
respect to accounts opened pursuant to prior NASD Rules (e.g., the
January 1991 cut-off specified in NASD Rule 3110(c)), members will be
permitted to continue maintaining the information required by those
prior NASD Rules until such time as they update the account information
in the course of their routine and customary business or as required by
other applicable laws or rules.
    In addition, the proposed rule change would add supplementary
material to:
     Clarify that required customer account records are subject
to a six-year retention period;
     Remind members that they may be subject to additional
recordkeeping requirements under the Exchange Act (e.g., Exchange Act
Rule 17a-3(a)(17));
     Remind members of their obligation to comply with the
requirements of FINRA Rule 2070 (Transactions Involving FINRA
Employees); \21\ and
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    \21\ FINRA Rule 2070 plays a vital role in helping FINRA monitor
whether employees are abiding by trading restrictions imposed by the
FINRA Code of Conduct.
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     Provide general explanations of the terms ``maintain'' and
``preserve'' for purposes of Rule 4512 only.
    The proposed rule change would renumber NASD Rule 3110(c) as FINRA
Rule 4512. The remaining provisions of NASD Rule 3110(c) would be
incorporated into FINRA Rule 4512 without material change.
    NASD IM-3110 includes cross-references to the requirements of
certain other rules that may apply to customer accounts (such as
Exchange Act Rules 15g-1 through 15g-9), and it includes a historical
reference relating to accounts opened prior to January 1991. FINRA
proposes to delete NASD IM-3110 because certain provisions are
redundant and others are outdated.
c. Records of Written Customer Complaints (Proposed FINRA Rule 4513)
    NASD Rule 3110(d) addresses a member's obligation to preserve
records of written customer complaints at each office of supervisory
jurisdiction (``OSJ''). NASD Rule 3110(e) defines the term
``complaint.'' Because the definition of ``complaint'' in NASD Rule
3110(e) relates directly to the requirements of NASD Rule 3110(d),
FINRA proposes to merge the two provisions into one rule for
simplification. The proposed rule change would renumber NASD Rules
3110(d) and (e) as FINRA Rule 4513.
    The proposed rule change also would clarify that the obligation to
keep customer complaint records in each OSJ applies only to complaints
that relate to that office, including complaints that relate to
activities supervised from that office and would provide that members
may maintain the required records at the OSJ or make them promptly
available at such office upon FINRA's request.
    Currently, members are required to preserve customer complaint
records for a period of at least three years.\22\ To take into account
FINRA's four-year routine examination cycle for certain members, the
proposed rule change would require that members preserve the customer
complaint records for a period of at least four years.
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    \22\ See 17 CFR 240.17a-3(a)(18); 17 CFR 240.17a-4(b)(4).
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    d. Requirements When Using Predispute Arbitration Agreements for
Customer Accounts (Proposed FINRA Rule 2268)
    To ensure that customers are advised about what they are agreeing
to when they sign predispute arbitration agreements, NASD Rule 3110(f)
requires, among other things, that such agreements contain certain
highlighted disclosures. FINRA proposes to incorporate the requirements
of the rule with minor changes into the Consolidated FINRA Rulebook.
Specifically, FINRA proposes to update the disclosure language to
reflect amendments to FINRA Rule 12904 requiring arbitrators to provide
an explained decision to the parties in eligible cases \23\ if there is
a joint request by all parties at least 20 days before the first
scheduled hearing date.\24\
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    \23\ Pursuant to FINRA Rule 12904(g)(6), the requirement does
not apply to simplified cases decided without a hearing under FINRA
Rule 12800 or to default cases conducted under FINRA Rule 12801.
    \24\ See Securities Exchange Act Release No. 59358 (February 4,
2009), 74 FR 6928 (February 11, 2009) (Order Approving File No. SR-
FINRA-2008-051).
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    The proposed rule change would renumber NASD Rule 3110(f) as FINRA
Rule 2268 and would move it to the disclosure section of the
Consolidated FINRA Rulebook as a standalone rule.
e. Authorization Records for Negotiable Instruments Drawn From a
Customer's Account (Proposed FINRA Rule 4514)
    NASD Rule 3110(g) provides that members shall not obtain from a
customer or submit for payment a check, draft or other form of
negotiable paper drawn on the customer's checking, savings, share or
similar account, without that person's express written authorization,
which may include the customer's signature on the negotiable
instrument. The rule requires members to maintain the required written
authorization (other than a copy of a negotiable instrument signed by
the customer) for a period of three years. FINRA proposes to amend this
provision to clarify that where the required authorization is separate
from the negotiable instrument, members must preserve the authorization
for a period of three years following the date it expires. The proposed
rule change would renumber NASD Rule 3110(g) as FINRA Rule 4514.
f. OATS Recordkeeping Requirements (Proposed FINRA Rule 7440(a)(4))
    NASD Rule 3110(h) sets forth the OATS recordkeeping requirements
for members that are ``Reporting Members,'' as defined in the OATS
rules, for orders received or executed at their trading departments.
FINRA proposes to relocate this recordkeeping provision without
material change into the OATS rules. The proposed rule change would
renumber NASD Rule 3110(h) as paragraph (a)(4) of FINRA Rule 7440.

g. Approval and Documentation of Changes in Account Name or Designation
(Proposed FINRA Rule 4515)
    NASD Rule 3110(j) requires that, before a customer order is
executed, the account name or designation must be placed upon the
memorandum for each transaction.\25\ The rule also addresses the
approval and documentation procedures for changes in such account name
or designation.
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    \25\ See also 17 CFR 240.17a-3(a)(6).
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    As discussed in more detail below, FINRA proposes to amend this
provision to clarify that with respect to any change in account name or
designation that takes place prior to execution of the trade, the
essential facts the principal relied on in approving such change must
be documented in writing prior to execution. The proposed rule change
would renumber NASD Rule 3110(j) as FINRA Rule 4515. NYSE Rules 410 and
410.10 also include provisions regarding approval and documentation of
changes in account name or designation. FINRA proposes to delete the
corresponding provisions in NYSE Rules 410 and 410.10 because these
provisions are substantially similar to FINRA Rule 4515. As stated
earlier, FINRA also proposes to delete the recordkeeping provisions of
NYSE Rule 410.
    NYSE Rule Interpretation 410/02 outlines an exception to the order
entry requirements of NYSE Rule 410 by permitting a member to accept
block orders and allowing investment advisers to make allocations on
such orders to customers (i.e., allocations among sub-accounts),
provided that the member obtains specific account designations or
customer names for the order records by the end of the business day.
The proposed rule change would transfer NYSE Rule Interpretation 410/02
as FINRA Rule 4515.01, with certain changes as described below.
    FINRA proposes to amend the provision so that the exception applies
not only to block orders, but to all orders submitted by an investment
adviser on behalf of multiple customers. Additionally, members have
indicated that in some cases they are unable to obtain the required
information by the end of the business day on which the order is
executed. Therefore, as a clerical accommodation to members, FINRA
proposes to amend the provision and give members until noon of the next
business day following the trading session to obtain the required
information. The proposal also clarifies that the exception only
applies where there is more than one customer for any particular order.
Further, the current exception only applies to investment advisers that
are either registered under the Investment Advisers Act or subject to
state regulation pursuant to Section 203A of the Investment Advisers
Act. To cover all investment advisers, FINRA proposes to expand the
category of investment advisers subject to the exception to also
include investment advisers that qualify for an exception from the
Investment Advisers Act's registration requirements pursuant to Section
203(b) of the Investment Advisers Act. FINRA also proposes to clarify
that the exception does not apply to accounts handled by registered
representatives who otherwise exercise discretionary authority over
accounts pursuant to NASD Rule 2510.
    Moreover, FINRA proposes to explicitly state that nothing in the
rule or supplementary material may be construed as allowing a member
knowingly to facilitate the allocation of orders from investment
advisers in a manner other than in compliance with both (i) the
investment adviser's intent at the time of trade execution to allocate
shares on a percentage basis to the participating accounts and (ii) the
investment adviser's fiduciary duty with respect to allocations for
such participating accounts, including but not limited to allocations
based on the performance of a transaction between the time of execution
and the time of allocation.
h. Pre-Time Stamping (Proposed FINRA Rule 5340)
    NYSE Rule Interpretation 410/01 notes that pre-time stamping of
order tickets in connection with block positioning is contrary to NYSE
Rule 410. The proposed rule change would adopt this NYSE Rule
Interpretation as FINRA Rule 5340 without material change, except for
replacing the reference to NYSE Rule 410 with FINRA Rule 4511. FINRA
believes that retaining this requirement is appropriate as it expressly
prohibits violative conduct for which there are no direct NASD rule
equivalents. FINRA Rule 5340 would be new to legacy NASD-only members.
    FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 90 days
following Commission approval. The implementation date will be no later
than 240 days following publication of the Regulatory Notice announcing
Commission approval.

III. Summary of Comment Letters and FINRA's Response

    The proposed rule change was published for comment in the Federal
Register on November 1, 2010, and the comment period closed on November
22, 2010. The Commission received three comment letters in response to
the proposing release: The CAI Letter, the Cornell letter, and the
SIFMA letter.\26\
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    \26\ See supra, note 4.
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A. Requirements When Using Predispute Arbitration Agreements for
Customer Accounts (Proposed FINRA Rule 2268)

    One commenter requested that FINRA confirm that the proposed
disclosure language applies to predispute arbitration agreements
entered into after the effective date of FINRA Rule 2268.\27\ In its
Response to Comments, FINRA confirmed that the requirement will apply
prospectively to predispute arbitration agreements entered into on or
after the effective date of FINRA Rule 2268.
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    \27\ CAI.
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B. General Requirements (Proposed Rule 4511)

    FINRA noted in its filing with the Commission that its proposed
rule would require members to preserve for a period of at least six
years those FINRA books and records for which there is no other
specified retention period under the FINRA rules or applicable Exchange
Act rules. One commenter noted that this requirement is too vague.\28\
Another commenter requested that the proposed rule provide a start date
for the six-year retention period.\29\ In its Response to Comments,
FINRA noted that this six-year retention period is a default retention
period for FINRA rules that require members to preserve certain books
and records but do not specify a retention period, and where there is
no retention period specified under Exchange Act rules.
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    \28\ SIFMA.
    \29\ CAI.
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C. Customer Accounts Information (Proposed FINRA Rule 4512)

    One commenter requests that FINRA provide guidance regarding the
use of ``electronic'' signatures to satisfy any FINRA signature
requirements relating to a member's book and records.\30\ In its
Response to Comments, FINRA found this comment to be outside of the
scope of the proposed rule change and directed the commenter to review
the various Commission and self-regulatory

organization guidance available. This same commenter also requested
clarification on the scope of FINRA Rule 4512(a)(3).\31\ In its
Response to Comments, FINRA clarified that the provision applies to all
discretionary accounts. FINRA further stated that it would address the
requirements applicable to other types of accounts in which a person is
authorized by a customer to act on the customer's behalf in the context
of the proposed changes to NASD Rule 2510 (Discretionary Accounts).\32\
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    \30\ SIFMA.
    \31\ SIFMA.
    \32\ See Regulatory Notice 09-63 (November 2009) (Proposed
Consolidated FINRA Rule Governing Discretionary Accounts and
Transactions).
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    One commenter inquired about the customer age component of Rule
4512(a)(1)(B).\33\ Under proposed FINRA Rule 4512(a)(1)(B) members are
required to maintain certain information about their customers,
including, ``whether the customer is of legal age.'' One commenter
suggests that members should instead collect and retain a customer's
date of birth.\34\ In its Response to Comments, FINRA disagreed and
specified that its rule requires members to maintain information
establishing that the customer is of legal age to engage in
transactions with the member.
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    \33\ SIFMA.
    \34\ SIFMA.
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    FINRA Rule 4512(a)(1)(C) requires members to maintain the name of
the associated person, if any, responsible for the account. One
commenter requested that the register representative signature
requirement currently used in NASD Rule 3110(c)(1)(C) be retained in
the new consolidated FINRA rulebook.\35\ In its Response to Comments,
FINRA reaffirmed that it believes it is ``sufficient for a member to
maintain the name of the associated person (if any) responsible for the
account together with the signature of the partner, officer, or manager
denoting that the account has been accepted in accordance with the
member's policies and procedures for acceptance of accounts.''
Regarding this same rule section, one commenter asked for clarification
that commission sharing on a customer account or sharing responsibility
does not necessarily determine whether an individual is engaged in
activities whereby the individual becomes ``responsible'' for the
account.\36\ In its Response to Comments, FINRA clarified that for
purposes of this rule, responsibility is determined on the scope of the
individual's activities with respect to the account.
---------------------------------------------------------------------------

    \35\ Cornell.
    \36\ CAI.
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    Finally, with respect to FINRA Rule 4512, one commenter believes
that the requirement to update account information for accounts that
were opened prior to FINRA Rule 4512 is burdensome.\37\ In its Response
to Comments, FINRA disagreed, noting that this new requirement promotes
greater consistency and uniformity with regards to account record
information.
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    \37\ CAI.
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D. Records of Written Customer Complaints (Proposed FINRA Rule 4513)

    Two commenters requested that FINRA maintain its current three-year
retention period for customer complaint records, rather than the
proposed four-year retention period.\38\ One commenter further
explained that, ``[e]xtending the retention period to four (4) years
for customer complaint records increases compliance costs for all
member firms without regard to the inspection cycles for the majority
of firms, and overlooks the fact that all firms, regardless of
inspection cycle, report customer complaints directly to FINRA.'' In
its Response to Comments, FINRA noted that its four-year retention
period better accommodates its four-year routine examination cycle for
certain members. One commenter also suggested that the phrase ``written
customer complaints'' in the proposed rule was not sufficiently clear
and recommended that the definition of a ``customer complaint''
expressly include only a ``written grievance.'' \39\ In its Response to
Comments, FINRA stated that it believes that the scope of the proposed
rule and the definition of ``customer complaint'' are both appropriate
and sufficiently clear.\40\
---------------------------------------------------------------------------

    \38\ CAI and SIFMA.
    \39\ SIFMA.
    \40\ Response to Comments.
---------------------------------------------------------------------------

E. Allocations of Orders Made by Investment Advisers (Proposed FINRA
Rule 4515.01)

    One commenter was concerned with the scope of Rule 4515.01 and
asked whether this provision required the broker-dealers to make a
legal determination regarding an adviser's fiduciary duty. In its
Response to Comments, FINRA noted that, in this case, ``the `knowingly
facilitate' standard means the broker-dealer may not act recklessly or
with knowledge in facilitating an investment adviser's breach of its
fiduciary duty to clients, and compliance with that standard turns on
the facts and circumstances.''

F. Other Comment

    Finally, one commenter requested that FINRA specifically state that
the proposed rule requirements, ``apply only to records generated after
the effective date of the proposal.'' \41\ In its Response to Comments,
FINRA responded to the request by specifying that the requirements,
``will apply prospectively on or after the effective date of the
proposed rule change.''
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    \41\ SIFMA.
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IV. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change,
the comments received, and FINRA's Response to Comments and finds that
the proposed rule change is consistent with the requirements of the
Exchange Act, and the rules and regulations thereunder that are
applicable to a national securities association.\42\ In particular, the
Commission finds that the proposal is consistent with Section 15A(b)(6)
of the Act,\43\ which requires, among other things, that the rules of a
national securities association be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system, and, in general,
protect investors and the public interest.
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    \42\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \43\ 15 U.S.C. 78o-3(b)(6).
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    Proposed FINRA Rule 4511 would streamline and replace the language
of current NASD Rule 3110(a), as well as eliminate NYSE Rule 410 and
subparagraphs (a)(1)-(3) and (b) of NYSE Rule 440.\44\ Further, in
cases where there is no specified retention period under FINRA rules or
applicable Exchange Act rules, the proposed rule would require members
to preserve such records for a period of six years. The Commission
notes that one commenter stated that the six-year default retention
period was too vague,\45\ and another commenter requested clarification
regarding the start date for the default six-year retention period.\46\
FINRA adequately responded to these concerns in its Response to
Comments. The Commission believes this proposed change would be
beneficial insofar as it would consolidate in one rule the obligations
of FINRA members to make

and preserve certain books and records. In so doing, the proposed rule
would clarify the obligations of FINRA members and promote compliance
by virtue of such greater clarity.
---------------------------------------------------------------------------

    \44\ See supra Part II.A.2.a.
    \45\ SIFMA.
    \46\ CAI.
---------------------------------------------------------------------------

    Proposed FINRA Rule 4512 would, among other things, simplify the
customer account information requirements in NASD Rule 3110(c)(1) and
simplify and clarify certain requirements set forth in NASD Rule
3110(c)(3) with respect to discretionary accounts. As noted above,
proposed FINRA Rule 4512 would also provide that with respect to
accounts opened prior to January 1991, members will be permitted to
continue maintaining the information required by the prior NASD rules
in effect at that time until such time as the member updates the
account information in the course of their routine and customary
business or as otherwise required by law or rules.\47\ The proposed
rule would also eliminate certain redundant cross-references.
---------------------------------------------------------------------------

    \47\ See supra Part II.A.2.b.
---------------------------------------------------------------------------

    FINRA received a number of comments on this aspect of the proposed
rule change,\48\ and the Commission believes that FINRA has adequately
responded to such comments in its Response to Comment.\49\ Further, the
Commission believes that the proposed changes in FINRA Rule 4512 would
update, clarify, and streamline existing rule requirements regarding
customer account information. The Commission believes that such changes
will be helpful to FINRA members, as well as assist FINRA in fulfilling
its responsibilities as an SRO under the Act.
---------------------------------------------------------------------------

    \48\ SIFMA, CAI, Cornell.
    \49\ Response to Comments.
---------------------------------------------------------------------------

    As noted above, proposed FINRA Rule 4513 would merge existing
requirements in NASD Rules 3110(d) and 3110(e), clarify that the
obligation to keep customer complaint records in each OSJ applies only
to complaints that relate to that office and provide that members may
maintain the required records at the OSJ or make them promptly
available at such office upon FINRA's request.\50\ Finally, the
proposed rule change would require that members preserve customer
complaints be preserved for at least four years to take into account
FINRA's four-year routine examination cycle.
---------------------------------------------------------------------------

    \50\ See supra Part II.A.2.c.
---------------------------------------------------------------------------

    Two commenters recommended maintaining the current three-year
retention period for customer complaint records,\51\ and one of these
commenters suggested the use of the term ``written customer
complaints'' in the proposed rule is not sufficiently clear.\52\ The
Commission believes that FINRA adequately responded to these concerns
in its Response to Comments. The Commission also believes that the
changes relating to the definition of the term ``complaint'' in NASD
Rules 3110(d) and 3110(e), and the elucidation regarding the obligation
to keep customer complaint records, are helpful changes that will
clarify FINRA's rulebook and promote compliance by FINRA members.
Similarly, preserving customer complaint records for four years will
promote FINRA's ability to supervise its members for compliance with
the federal securities laws and FINRA's rules.
---------------------------------------------------------------------------

    \51\ SIFMA and CAI.
    \52\ SIFMA.
---------------------------------------------------------------------------

    As noted above, FINRA is also proposing to incorporate NASD Rule
3110(f), relating to predispute arbitration agreements, into the
Consolidated FINRA Rulebook as FINRA Rule 2268, with some additional
changes to reflect amendments to FINRA Rule 12904.\53\ One commenter
requested that FINRA confirm that the proposed disclosure language will
only apply to predispute arbitration agreements entered into after the
effective date of FINRA Rule 2268.\54\ In its Response to Comments,
FINRA provided such confirmation.\55\ Consistent with other changes
FINRA is proposing, the Commission believes FINRA Rule 2268 will update
and clarify the FINRA rulebook and that such changes will promote
greater compliance by FINRA members and assist FINRA in discharging its
duties as an SRO.
---------------------------------------------------------------------------

    \53\ See supra Part II.A.2.d.
    \54\ CAI.
    \55\ Response to Comments.
---------------------------------------------------------------------------

    FINRA also proposes to relocate the OATS recordkeeping requirement
for members that are ``Reporting Members'' (as defined in the OATS
rules) from NASD Rule 3110(h) to paragraph (a)(4) of FINRA Rule
7440.\56\ The Commission believes that this aspect of the proposed rule
change is reasonable given that it is logical to include an OATS
recordkeeping requirement in the OATS rules.
---------------------------------------------------------------------------

    \56\ See supra Part II.A.2.f.
---------------------------------------------------------------------------

    FINRA also proposes to amend NASD Rule 3110(j) to clarify that with
respect to any change in account name or designation that takes place
prior to execution of the trade, the essential facts the principal
relied upon in approaching such change must be documented in writing
prior to execution.\57\ This modified provision would be designated as
FINRA Rule 4515. FINRA also is proposing to delete corresponding
provisions in NYSE Rules 410 and 410.10, because these provisions are
largely duplicative of proposed FINRA Rule 4515. FINRA would transfer
NYSE Rule Interpretation 410/02 as FINRA Rule 4515.01, with certain
modifications as described above in more detail.\58\
---------------------------------------------------------------------------

    \57\ See supra Part II.A.2.g.
    \58\ Id.
---------------------------------------------------------------------------

    The Commission believes that the changes in proposed FINRA Rule
4515 relating to clarifying the change in account name or designation
prior to trade execution are consistent with the protection of
investors because the proposed rule provides that any such changes will
be documented in writing, an important safeguard. Further, as stated
previously with respect to other changes eliminating duplicative or
overlapping provisions, the elimination of NYSE Rules 410 and 410.10
should provide a clearer, more streamlined, and simplified rulebook
that will promote greater compliance by FINRA members and help FINRA
discharge its responsibilities as an SRO.\59\ The Commission also notes
that with respect to the rule change adopting NYSE Rule Interpretation
410/02 as FINRA Rule 4515.01, FINRA has explicitly stated that nothing
in the rule or supplementary material may be construed as allowing a
member knowingly to facilitate the allocation of orders from investment
advisers in a manner other than in compliance with both (i) the
investment adviser's intent at the time of the trade execution to
allocate shares on a percentage basis to the participating accounts;
and (ii) the investment adviser's fiduciary duty with respect to
allocations for such participating accounts, including but not limited
to allocations based on the performance of a transaction between the
time of execution and the time of allocation.
---------------------------------------------------------------------------

    \59\ See supra Part II.A.2.g.
---------------------------------------------------------------------------

    NYSE Rule Interpretation 410/01 notes that pre-time stamping of
order tickets in connection with block positioning is contrary to NYSE
Rule 410. FINRA proposes incorporating NYSE Rule Interpretation 410/01
as FINRA Rule 5340 without substantive changes. FINRA has stated, and
the Commission agrees, that retaining this requirement is appropriate
because it expressly prohibits violative conduct for which there are no
direct NASD rule equivalents.\60\
---------------------------------------------------------------------------

    \60\ See supra Part II.A.2.h.

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

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\61\ that the proposed rule change (SR-FINRA-2010-052) be, and
hereby is, approved.
---------------------------------------------------------------------------

    \61\ 15 U.S.C. 78(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\62\
---------------------------------------------------------------------------

    \62\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2292 Filed 2-1-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 115 (Friday, June 14, 2019)]
[Notices]
[Pages 27837-27838]
[FR Doc No: 2019-12548]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket Number FRA-2006-25040]

Petition for Waiver of Compliance

    Under part 211 of Title 49 Code of Federal Regulations (CFR), this
document provides the public notice that by documents dated June 14,
2018, and April 17, 2019, the Capital Metropolitan Transportation
Authority (CMTY) petitioned the Federal Railroad Administration (FRA)
to modify conditions related to a waiver of compliance from certain
provisions of the Federal railroad safety regulations. Specifically,
CMTY requests to eliminate temporal separation requirements and the 60
miles-per-hour (MPH) speed restrictions imposed, most recently, in a
decision letter dated April 20, 2015. FRA assigned the petition Docket
Number FRA-2006-25040.
    The CMTY commuter rail system, ``Red Line,'' connects downtown
Austin, Texas, with Austin's northern suburbs along 32 miles with 9
stations. Service began in 2010 with a fleet of six diesel multiple
unit (DMU) rail vehicles designated ``GTW Generation 1'' (GTW G1) built
by Stadler Rail. Since 2010, these rail vehicles have operated safely
under the conditions of waivers.
    In its petition, CMTY states that several technical and mechanical
changes have been made to the GTW G1 vehicles. Furthermore, on January
22, 2019, changes to FRA's Passenger Equipment Safety Standards, 49 CFR
part 238, became effective. Together, the vehicle modification and
updated regulation combine to make CMTY GTW G1 vehicles fully compliant
with FRA crashworthiness standards, and more compliant with several
items previously waived. As a result, CMTY asks FRA to remove the two
waiver conditions requiring temporal separation and the 60 MPH speed
restriction.
    A copy of the petition, as well as any written communications
concerning the petition, is available for review online at
www.regulations.gov and in person at the U.S. Department of
Transportation's (DOT) Docket Operations Facility, 1200 New Jersey
Avenue SE, W12-140, Washington, DC 20590. The Docket Operations
Facility is open from 9 a.m. to 5 p.m., Monday through Friday, except
Federal Holidays.
    Interested parties are invited to participate in these proceedings
by submitting written views, data, or comments. FRA does not anticipate
scheduling a public hearing in connection with these proceedings since
the facts do not appear to warrant a hearing. If any interested parties
desire an opportunity for oral comment and a public hearing, they
should notify FRA, in writing, before the end of the comment period and
specify the basis for their request.
    All communications concerning these proceedings should identify the
appropriate docket number and may be submitted by any of the following
methods:
     Website: http://www.regulations.gov. Follow the online
instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: Docket Operations Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue SE, W12-140, Washington, DC
20590.
     Hand Delivery: 1200 New Jersey Avenue SE, Room W12-140,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal Holidays.
    Communications received by July 29, 2019 will be considered by FRA
before final action is taken. Comments received after that date will be
considered as far as practicable.
    Anyone can search the electronic form of any written communications

and comments received into any of our dockets by the name of the
individual submitting the comment (or signing the document, if
submitted on behalf of an association, business, labor union, etc.). In
accordance with 5 U.S.C. 553(c), DOT solicits comments from the public
to better inform its processes. DOT posts these comments, without edit,
including any personal information the commenter provides, to
www.regulations.gov, as described in the system of records notice (DOT/
ALL-14 FDMS), which can be reviewed at https://www.transportation.gov/privacy. See also https://www.regulations.gov/privacyNotice for the
privacy notice of regulations.gov.

    Issued in Washington, DC.
John Karl Alexy,
Deputy Associate Administrator, Office of Railroad Safety.
[FR Doc. 2019-12548 Filed 6-13-19; 8:45 am]
BILLING CODE 4910-06-P


[Federal Register Volume 76, Number 137 (Monday, July 18, 2011)]
[Notices]
[Page 42163]
[FR Doc No: 2011-18033]

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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

[Docket No. FMCSA-2011-0097]

Pilot Program on the North American Free Trade Agreement (NAFTA)
Long-Haul Trucking Provisions; Correction

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.

ACTION: Notice; correction.

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

SUMMARY: The Federal Motor Carrier Safety Administration published a
document in the Federal Register of July 8, 2011, concerning a response
to comments in regards to an April 8, 2011 notice announcing a pilot
program on the North American Free Trade Agreement (NAFTA) long-haul
trucking provisions. The document contained an incorrect phone number.

FOR FURTHER INFORMATION CONTACT: Marcelo Perez,<PHONE_NUMBER>,
extension 228.

Correction

    In the Federal Register of July 8, 2011, in FR Doc. 2011-16886, on
page 40420, in the third column, correct the FOR FURTHER INFORMATION
CONTACT caption to read:

FOR FURTHER INFORMATION CONTACT: Mr. Marcelo Perez, FMCSA, 1200 New
Jersey Avenue, SE., Washington, DC 20590-0001. Telephone (512) 916-
5440, extension 228; e-mail<EMAIL_ADDRESS>
    Issued on: July 13, 2011.
Larry W. Minor,
Associate Administrator for Policy.
[FR Doc. 2011-18033 Filed 7-15-11; 8:45 am]
BILLING CODE 4910-EX-P