[Federal Register Volume 87, Number 197 (Thursday, October 13, 2022)]
[Notices]
[Pages 62137-62147]
[FR Doc No: 2022-22174]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95990; File No. SR-FINRA-2022-028]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rule 0150 (Application of Rules to
Exempted Securities Except Municipal Securities)

October 6, 2022.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 29, 2022, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by FINRA.
FINRA has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to amend paragraph (c) of FINRA Rule 0150
(Application of Rules to Exempted Securities Except Municipal
Securities) to clarify the application of specified

FINRA rules to transactions in, and business activities relating to,
exempted securities, including government securities (other than
municipal securities).\4\ The proposed rule change would also amend
Capital Acquisition Broker (``CAB'') Rule 015 (Application of Rules to
Municipal Securities) to more closely track the text of FINRA Rule
0150, and for consistency with the revisions to FINRA Rule 0150 made
pursuant to this rule filing.
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    \4\ For purposes of the proposed rule change, the terms
``exempted securities,'' ``government securities'' and ``municipal
securities'' shall have the meanings as specified in Exchange Act
Sections 3(a)(12), 3(a)(42) and 3(a)(29), respectively. 15 U.S.C.
78c(a)(12), (a)(42) and (a)(29).
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    Below is the text of the proposed rule change. Proposed new
language is underlined; proposed deletions are in brackets.\5\
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    \5\ FINRA notes that some of the rules listed in FINRA Rule
0150(c) include provisions that are not applicable to government
securities in whole or in part. For instance, notwithstanding the
presence of FINRA Rule 2232 in FINRA Rule 0150(c), FINRA Rule
2232(b) is inapplicable by its terms to government securities that
are not also equity securities. In addition, FINRA Rules 2232(c)
through (f) are not applicable to U.S. Treasury securities. See
Securities Exchange Act Release No. 79346 (November 17, 2016), 81 FR
84659, 84661 (November 23, 2016) (Order Approving File No. SR-FINRA-
2016-032). FINRA also notes that some of the rules listed in FINRA
Rule 0150(c) are applicable to exempted securities other than
government securities. For example, FINRA Rule 2320(g) (Member
Compensation) is applicable to group variable contracts that are
exempted securities.
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FINRA Rules
* * * * *
0100. General Standards
* * * * *
0150. Application of Rules to Exempted Securities Except Municipal
Securities
    (a) through (b) No Change.
    (c) Unless otherwise indicated within a particular Rule, the
following rules are applicable to transactions in, and business
activities relating to, exempted securities, except municipal
securities, conducted by members and associated persons: Rules 0110,
0120, 0130, 0140, 0160, 0170, 0190, 1010, 1011, IM-1011-1, IM-1011-2,
IM-1011-3, 1012, 1013, IM-1013-1, IM-1013-2, 1014, 1015, 1016, 1017,
1019, 1020, 1021, 1122, 1200 Series (other than Rules 1220(a)(5),
(a)(6), (a)(7), (b)(4), (b)(5) and (b)(6)), 2010, 2020, 2030, 2040,
2060, 2070, 2080, 2081, 2090, 2111, 2122, 2130, 2140, 2150, 2165, 2210,
2211, 2212, 2213, 2214, 2216, 2220, 2231, 2232, 2261, 2263, 2264, 2266,
2267, 2268, 2269, 2270, 2272, 2273, 2320(g), 2360, [3110] 3100 Series,
3200 Series, [3210, 3220, 3260, 3270, 3280,] 3300 Series, 4100 Series,
[4120, 4130,] 4210, 4220, 4230, 4310 Series, [4311,] 4330, 4340, 4360,
4370, 4380, 4510 Series, 4520 Series, 4530, 4540, 4570, 4580, 4590,
5160, 5210, 5220, 5230, 5310, 5340, 6700 Series, 7730, 8100 Series,
[8110, 8120,] 8210, 8211, 8300 Series, [8310, 8311, 8312, 8320, 8330]
9000 Series [and 9552], 12000 Series, 13000 Series, and 14000 Series.
* * * * *
Capital Acquisition Broker Rules
010. General Standards
* * * * *
015. Application of Rules to Exempted Securities Except Municipal
Securities
    [FINRA Rule 0150 shall apply to the Capital Acquisition Broker
Rules.]
    (a) For purposes of this Rule, the terms ``exempted securities''
and ``municipal securities'' shall have the meanings specified in
Sections 3(a)(12) and 3(a)(29) of the Exchange Act, respectively.
    (b) The Capital Acquisition Broker Rules are not intended to be,
and shall not be construed as, rules concerning transactions in
municipal securities.
    (c) Unless otherwise indicated within a particular Rule, all
Capital Acquisition Broker Rules are applicable to transactions in, and
business activities related to, exempted securities, except municipal
securities, conducted by capital acquisition brokers and their
associated persons, other than Capital Acquisition Broker Rules 512 and
515.
    (d) Nothing in this Rule shall be deemed to expand or otherwise
alter the scope of activities permitted for capital acquisition brokers
under Capital Acquisition Broker Rule 016(c).
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    Prior to 1986, broker-dealers engaged solely in a government
securities business were not required to register with the SEC and
become members of a registered securities exchange or a registered
securities association, such as FINRA (then NASD).\6\ Moreover, the
Exchange Act expressly prohibited FINRA from adopting and enforcing
compliance with its rules in connection with transactions by its
members in exempted securities, including government securities.\7\
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    \6\ On July 30, 2007, NASD and NYSE consolidated their member
regulation, enforcement and dispute resolution operations into a
combined organization, FINRA. See Securities Exchange Act Release
No. 56145 (July 26, 2007), 72 FR 42169 (August 1, 2007), as amended
by Securities Exchange Act Release No. 56145A (May 30, 2008), 73 FR
32377 (June 6, 2008) (Order Approving File No. SR-NASD-2007-023).
For consistency purposes, when discussing FINRA or the predecessor
NASD, this filing will refer solely to FINRA.
    \7\ Specifically, Section 15A(f) of the Exchange Act provided
that ``[n]othing in this section shall be construed to apply with
respect to any transaction by a broker or dealer in any exempted
security.'' See 15 U.S.C. 78o-3 (historical notes).
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    The Government Securities Act of 1986 (``GSA''),\8\ however,
amended the Exchange Act to require broker-dealers that engaged
exclusively in transactions in government securities to register with
the SEC and become members of a registered securities exchange or a
registered securities association if they effected transactions in, or
induced or attempted to induce the purchase or sale of, any government
securities.\9\ The GSA also amended the Exchange Act to authorize a
registered securities association, such as FINRA, to adopt and
implement rules for specified limited purposes to govern transactions
by its members in exempted securities (other than municipal
securities).\10\ The

GSA did not authorize FINRA to apply its rules, including its sales
practice rules (which were then part of the Rules of Fair Practice),
that were outside of those specified areas to transactions in exempted
securities.\11\ In 1988, FINRA amended its existing rules and adopted
new rules to carry out its responsibilities under the GSA.\12\
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    \8\ Public Law 99-571, 100 Stat. 3208 (1986).
    \9\ See supra note 8. (amending the Exchange Act to add Section
15C(a)(1)(A) to require the registration of a government securities
broker or dealer).
    \10\ The GSA, among other things, amended Section 15A(f) to add
paragraph (2), which provided that a registered securities
association could adopt and implement rules with respect to exempted
securities to (A) enforce compliance with applicable provisions of
the Exchange Act; (B) provide for appropriate discipline of members
for violations of applicable provisions of the Exchange Act; (C)
provide for reasonable inspection and examination of members' books
and records; (D) deny or condition the membership of a broker-dealer
that does not meet standards for financial responsibility or conduct
under the Exchange Act; (E) bar any person from being associated
with a member if such person has engaged in prohibited conduct or
refused to provide requested information; and (F) prohibit
fraudulent, misleading, deceptive and false advertising. See 100
Stat. 3208, 3218.
    \11\ In contrast, the GSA did not prevent registered securities
exchanges, such as the NYSE, from applying their rules to government
securities transactions. See United States Government Accountability
Office, U.S. Government Securities: More Transaction Information and
Investor Protection Measures Are Needed, September 1990 at 47
(noting that although the GSA did not authorize FINRA to apply its
sales practice rules to government securities transactions, the GSA
did not prevent registered securities exchanges, such as the NYSE,
from applying their rules to government securities transactions),
available at https://www.gao.gov/assets/ggd-90-114.pdf.
    \12\ Specifically, FINRA amended its By-Laws to address
government securities transactions by members and the eligibility of
sole government securities broker-dealers to become members. FINRA
also amended Schedule C to the NASD By-Laws, which contained rules
relating to membership and registration, to provide for the
registration of government securities principals and government
securities representatives. In addition, FINRA adopted a subset of
rules designated as ``Government Securities Rules,'' which addressed
books and records, supervisory procedures and the regulation of
members experiencing financial or operational difficulties or
changing their exemptive status under SEA Rule 15c3-3. The
Government Securities Rules also included provisions regarding
communications with the public and FINRA's ability to bring
disciplinary actions for violations involving government securities
transactions. See Securities Exchange Act Release No. 26240
(November 2, 1988), 53 FR 45412 (November 9, 1988) (Order Approving
File No. SR-NASD-88-12). The terms ``sole government securities
broker-dealers,'' ``government securities broker-dealers,''
``registered government securities brokers and dealers'' and
``government securities broker or dealer'' as used in this proposed
rule change refer to brokers and dealers that engage exclusively in
transactions in government securities and that are registered under
Section 15C of the Exchange Act.
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    In 1993, Congress enacted the Government Securities Act Amendments
of 1993 (``GSAA''), which removed all previous limitations on the
ability of FINRA to apply its rules, including its sales practice
rules, to transactions by members in exempted securities, other than
municipal securities.\13\ Subsequently, in 1996, with oversight by the
SEC and the SEC's consultation with the Department of the Treasury,
FINRA specified provisions of its Rules of Fair Practice that would be
applicable to exempted securities, other than municipal securities.\14\
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    \13\ Government Securities Act Amendments of 1993, Public Law
103-202, 1(a), 107 Stat. 2344 (1993).
    \14\ See Securities Exchange Act Release No. 37588 (August 20,
1996), 61 FR 44100 (August 27, 1996) (Order Approving File No. SR-
NASD-95-39) (``1996 Approval Order''). While not expressly listed as
rules applicable to exempted securities in the 1996 Approval Order,
the 1996 Approval Order noted that the general provisions of
Articles I and II of the Rules of Fair Practice relating to the
adoption, application and definitions of rules, which were formerly
in the Government Securities Rules, also applied to government
securities. In addition, the 1996 Approval Order stated that
Schedule C to the By-Laws would apply to the personnel of sole
government securities broker-dealers, including persons selling
options on government securities.
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    In 2001, for ease of reference, FINRA adopted NASD Rule 0116 (now
FINRA Rule 0150), which was intended to codify, with some
additions,\15\ the rules that were approved by the Commission as
applicable to transactions in, and business activities relating to,
government securities, and more broadly exempted securities (other than
municipal securities), and that were expressly listed in the 1996
Approval Order.\16\ FINRA has amended Rule 0150 since its original
adoption, but it has not updated the rule routinely.\17\
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    \15\ NASD Rule 0116 codified a FINRA staff interpretation that
the non-cash compensation provisions of NASD Rule 2820(g) (now FINRA
Rule 2320(g)) apply to group variable contracts that are exempted
securities.
    \16\ See Securities Exchange Act Release No. 44631 (July 31,
2001), 66 FR 41283 (August 7, 2001) (Order Approving File No. SR-
NASD-00-38).
    \17\ For example, in 2015, FINRA amended Rule 0150 to expressly
apply FINRA Rule 2121 (Fair Prices and Commissions) to transactions
in exempted securities that are government securities. See
Securities Exchange Act Release No. 76639 (December 14, 2015), 80 FR
79112 (December 18, 2015) (Order Approving File No. SR-FINRA-2015-
033). In addition, FINRA has replaced references to NASD rules when
those rules were transferred into the FINRA rulebook as consolidated
FINRA rules. See, e.g., Securities Exchange Act Release No. 78851
(September 15, 2016), 81 FR 64969 (September 21, 2016) (Notice of
Filing and Immediate Effectiveness of File No. SR-FINRA-2016-036)
(replacing NASD IM-2210-2 with FINRA Rule 2211).
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    More recently, on August 19, 2016, the SEC's Division of Trading
and Markets requested that FINRA undertake a comprehensive review of
its rulebook to identify existing FINRA rules that exclude or may
otherwise not apply to U.S. Treasury securities (or government
securities more generally), or for which the applicability of the rule
to U.S. Treasury securities requires clarification, and to assess the
continuing validity for such exclusions.\18\ In response, FINRA
undertook a review of its rulebook for this purpose.\19\ FINRA also
reviewed its rulebook to identify the rules that are applicable to
government securities, and those rules whose applicability to
government securities requires clarification. On October 17, 2016,
FINRA submitted a letter in response to the Commission's request.\20\
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    \18\ See Letter from Stephen Luparello, Director, Division of
Trading and Markets, SEC, to Robert W. Cook, President and Chief
Executive Officer, FINRA, dated August 19, 2016, available at
https://www.sec.gov/divisions/marketreg/letter-to-finra-regulation-of-us-treasury-securities.pdf.
    \19\ The current FINRA rulebook consists of (1) FINRA rules; and
(2) the Temporary Dual FINRA-NYSE Member Rule Series (formerly
Incorporated NYSE Rules and Incorporated NYSE Rule Interpretations).
While the FINRA rules generally apply to all FINRA members, the
Temporary Dual FINRA-NYSE Member Rule Series apply solely to those
members of FINRA that are also members of NYSE on or after July 30,
2007. As previously mentioned, the Temporary Dual FINRA-NYSE Member
Rule Series historically were not subject to the same limitations
with respect to their applicability to government securities as
FINRA rules. See supra note 11. Accordingly, FINRA believes that the
Temporary Dual FINRA-NYSE Member Rule Series currently apply to
exempted securities, including government securities, unless
otherwise indicated by a particular rule.
    \20\ See Letter from Robert W. Cook, President and Chief
Executive Officer, FINRA, to Stephen Luparello, Director, Division
of Trading and Markets, SEC, dated October 17, 2016, available at
https://www.sec.gov/divisions/marketreg/letter-from-finra-regulation-of-us-treasury-securities.pdf.
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Rules To Be Added to FINRA Rule 0150
    As an initial step in responding to the SEC staff's request, the
proposed rule change would amend FINRA Rule 0150(c) to add to its list
of rules those that are currently applicable to exempted securities,
including government securities, but which are not currently listed in
that rule. The rules that FINRA is proposing to add are rules that have
general application to the activities of all FINRA members,
irrespective of business model or client base. In addition, the
proposed rule change would modernize and make current the list of rules
in Rule 0150. It is not intended to substantively change the current
application or requirements of FINRA rules to exempted securities. As
stated in Rule 0150, the application of any listed rules, or specific
provisions of those rules, to exempted securities, including government
securities, is governed by the language of the rule itself.\21\
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    \21\ For example, FINRA Rule 7730(b), by its terms, currently
excludes transactions in U.S. Treasury Securities, as defined under
FINRA rules, from the TRACE transaction reporting fees. See
Securities Exchange Act Release No. 79116, (October 18, 2016), 81 FR
73167, 73169 (October 24, 2016) (Order Approving File No. SR-FINRA-
2016-027). While the proposed rule change would amend Rule 0150 to
include Rule 7730, Rule 7730(b) would continue by its terms to
exclude transactions in U.S. Treasury Securities, as defined under
FINRA rules. Further, in updating FINRA Rule 0150, FINRA is not
suggesting that every type of exempted security is subject to each
rule listed in paragraph (c). It could be the case that a listed
rule applies, by its terms, to a subcategory of exempted securities
based on the characteristics of that security. For example, FINRA
understands that U.S. Treasury securities do not have callable
features. However, government-sponsored enterprises (``GSEs''),
whose securities are considered by statute to be exempted
securities, may issue callable securities.

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General Standards Rules
    The proposed rule change would amend FINRA Rule 0150(c) to
expressly add FINRA Rules 0110 (Adoption of Rules), 0120 (Effective
Date), 0130 (Interpretation), 0140 (Applicability), 0160 (Definitions),
0170 (Delegation, Authority and Access) and 0190 (Effective Date of
Revocation, Cancellation, Expulsion, Suspension or Resignation)
(collectively, the ``General Standards Rules''), which will clarify the
applicability of these rules to exempted securities, including
government securities.\22\ The General Standards Rules govern the
adoption, application and interpretation of FINRA rules and set forth
specified definitions not contained in the FINRA By-Laws. In addition,
these rules address FINRA's delegation of responsibilities to its
subsidiary, and its authority and access with respect to its
subsidiary. The General Standards Rules apply to all FINRA members,
irrespective of business model or client base.
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    \22\ See supra note 14 (noting the application of the general
provisions of the Rules of Fair Practice to government securities).
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Membership Rules
    The proposed rule change would amend FINRA Rule 0150(c) to include
FINRA Rule 1011 (Definitions), IM-1011-1 (Safe Harbor for Business
Expansions), IM-1011-2 (Business Expansions and Covered Pending
Arbitration Claims), IM-1011-3 (Business Expansions and Persons with
Specified Risk Events), Rule 1012 (General Provisions), Rule 1013 (New
Member Application and Interview), IM-1013-1 (Membership Waive-In
Process for Certain New York Stock Exchange Member Organizations), IM-
1013-2 (Membership Waive-In Process for Certain NYSE American LLC
Member Organizations), Rule 1014 (Department Decision), Rule 1015
(Review by National Adjudicatory Council), Rule 1016 (Discretionary
Review by FINRA Board), Rule 1017 (Application for Approval of Change
in Ownership, Control, or Business Operations), Rule 1019 (Application
to the SEC for Review), Rule 1021 (Foreign Members) and Rule 1122
(Filing of Misleading Information as to Membership or Registration)
(together, the ``Membership Rules''). The Membership Rules provide a
means for FINRA, through its Membership Application Program (``MAP''),
to assess the proposed business activities of potential and current
members with the ultimate goal of ensuring that each applicant is
capable of conducting its business in compliance with applicable rules
and regulations, and that its business practices are consistent with
just and equitable principles of trade. The Membership Rules provide,
for example, the standards of review for new member applications
(``NMAs'') and continuing membership applications (``CMAs''). In
addition, among other requirements, the Membership Rules require
consideration of whether persons associated with an applicant have
disciplinary actions taken against them by other industry authorities,
customer complaints, adverse arbitrations, pending or unadjudicated
matters, civil actions, remedial actions imposed or other industry-
related matters that could pose a threat to public investors. The
Membership Rules apply to all applicants for membership and all
existing members. FINRA does not have a separate membership process for
persons engaged in activities relating to exempted securities,
including government securities.
    The following is a summary of the Membership Rules:
     FINRA Rule 1011 (defines relevant terms for purposes of
the Membership Rules);
     FINRA IM-1011-1 (creates a safe harbor for certain types
of expansions that are presumed not to be a ``material change in
business operations'' and, therefore, do not require a member to file a
CMA pursuant to FINRA Rule 1017);
     FINRA IM-1011-2 (provides that the safe harbor for
business expansions in FINRA IM-1011-1 is not available to any member
that is seeking to add one or more associated persons involved in sales
and one or more of those associated persons has a ``covered pending
arbitration claim,'' an unpaid arbitration award or unpaid settlement
related to an arbitration);
     FINRA IM-1011-3 (provides that the safe harbor for
business expansions in FINRA IM-1011-1 is not available to any member
that is seeking to add a natural person who has, in the prior five
years, one or more ``final criminal matters'' or two or more
``specified risk events'' and seeks to become an owner, control person,
principal, or registered person of the member);
     FINRA Rule 1012 (provides information regarding, among
others, the methods for submitting the applications required by the
other Membership Rules, provisions governing when a membership
application is considered to have lapsed as well as rules on ex parte
communications in the event that a member requests review of a FINRA
membership decision by the National Adjudicatory Council (``NAC''),
pursuant to FINRA Rule 1015);
     FINRA Rule 1013 (sets forth the requirements for an NMA,
including how to file, the documents that applicants must submit, the
ability of FINRA to request additional documentation and to reject an
application that is ``not substantially complete,'' and the process for
conducting membership interviews);
     FINRA IM-1013-1 and IM-1013-2 (establish a waive-in
process to expedite the approval of membership applications of NYSE-
only member organizations and NYSE American member organizations that
were required to become FINRA members following the consolidation of
NASD and NYSE's member regulation operations); \23\
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    \23\ See supra note 6.
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     FINRA Rule 1014 (sets forth the standards for admission,
the process and timing for granting or denying an application, the
timing and content requirements for FINRA's decision and submission of
a membership agreement and the effectiveness of restrictions in the
membership agreement);
     FINRA Rule 1015 (permits an applicant to submit a request
for review by the NAC of an adverse decision rendered on an NMA or a
CMA);
     FINRA Rule 1016 (permits a governor of the FINRA Board to
call for a discretionary review of a membership proceeding);
     FINRA Rule 1017 (provides that specified changes in a
member's ownership, control or business operations require the firm to
file a CMA, which is subject to FINRA approval);
     FINRA Rule 1019 (provides that a person aggrieved by final
action of FINRA under the Membership Rules may apply for review by the
SEC);
     FINRA Rule 1021 (sets forth specific obligations for
foreign members, which are members that do not maintain an office in
the United States that is responsible for preparing and maintaining
financial and other reports required to be filed with the SEC and
FINRA); and
     FINRA Rule 1122 (prohibits members and associated persons
from filing with FINRA incomplete or misleading membership or
registration information).
Registration Rules
    The proposed rule change would amend FINRA Rule 0150(c) to add to
the list of rules that are applicable to exempted securities, including
government securities, the rules relating

to the qualification and registration of associated persons
(collectively, the ``Registration Rules''). In general, the
Registration Rules: (1) require that persons engaged in a member's
investment banking or securities business who are to function as
representatives or principals register with FINRA in each category of
registration appropriate to their functions by passing one or more
qualification examinations; (2) exempt specified associated persons
from the registration requirements; and (3) provide for permissive
registration of specified persons. FINRA believes that the identified
Registration Rules are applicable to government securities because they
are applicable to the activities of all members, irrespective of
business model or client base.\24\
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    \24\ FINRA anticipates specifically addressing the application
of some of the Registration Rules, including FINRA Rules 1220(a)(5)
(Investment Banking Principal), 1220(a)(6) (Research Principal),
1220(a)(7) (Securities Trader Principal), 1220(b)(4) (Securities
Trader), 1220(b)(5) (Investment Banking Representative) and
1220(b)(6) (Research Analyst), to government securities activities
as part of a separate proposal.
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    Specifically, the proposed rule change would add the following
Registration Rules to FINRA Rule 0150(c):
     FINRA Rule 1010 (Electronic Filing Requirements for
Uniform Forms) (sets forth the filing and signature requirements for
the Uniform Forms (e.g., Form U4 (Uniform Application for Securities
Industry Registration or Transfer)); and
     FINRA Rule 1200 Series (Registration and Qualification):
    [cir] FINRA Rule 1210 (Registration Requirements) (requires that
each person engaged in the investment banking or securities business of
a member register with FINRA as a representative or principal in each
category of registration appropriate to his or her functions and
responsibilities as specified in FINRA Rule 1220, unless exempt from
registration pursuant to FINRA Rule 1230. FINRA Rule 1210 also provides
that such person is not qualified to function in any registered
capacity other than that for which the person is registered, unless
otherwise stated in the rules); \25\
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    \25\ Further, FINRA Rule 1210 addresses the following: (1)
requirement to have a minimum number of registered principals; (2)
ability to maintain permissive registrations for associated persons;
(3) requirement to pass an appropriate qualification examination(s);
(4) process for obtaining a waiver of a qualification
examination(s); (5) requirements applicable to registered persons
functioning as principals prior to passing an appropriate principal
qualification examination; (6) rules of conduct for taking
examinations and confidentiality of examinations; (7) waiting
periods for retaking a failed examination; (8) requirement that
registered persons satisfy continuing education; (9) lapse of
registration and expiration of the Securities Industry Essentials
examination; (10) waiver of examinations for individuals working for
a financial services industry affiliate; (11) status of persons
serving in the Armed Forces of the United States; and (12)
impermissible registrations.
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    [cir] FINRA Rule 1220 (Registration Categories) (sets forth the
definitions of ``principal'' and ``representative'' as well as the
qualification and registration requirements for, among others, General
Securities Principals, Financial and Operations Principals, Registered
Options Principals, Government Securities Principals, General
Securities Sales Supervisors, General Securities Representatives and
Operations Professionals); \26\
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    \26\ The rule also addresses the following: (1) status of
certain foreign registrations; (2) additional requirements for
registered persons engaged in security futures activities; (3)
requirements applicable to members operating with only one
Registered Options Principal; (4) scope of the General Securities
Sales Supervisor category; (5) scope of the Operations Professional
category; and (6) status of eliminated registration categories.
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    [cir] FINRA Rule 1230 (Associated Persons Exempt from Registration)
(identifies associated persons who are not required to be registered
with FINRA, including, among others, associated persons whose functions
are solely and exclusively clerical or ministerial); \27\ and
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    \27\ In addition, the rule clarifies that the function of
accepting customer orders is not considered a clerical or
ministerial function.
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    [cir] FINRA Rule 1240 (Continuing Education Requirements) (sets
forth the continuing education requirements, which consist of a
Regulatory Element and a Firm Element, and the Maintaining
Qualifications Program through which eligible individuals may maintain
their qualification in a representative or principal registration
category following the termination of that registration category).
Rules Relating to Members' Financial Condition and Margin-Related Rules
    The proposed rule change would amend FINRA Rule 0150(c) to add
rules that have general applicability to members and relate to members'
financial condition and margin practices.\28\ These rules play an
important role in supporting the SEC's minimum net capital and other
financial responsibility requirements and support FINRA's authority to
execute effectively its financial and operational surveillance and
examination programs. In general, these rules: (1) establish criteria
promoting the permanency of members' capital; (2) require the review
and approval of specific material financial transactions; and (3)
establish criteria intended to identify members approaching financial
difficulty and to monitor their financial and operational condition.
---------------------------------------------------------------------------

    \28\ FINRA notes that rules relating to members' financial
condition historically have been applicable to all members,
including sole government securities broker-dealers. For example,
Section 6 of the Government Securities Rules, which applied to sole
government securities broker-dealers before the Government
Securities Rules merged into the Rules of Fair Practice in 1996,
governed the regulation of activities of members experiencing
financial or operational difficulties.
---------------------------------------------------------------------------

    Several of the rules relating to members' financial condition and
margin requirements, including, for example, FINRA Rules 4120
(Regulatory Notification and Business Curtailment), 4130 (Regulation of
Activities of Section 15C Members Experiencing Financial and/or
Operational Difficulties) and 4210 (Margin Requirements) are currently
listed in FINRA Rule 0150 as applicable to transactions in exempted
securities, including government securities. For conformity, FINRA is
proposing to amend FINRA Rule 0150(c) to include other financial
condition- and margin-related rules of general applicability. As a
result, the proposed rule change would amend FINRA Rule 0150(c) to add
the following rules to the list of rules that are applicable to
exempted securities, including government securities:
     FINRA Rule 2264 (Margin Disclosure Statement) (requires
members that open margin accounts for or on behalf of non-institutional
customers to deliver to such customers, prior to or at the time of
opening the account, a specified margin disclosure statement
highlighting the risks involved in trading securities in a margin
account);
     FINRA Rule 2266 (SIPC Information) (sets forth specified
requirements for providing Securities Investor Protection Corporation
(SIPC) information to customers); \29\
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    \29\ FINRA notes that the Securities Investor Protection Act of
1970 (``SIPA'') excludes a government securities broker or dealer
from the definition of ``persons registered as brokers or dealers''
for purposes of SIPA. See 15 U.S.C. 78lll(12). Therefore, FINRA Rule
2266 does not apply to such members.
---------------------------------------------------------------------------

     FINRA Rule 4100 Series (Financial Condition)
    [cir] FINRA Rule 4110 (Capital Compliance) (sets forth requirements
relating to a member's financial responsibility, including, among
others: authorizing FINRA to prescribe greater net capital requirements
for carrying and clearing members when deemed necessary for the
protection of investors or in the public interest; requiring members to
suspend all business operations during any period in which a member is
not in compliance with the applicable net capital requirements of

SEA Rule 15c3-1; governing the limitations on the withdrawal of a
firm's equity capital; providing for sale-and-leasebacks, factoring,
financing loans and similar arrangements; addressing subordinated
loans, notes collateralized by securities and capital borrowing;
addressing compliance with other applicable laws for purposes of the
approval of a subordinated loan agreement; and providing that the
requirements of the rule also apply to members that clear customer
transactions or hold customer funds in a bank account pursuant to the
exemptive provisions of SEA Rule 15c3-3(k)(2)(i));
    [cir] FINRA Rule 4111 (Restricted Firm Obligations) (allows FINRA
to impose obligations on members with significantly higher levels of
risk-related disclosures than other similarly sized peers, based on
numeric, threshold-based criteria);
    [cir] FINRA Rule 4140 (Audit) (provides FINRA the authority to
request an audit or an agreed-upon procedures review under
circumstances specified in the rule);
    [cir] FINRA Rule 4150 (Guarantees by, or Flow Through Benefits for,
Members) (sets forth the notice requirement when a member guarantees,
endorses or assumes, directly or indirectly, the obligations or
liabilities of another person (including an entity), and the approval
requirements when a member receives flow-through capital benefits in
accordance with Appendix C of SEA Rule 15c3-1); and
    [cir] FINRA Rule 4160 (Verification of Assets) (provides that a
member, when notified by FINRA, may not continue to custody or retain
record ownership of assets at a non-member financial institution,
which, upon FINRA staff's request, fails promptly to provide FINRA with
written verification of assets maintained by the member at such
financial institution);
     FINRA Rule 4200 Series (Margin):
    [cir] FINRA Rule 4220 (Daily Record of Required Margin) (sets forth
the requirements for daily recordkeeping of initial and maintenance
margin calls that are issued pursuant to the Federal Reserve Board's
Regulation T and the FINRA margin rules); \30\ and
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    \30\ The initial margin requirement on exempted securities held
in a margin account is the margin required by the broker in good
faith or applicable SRO margin requirement, whichever is greater.
Accordingly, the initial margin requirements on exempted securities
positions set by FINRA Rule 4210 act as a floor on the requirement
under Regulation T. Rule 4220 requires members to make a daily
record of initial or additional margin that must be obtained in a
customer's account as set forth in Rule 4210.
---------------------------------------------------------------------------

    [cir] FINRA Rule 4230 (Required Submissions for Requests for
Extensions of Time Under Regulation T and SEA Rule 15c3-3) (governs
members' requests for extensions of time, as permitted in accordance
with the Federal Reserve Board's Regulation T and SEA Rule 15c3-3(n));
\31\
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    \31\ Section 220.4(c)(3)(i) of Regulation T requires any margin
call to be satisfied within one payment period (four business days)
after the margin deficiency is created, but Section 220.4(c)(3)(ii)
of Regulation T allows a broker-dealer to obtain an extension of
that payment period from its examining authority. This time limit
applies to all transactions effected in margin accounts, including
transactions in exempted securities. Accordingly, firms may make
Regulation T extension requests involving exempted securities that
are governed by FINRA Rule 4230.
    In addition, under SEA Rule 15c3-3(m), as modified by Treasury
Rules 403.1 and 403.4(m), if an exempted security sold long by a
customer has not been delivered within 30 business days (60 business
days if it is a mortgage-backed security) after the settlement date,
the broker-dealer generally must buy-in the customer. If a national
securities association is satisfied that a broker-dealer is acting
in good faith and exceptional circumstances warrant the action, the
national securities association may, on application from the broker-
dealer, grant an extension of the time before the broker-dealer must
buy-in the customer. Therefore, FINRA Rule 4230, which governs these
requests for extensions of time is applicable to transactions in
exempted securities.
---------------------------------------------------------------------------

     FINRA Rule 4310 Series (Member Agreements and Contracts):
    [cir] FINRA Rule 4314 (Securities Loans and Borrowings) (sets forth
the obligations of a firm that engages in lending and borrowing
securities and establishes consistent disclosure and recordkeeping
requirements relating to a firm's securities lending activities);
     FINRA Rule 4340 (Callable Securities) (provides clarity to
customers about the procedures used by a member when a security is
called or redeemed prior to maturity);
     FINRA Rule 4520 Series (Financial Records and Reporting
Requirements):
    [cir] FINRA Rule 4521 (Notifications, Questionnaires and Reports)
(addresses FINRA's authority to request financial and operational
information from members to carry out its surveillance and examination
responsibilities and sets forth the reporting requirements for members
carrying margin accounts for customers);
    [cir] FINRA Rule 4522 (Periodic Security Counts, Verifications and
Comparisons) (requires each member that is subject to the requirements
of SEA Rule 17a-13 to make the counts, examinations, verifications,
comparisons and entries set forth in SEA Rule 17a-13 and further
requires each carrying or clearing member subject to SEA Rule 17a-13 to
make more frequent counts, examinations, verifications, comparisons and
entries where prudent business practice would require);
    [cir] FINRA Rule 4523 (Assignment of Responsibility for General
Ledger Accounts and Identification of Suspense Accounts) (sets forth
requirements intended to ensure the accuracy of a member's financial
books and records, including the requirement that each member designate
an associated person to be responsible for each general ledger
bookkeeping account and account of like function used by the member);
and
    [cir] FINRA Rule 4524 (Supplemental FOCUS Information) (requires
each member, as FINRA designates, to file as a supplement to the FOCUS
Report, additional financial or operational schedules or reports as
FINRA deems necessary or appropriate for the protection of investors or
in the public interest); \32\ and
---------------------------------------------------------------------------

    \32\ The Supplemental Statement of Income (``SSOI''), the
Supplemental Inventory Schedule (``SIS'') and the Derivatives and
Other Off-Balance Sheet Items Schedule (``OBS''), all of which were
adopted pursuant to FINRA Rule 4524 as supplements to the FOCUS
Report, require the reporting of various figures that are based on
all securities, including government securities. While firms that
are government securities broker-dealers do not file a FOCUS Report
and instead are required to file reports concerning their financial
and operational status using the Finances and Operations of
Government Securities Brokers and Dealers Report (``FOGS Report''),
such firms are subject to FINRA Rule 4524 and the financial or
operational schedules or reports, as designated by FINRA, adopted
pursuant to that rule. See e.g., Securities Exchange Act Release No.
73192 (September 23, 2014), 79 FR 58390 (September 29, 2014) (Order
Approving File No. SR-FINRA-2014-025) (approving the adoption of the
SIS, including with respect to filers of FOGS Reports).
---------------------------------------------------------------------------

     FINRA Rule 4540 (Reporting Requirements for Clearing
Firms) (requires each member clearing firm or self-clearing firm to
report to FINRA in such format as FINRA may require, prescribed data
pertaining to the member and any member broker-dealer for which it
clears; the rule also provides that a member may submit a written
request for exemptive relief, pursuant to the FINRA Rule 9600 Series
(Procedures for Exemptions), from the reporting requirements of Rule
4540, and specifies the circumstances under which FINRA will grant such
exemptive requests).
    FINRA acknowledges that some of the rules listed above do not apply
to members that are sole government securities broker-dealers because
such members are subject to separate laws, rules and regulations or are
otherwise excluded from the FINRA requirements. For example, as noted
above, a government securities broker or dealer is excluded from the
definition of ``persons registered as brokers or

dealers'' for purposes of SIPA.\33\ Therefore, FINRA Rule 2266 does not
apply to such members. In addition, members that are registered
government securities brokers and dealers are subject to separate
capital compliance provisions from those set forth in FINRA Rule
4110.\34\ By listing these rules under FINRA Rule 0150(c), FINRA is not
changing the underlying requirements otherwise applicable to such
members.
---------------------------------------------------------------------------

    \33\ See 15 U.S.C. 78lll(12) and supra note 29.
    \34\ See 17 CFR 402.2 (setting forth the capital requirements
for registered government securities brokers and dealers).
---------------------------------------------------------------------------

Rules Relating to Members' Books and Records and General Supervisory
Obligations
    FINRA Rule 3110 (Supervision) and the FINRA Rule 4510 Series (Books
and Records Requirements) apply to transactions in exempted securities,
including government securities, and are currently listed in FINRA Rule
0150(c). FINRA Rule 3110 requires a firm to establish and maintain a
system to supervise the activities of its associated persons that is
reasonably designed to achieve compliance with the applicable
securities laws and regulations and FINRA rules. The rule details
requirements for a firm to have reasonably designed written supervisory
procedures (``WSPs'') to supervise the activities of its associated
persons and the types of businesses in which it engages. Among other
things, a firm's WSPs must address supervision of supervisory personnel
and provide for the review of a firm's investment banking and
securities business, correspondence and internal communications, and
customer complaints. The rules governing books and records, including
the FINRA Rule 4510 Series, in general, require members to make and
preserve specific books and records to show compliance with applicable
securities laws, rules and regulations, and to enable FINRA and SEC
staffs to conduct effective examinations.
    FINRA is proposing a conforming change to FINRA Rule 0150(c) to
expressly include those rules of general applicability that are based
on, or related to, the obligations imposed by FINRA Rule 3110 and the
FINRA Rule 4510 Series. In particular, the proposed rule change would
add the following rules to the list of rules in FINRA Rule 0150(c):
     FINRA Rule 3100 Series (Supervisory Responsibilities):
    [cir] FINRA Rule 3120 (Supervisory Control System) (establishes the
requirements on members to test and verify supervisory procedures);
    [cir] FINRA Rule 3130 (Annual Certification of Compliance and
Supervisory Processes) (requires each member to designate one or more
principals to serve as a chief compliance officer(s) and further
requires that the chief executive officer(s) certify annually that the
member has in place processes to establish, maintain, review, modify
and test policies and procedures reasonably designed to achieve
compliance with applicable FINRA rules, MSRB rules and federal
securities laws and regulations);
    [cir] FINRA Rule 3150 (Holding of Customer Mail) (allows a firm to
hold a customer's mail for a specific time period in accordance with
the customer's written instructions if the firm meets several
conditions);
    [cir] FINRA Rule 3160 (Networking Arrangements Between Members and
Financial Institutions) (provides the conditions for a member that is a
party to a networking arrangement with a financial institution under
which the member offers broker-dealer services, regardless of whether
the member is conducting broker-dealer services on or off the premises
of a financial institution); and
    [cir] FINRA Rule 3170 (Tape Recording of Registered Persons by
Certain Firms) (requires a firm to establish, enforce and maintain
special written procedures supervising the telemarketing activities of
all of its registered persons, including the tape recording of
conversations, if the firm has hired more than a specified percentage
of registered persons from firms that meet the rule's definition of
``disciplined firm'');
     FINRA Rule 3200 Series (Responsibilities Relating to
Associated Persons):
    [cir] FINRA Rule 3230 (Telemarketing) (requires members to maintain
do-not-call lists, to limit the hours of telephone solicitations and
prohibits members from using deceptive and abusive acts and practices
in connection with telemarketing);
    [cir] FINRA Rule 3240 (Borrowing From or Lending to Customers)
(provides members the opportunity to evaluate the appropriateness of
particular lending arrangements between their registered persons and
customers, to the extent permitted by the member, and the potential for
conflicts of interests between both the registered person and his or
her customer and the registered person and the member with which he or
she is associated);
    [cir] FINRA Rule 3241 (Registered Person Being Named a Customer's
Beneficiary or Holding a Position of Trust for a Customer) (limits a
registered person from being named a beneficiary, executor or trustee,
or to have a power of attorney or similar position of trust for or on
behalf of a customer); and
    [cir] FINRA Rule 3250 (Designation of Accounts) (establishes a
general requirement that a member must hold each customer account in
the customer's name, except that a member may identify a customer's
account with a number or symbol, as long as the member maintains
documentation identifying the customer);
     FINRA Rule 3300 Series (Anti-Money Laundering):
    [cir] FINRA Rule 3310 (Anti-Money Laundering Compliance Program)
(requires each member to develop and implement a written anti-money
laundering program reasonably designed to achieve and monitor the
member's compliance with the Bank Secrecy Act and its implementing
regulations);
     FINRA Rule 4570 (Custodian of Books and Records) (requires
a member to designate as the custodian of its required books and
records, pursuant to SEA Rule 17a-4, on Form BDW (Uniform Request for
Broker-Dealer Withdrawal) a person who is associated with the firm at
the time Form BDW is filed); and
     FINRA Rule 4580 (Books and Records Requirements for
Government Distribution and Solicitation Activities) (establishes the
recordkeeping requirements in connection with FINRA Rule 2030 (Engaging
in Distribution and Solicitation Activities with Government Entities)
and requires covered members that engage in distribution or
solicitation activities with a government entity on behalf of any
investment adviser that provides or is seeking to provide investment
advisory services to such government entity to maintain books and
records that will allow FINRA to examine for compliance with FINRA Rule
2030).\35\
---------------------------------------------------------------------------

    \35\ See infra note 41.
---------------------------------------------------------------------------

Procedural Rules
    FINRA is proposing to amend FINRA Rule 0150(c) to add a number of
procedural rules--including the FINRA Code of Procedure, Code of
Arbitration Procedure for Customer Disputes, Code of Arbitration
Procedure for Industry Disputes, Code of Mediation Procedure and other
procedural rules--to clarify their application to transactions in, or
business activities relating to, exempted securities, including
government securities. These rules of general applicability provide the
procedural framework for FINRA to ensure that

members and associated persons comply with FINRA rules, MSRB rules and
the federal securities laws and provide for the effective and efficient
resolution of customer and industry disputes.
Code of Procedure
    FINRA believes that the FINRA Rule 9000 Series (Code of Procedure)
is applicable to transactions in exempted securities. The Code of
Procedure governs proceedings for disciplining members and associated
persons (including review of disciplinary proceedings by the NAC and
FINRA Board and application for SEC review), proceedings for regulating
the activities of members experiencing financial or operational
difficulties, and proceedings for suspensions, cancellations and bars.
These are foundational rules applicable to all FINRA members,
irrespective of business model or client base, and they provide the
procedural framework for enforcing many of the rules listed in FINRA
Rule 0150.\36\ In this regard, several of the rules that are currently
applicable to exempted securities would be rendered operationally
meaningless without the application of the Code of Procedure. For
example, the sanctions under FINRA Rule 8310 (Sanctions for Violation
of the Rules) are contingent on compliance with the Code of Procedure.
---------------------------------------------------------------------------

    \36\ The Rule 9000 Series also includes FINRA's revolving door
rules, which are applicable to all firm types.
---------------------------------------------------------------------------

FINRA Arbitration and Mediation Codes
    The FINRA Rule 12000 Series (Code of Arbitration Procedure for
Customer Disputes or ``Customer Code'') and FINRA Rule 13000 Series
(Code of Arbitration Procedure for Industry Disputes or ``Industry
Code'') (collectively, the ``Codes'') contain the rules that govern
arbitration between investors and industry parties and between or among
industry-only parties. The Codes provide, among other things, the
procedural rules for arbitration, initiating and responding to claims,
the appointment of arbitrators, arbitration discovery, hearing and fees
and awards. These rules are essential to the arbitration forum and have
general applicability to all FINRA members, irrespective of business
model or client base. As such, FINRA is proposing to amend FINRA Rule
0150 to explicitly add the Codes as applicable to transactions in
exempted securities, including government securities. FINRA notes that,
following the GSAA, FINRA amended the Code of Arbitration Procedure to
explicitly allow claims relating to transactions in exempted
securities, including government securities, to be submitted to the
Office of Dispute Resolution for arbitration under the Code of
Arbitration Procedure without limitation.\37\
---------------------------------------------------------------------------

    \37\ See Securities Exchange Act Release No. 40103 (June 19,
1998), 63 FR 34951 (June 26, 1998) (Order Approving File No. SR-
NASD-98-04).
---------------------------------------------------------------------------

    The proposed rule change would amend FINRA Rule 0150(c) to add the
FINRA Rule 14000 Series (Code of Mediation Procedure) to the list of
rules that are expressly applicable to transactions in, and business
activities relating to, exempted securities, including government
securities. FINRA's mediation forum serves an important public interest
and furthers investor protection by providing a valuable alternative to
arbitration. The Code of Mediation Procedure provides the procedural
framework for parties wishing to mediate disputes through FINRA's
mediation program. The Code of Mediation Procedure contains, for
example, provisions governing the effect of mediation on arbitration
proceedings, mediator selection, mediation ground rules and fees for
mediation. Similar to the Codes, the Code of Mediation Procedure has
general applicability to all FINRA members.
Other Procedural and Related Rules
    In addition to the procedural rules discussed above, FINRA proposes
to amend FINRA Rule 0150(c) to add FINRA Rules 2080 (Obtaining an Order
of Expungement of Customer Dispute Information from the Central
Registration Depository (CRD) System), 2081 (Prohibited Conditions
Relating to Expungement of Customer Dispute), 2263 (Arbitration
Disclosure to Associated Persons Signing or Acknowledging Form U4) and
8313 (Release of Disciplinary Complaints, Decisions and Other
Information) to the list of rules that are applicable to transactions
in, and business activities relating to, exempted securities, including
government securities.
    FINRA recognizes that accurate and complete reporting in the CRD
system is an important component of investor protection, and FINRA
Rules 2080 and 2081, which have general applicability to all FINRA
members, further this purpose.
    FINRA Rule 2080 addresses the expungement of customer dispute
information from the CRD system and provides that a court of competent
jurisdiction must order or confirm all expungement directives before
FINRA will expunge customer dispute information from the CRD system.
The rule also requires that FINRA members or associated persons name
FINRA as an additional party in any court proceeding in which they seek
an order to expunge customer dispute information or request
confirmation of an award containing an order of expungement, unless the
requirement is waived in accordance with the rule.
    FINRA Rule 2081 prohibits members and associated persons from
conditioning or seeking to condition settlement of a dispute with a
customer on, or to otherwise compensate the customer for, the
customer's agreement to consent to, or not to oppose, the firm's or
associated person's request to expunge such customer dispute
information from the CRD system.
    FINRA Rule 2263 requires members to provide each associated person,
whenever the associated person is asked to sign a new or amended Form
U4, with certain written disclosures regarding the nature and process
of arbitration proceedings. This rule ensures that associated persons
of all members understand that the Form U4 contains a predispute
arbitration clause and that by signing the Form U4, the associated
persons are agreeing to be bound by the arbitration proceedings. The
rule applies generally to all members and associated persons.
    FINRA Rule 8313 governs FINRA's release of disciplinary and other
information to the public. The rule is applicable to all members,
irrespective of business model or client base.
Trade Reporting and Operational Rules
    FINRA is also proposing to amend FINRA Rule 0150(c) to add several
trade reporting and operational rules that have general application to
the conduct of members. Specifically, the proposed rule change would
add the following rules to FINRA Rule 0150(c):
     FINRA Rule 4370 (Business Continuity Plans and Emergency
Contact Information) (requires a member to create, maintain, review at
least annually and update upon any material change, a written business
continuity plan identifying procedures relating to an emergency or
significant business disruption and enumerates the minimum elements
that a member's business continuity plan must address, to the extent
those elements are applicable and necessary to the firm's business);
     FINRA Rule 4380 (Mandatory Participation in FINRA BC/DR
Testing Under Regulation SCI) (authorizes FINRA to designate firms that
are subject to mandatory participation in business continuity and
disaster recovery (BC/DR) testing under

Regulation SCI, which will be conducted once per year);
     FINRA Rule 4590 (Synchronization of Member Business
Clocks) (requires that firms synchronize their business clocks that are
used for purposes of recording the date and time of any event that must
be recorded pursuant to the FINRA By-Laws or other FINRA rules (e.g.,
the time a trade was executed or the time an order was received or
routed), with reference to a time source as designated by FINRA); \38\
---------------------------------------------------------------------------

    \38\ Rule 4590 applies to members' business clocks that are used
for purposes of recording the date and time of any event that must
be recorded pursuant to the FINRA By-Laws or other FINRA rules. As
specified in Rule 6730(e)(8), an ``Auction Transaction'' in a U.S.
Treasury Security, as defined under FINRA rules, shall not be
reported to FINRA. Accordingly, the application of Rule 4590 to
exempted securities does not cover auction transactions in U.S.
Treasury securities, and it does not alter members' obligations to
comply with any clock synchronization requirements otherwise
applicable to U.S. Treasury securities auctions.
---------------------------------------------------------------------------

     FINRA Rule 7730 (Trade Reporting and Compliance Engine
(TRACE)) (sets forth the TRACE transaction reporting fees and the TRACE
data products offered by FINRA and the fees associated with those
products); \39\ and
---------------------------------------------------------------------------

    \39\ FINRA notes, however, that Rule 7730(b), by its terms,
currently excludes transactions in U.S. Treasury Securities, as
defined under FINRA rules, from the TRACE transaction reporting
fees. See Securities Exchange Act Release No. 79116, (October 18,
2016), 81 FR 73167, 73169 (October 24, 2016) (Order Approving File
No. SR-FINRA-2016-027). See also supra note 21.
---------------------------------------------------------------------------

     FINRA Rule 8211 (Automated Submission of Trading Data
Requested by FINRA) (requires members to submit specified trade data in
automated format as may be prescribed by FINRA).
Other Rules
    Finally, FINRA is proposing to amend FINRA Rule 0150(c) to add
other rules that relate to customer protection and have general
applicability to the conduct of members and associated persons or that
are applicable to exempted securities, including government securities.
These other rules are:
     FINRA Rule 2030 (Engaging in Distribution and Solicitation
Activities with Government Entities) (regulates members engaging in
distribution or solicitation activities with government entities on
behalf of investment advisers); \40\
---------------------------------------------------------------------------

    \40\ FINRA Rule 2030 is modeled after Rule 206(4)-5 under the
Investment Advisers Act of 1940 (``SEC Pay-to-Play Rule'') that
addresses pay-to-play practices by investment advisers. See
Securities Exchange Act Release No. 78683 (August 25, 2016), 81 FR
60051 (August 31, 2016) (Order Approving File No. SR-FINRA-2015-056)
(``Approval Order''); see also Investment Advisers Act Release No.
4532 (September 20, 2016), 81 FR 66526 (September 28, 2016) (finding
that Rule 2030 imposes substantially equivalent or more stringent
restrictions on members than the SEC Pay-to-Play Rule imposes on
investment advisers and is consistent with the objectives of the SEC
Pay-to-Play Rule). Neither the SEC Pay-to-Play Rule nor FINRA's Rule
2030 exclude specific products, see Approval Order, 81 FR 60051,
60058-59. In addition, both the SEC Pay-to-Play Rule and FINRA Rule
2030 define the term ``government entity'' to mean any state or
political subdivision of a state, including their agencies,
authorities and instrumentalities, a pool of assets sponsored or
established by the state or political subdivision or any agency,
authority or instrumentality thereof, or a plan or program of such
government entity. See 17 CFR 275.206(4)-5(f)(5); FINRA Rule
2030(g)(6).
---------------------------------------------------------------------------

     FINRA Rule 2040 (Payments to Unregistered Persons)
(governs the payment of transaction-based compensation by members to
unregistered persons, including retired representatives and foreign
finders);
     FINRA Rule 2070 (Transactions Involving FINRA Employees)
(addresses conflicts of interests involving FINRA employees and plays a
vital role in helping FINRA monitor whether employees are abiding by
trading restrictions imposed by the FINRA Code of Conduct);
     FINRA Rule 2090 (Know Your Customer) (requires members to
use reasonable diligence in regard to the opening and maintenance of
every account, in order to know and retain the essential facts
concerning every customer to effectively service customer accounts, act
in accordance with any special handling instructions, understand the
authority of each person acting on behalf of customers, and comply with
applicable laws, regulations and rules);
     FINRA Rule 2130 (Approval Procedures for Day-Trading
Accounts) (requires firms that promote day-trading strategies, directly
or indirectly, to deliver the risk disclosure statement set forth in
FINRA Rule 2270 (Day-Trading Risk Disclosure Statement), to a non-
institutional customer prior to opening the account for the customer,
and to (1) approve the customer's account for day-trading in accordance
with procedures set forth in the rule or (2) obtain a written agreement
from the customer stating that the customer does not intend to use the
account for day-trading activities);
     FINRA Rule 2140 (Interfering With the Transfer of Customer
Accounts in the Context of Employment Disputes) (prohibits members or
associated persons from interfering with a customer's request to
transfer his or her account in connection with the change in employment
of the customer's registered representative, provided that the account
is not subject to any lien for monies owed by the customer or other
bona fide claim);
     FINRA Rule 2165 (Financial Exploitation of Specified
Adults) (permits members to place temporary holds on disbursements of
funds or securities from the accounts of specified customers where
there is a reasonable belief of financial exploitation of such
customers);
     FINRA Rule 2213 (Requirements for the Use of Bond Mutual
Fund Volatility Ratings) (imposes conditions and disclosure
requirements on a firm that distributes a retail communication that
includes a ``bond mutual fund volatility rating,'' including that the
rating must be based on objective factors, such as the credit quality
of the fund's individual portfolio holdings, the market price
volatility of the portfolio, the fund's performance, and specific
risks, such as interest rate risk, prepayment risk and currency risk);
     FINRA Rule 2214 (Requirements for the Use of Investment
Analysis Tools) (provides a limited exception to the general
prohibition on members' communications that predict or project
performance, as set forth in paragraph (d)(1)(F) of FINRA Rule 2210
(Communications with the Public), for investment analysis tools,
provided that specified conditions are met);
     FINRA Rule 2216 (Communications with the Public About
Collateralized Mortgage Obligations (``CMOs'')) (sets forth standards
applicable to retail communications concerning CMOs);
     FINRA Rule 2220 (Options Communications) (sets forth a
member's obligations with respect to its options communications with
the public); \41\
---------------------------------------------------------------------------

    \41\ At the time of the 1996 Approval Order, FINRA Rule 2220
required that firms designate a specific individual as a Compliance
Registered Options Principal with responsibility for approving
certain options communications. The rule has changed since that
time, eliminating this operational condition, and currently requires
that, among other things, a designated Registered Options
Principal(s) review and approve all retail communications, which
would allow more than one individual to review and approve such
communications. Moreover, all firms that are engaged in, or intend
to engage in, transactions in options with the public must have at
least one Registered Options Principal pursuant to FINRA Rule
1220(a)(8) (Registered Options Principal). FINRA believes that the
requirements relating to options on government securities should be
consistent, to the extent applicable, with the requirements for
options covered by FINRA Rule 2360 (Options).
---------------------------------------------------------------------------

     FINRA Rule 2267 (Investor Education and Protection)
(requires members to provide customers at least once every calendar
year in writing (which may be electronic) with: (1) FINRA's website
address; (2) the BrokerCheck hotline number; and (3) a statement
regarding the availability of an investor brochure that includes
information describing BrokerCheck);

     FINRA Rule 2270 (Day-Trading Risk Disclosure Statement)
(requires firms that promote day-trading strategies, directly or
indirectly, to deliver the risk disclosure statement set forth in the
rule to a non-institutional customer prior to opening the account for
the customer);
     FINRA Rule 2272 (Sales and Offers of Sales of Securities
on Military Installations) (governs sales and offers of sales of
securities by members on the premises of any military installation to
members of the Armed Forces of the United States or their dependents);
\42\
---------------------------------------------------------------------------

    \42\ Rule 2272 requires, among other things, a member engaging
in sales or offers of sales of securities on the premises of a
Military Installation to any member of the U.S. Armed Forces or his
or her dependents to provide a clear and conspicuous disclosure with
the identity of the member offering the securities and stating that
the securities are not being offered or provided by the member of
behalf of the Federal Government, and that the offer of such
securities is not sanctioned, recommended or encouraged by the
Federal Government. See Rule 2272(b). The rule applies to all
members seeking to engage in sales or offers of sales of securities,
irrespective of the type of securities offered. While some exempted
securities are issued by the U.S. Federal Government (e.g., U.S.
Treasury securities), other exempted securities (e.g., group
variable contracts) are not.
---------------------------------------------------------------------------

     FINRA Rule 2273 (Educational Communication Related to
Recruitment Practices and Account Transfers) (provides that a member
that hires or associates with a registered representative must furnish
to a former customer of the representative, individually (in paper or
electronic form) required educational communication when: (1) the
member, directly or through a representative, individually contacts a
former customer of that representative to transfer assets; or (2) a
former customer of the representative, absent individual contact,
transfers assets to an account assigned, or to be assigned, to the
representative at the member); and
     FINRA Rule 2360 (Options) (addresses specific risks that
pertain to options, and implements provisions of the federal securities
laws and SEC rules, including, among other things, provisions requiring
specific disclosure documents, additional diligence in approving the
opening of accounts, and specific requirements for confirmations,
account statements, suitability, recordkeeping and reporting).\43\
---------------------------------------------------------------------------

    \43\ See supra note 41.
---------------------------------------------------------------------------

Capital Acquisition Broker Rules
    The CAB Rules are a separate set of FINRA rules for firms that meet
the definition of a ``capital acquisition broker'' and that elect to be
governed under this rule set. CABs are members that engage in a limited
range of activities, essentially advising companies and private equity
funds on capital raising and corporate restructuring, and acting as
placement agents for sales of unregistered securities to institutional
investors under limited conditions. Members that elect to be governed
under the CAB rule set are not permitted, among other things, to carry
or maintain customer accounts, handle customers' funds or securities,
accept customers' trading orders, or engage in proprietary trading or
market-making.\44\
---------------------------------------------------------------------------

    \44\ See CAB Rule 016(c).
---------------------------------------------------------------------------

    CAB Rule 015 states that FINRA Rule 0150 shall apply to the CAB
Rules. FINRA proposes to amend CAB Rule 015 to more closely track the
text of FINRA Rule 0150, and to be consistent with the revisions to
FINRA Rule 0150 made pursuant to this rule filing.
    Proposed CAB Rule 015(a), which defines the terms ``exempted
securities'' and ``municipal securities,'' is exactly the same as FINRA
Rule 0150(a). Similar to FINRA Rule 0150(b), proposed CAB Rule 015(b)
provides that the CAB Rules are not intended to be, and shall not be
construed as, rules concerning transactions in municipal securities.
    Proposed CAB Rule 015(c) resembles FINRA Rule 0150(c), but refers
to the CAB Rules that apply to transactions in, and business activities
related to, exempted securities, except municipal securities, conducted
by CABs and their associated persons, rather than to FINRA Rules. In
this regard, FINRA proposes to apply all CAB Rules, other than CAB
Rules 512 (Private Placements of Securities Issued by Members) and 515
(Fairness Opinions), to such transactions and activities, because
either the CAB Rule provides that all CABs are subject to a FINRA Rule
included in FINRA Rule 0150(c), or the CAB Rule has provisions that are
similar to those in FINRA Rules included in FINRA Rule 0150(c). FINRA
does not propose to apply CAB Rules 512 and 515 to such activities and
transactions, because those rules provide that CABs are subject to
FINRA Rules 5122 and 5150, respectively, which are not included in
FINRA Rule 0150(c).
    Proposed CAB Rule 015(d) provides that nothing in this Rule shall
be deemed to expand or otherwise alter the scope of activities
permitted for CABs under CAB Rule 016(c) (the definition of ``capital
acquisition broker''). The purpose of this provision is to make clear
that CAB Rule 015 is not intended to define the scope of activities in
which CABs may engage. Instead, CAB Rule 016(c) defines what activities
in which a CAB may engage.
    FINRA has filed the proposed rule change for immediate
effectiveness. The implementation date will be 270 days after the date
of the filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\45\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \45\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. As stated above, the proposed
rule change does not impact the current status of any of the listed
rules, but serves to modernize FINRA Rule 0150 to include rules of
general applicability to all FINRA members.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \46\ and Rule 19b-
4(f)(6) thereunder.\47\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(3)(A).
    \47\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-FINRA-2022-028 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-2022-028. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
FINRA-2022-028 and should be submitted on or before November 3, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
---------------------------------------------------------------------------

    \48\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 2022-22174 Filed 10-12-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 215 (Wednesday, November 8, 2017)]
[Notices]
[Pages 51849-51850]
[FR Doc No: 2017-24335]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2007-D-0256 (formerly 2007D-0089)]

Agency Information Collection Activities; Submission for Office
of Management and Budget Review; Comment Request; Draft Guidance for
Industry and Review Staff on Target Product Profile--A Strategic
Development Process Tool

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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

SUMMARY: The Food and Drug Administration (FDA) is announcing that a
proposed collection of information has been submitted to the Office of
Management and Budget (OMB) for review and clearance under the
Paperwork Reduction Act of 1995.

DATES: Fax written comments on the collection of information by
December 8, 2017.

ADDRESSES: To ensure that comments on the information collection are
received, OMB recommends that written comments be faxed to the Office
of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer,
Fax:<PHONE_NUMBER>, or emailed to [email protected]. All
comments should be identified with the OMB control number 0910-NEW and
title ``Draft Guidance for Industry and Review Staff on Target Product
Profile--A Strategic Development Process Tool.'' Also include the FDA
docket number found in brackets in the heading of this document.

FOR FURTHER INFORMATION CONTACT: Domini Bean, Office of Operations,
Food and Drug Administration, Three White Flint North, 10A-12M, 11601
Landsdown St., North Bethesda, MD 20852,<PHONE_NUMBER>,
[email protected].

SUPPLEMENTARY INFORMATION: In compliance with 44 U.S.C. 3507, FDA has
submitted the following proposed collection of information to OMB for
review and clearance.

Guidance for Industry and Review Staff on Target Product Profile--A
Strategic Development Process Tool; OMB Control Number 0910-NEW

    This information collection request supports the above-captioned
Agency guidance. The draft guidance is intended to provide sponsors and
FDA review staff with information regarding target product profiles
(TPPs). A TPP can be prepared by a sponsor and then shared voluntarily
with the appropriate FDA review staff to facilitate communication
regarding a particular drug development program. The TPP is based on a
template that provides a summary of drug labeling concepts to focus
discussions and aid in the understanding between sponsors and FDA. The
resulting TPP is a format for a summary of a drug development program
described in terms of labeling concepts. With the TPP, a sponsor
specifies the labeling concepts that are the goals of the drug
development program, documents the specific studies that are intended
to support the labeling concepts, and then uses the TPP to assist in a
constructive dialogue with FDA. The draft guidance describes the
purpose of a TPP, its advantages, and its optimal use. It also provides
information on how to complete a TPP and relates case studies that
demonstrate a TPP's usefulness.
    Sponsors are not required to submit a TPP. The TPP does not
represent an implicit or explicit obligation on the sponsor's part to
pursue all stated goals. Submission of a TPP summary does not constrain
the sponsor to submit draft labeling in a new drug application (NDA) or
biologics license application (BLA) that is identical to the TPP. The
TPP is part of the proprietary investigational new drug application
(IND) file.
    The TPP is organized according to the key sections of the drug
labeling and links drug development activities to specific concepts
intended for inclusion in the drug labeling. The TPP is not a long
summary. Generally, the TPP is shorter than the ultimate annotated
draft labeling because it captures only a summary of the drug
development activities and labeling concepts. Early TPPs can be brief
depending on the status of the drug's development process.
    The Target Product Profile Template in Appendix C of the draft
guidance details the suggested information to be included in each
section of the TPP. The TPP includes information from each discipline
comprising an NDA/BLA. Within each discipline, the TPP briefly
summarizes the specific studies that will supply the evidence for each
conclusion that is a labeling concept. A TPP is organized according to
key sections in the drug's labeling. Typical key sections are:

 Indications and Usage
 Dosage and Administration
 Dosage Forms and Strengths
 Contraindications
 Warnings and Precautions
 Adverse Reactions
 Drug Interactions
 Use in Specific Populations
 Drug Abuse and Dependence
 Overdosage
 Description
 Clinical Pharmacology
 Nonclinical Toxicology
 Clinical Studies
 References
 How Supplied/Storage and Handling
 Patient Counseling Information

    In the Federal Register of January 5, 2016 (81 FR 240), FDA
published a 60-day notice requesting public comment on the proposed
collection of information. No comments were received.
    FDA estimates the burden of the information collection as follows:

                                                     Table 1--Estimated Annual Reporting Burden \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Number of
                      Guidance recommendations                          Number of      responses per     Total annual   Average  burden    Total hours
                                                                       respondents       respondent       responses      per  response
--------------------------------------------------------------------------------------------------------------------------------------------------------
TPPs...............................................................              20              6.6              132               20            2,640
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ There are no capital or operating and maintenance costs associated with the information collection.

    Description of Respondents: Sponsors of applications seeking FDA
approval to perform clinical investigations of a human drug before
applying for marketing approval of the drug from FDA.
    Burden Estimate: FDA estimates that sponsors of approximately 10
percent of the number of active INDs submitted to FDA annually would
prepare and submit TPPs. According to our records, this equals
approximately 132 TPPs per year. Based on data received from the
Pharmaceutical Research and

Manufacturers of America, we estimate that approximately 20 sponsors
would submit TPPs and that each submission would take approximately 20
hours to prepare. This information is reflected in table 1.

    Dated: November 3, 2017.
Anna K. Abram,
Deputy Commissioner for Policy, Planning, Legislation, and Analysis.
[FR Doc. 2017-24335 Filed 11-7-17; 8:45 am]
 BILLING CODE 4164-01-P


[Federal Register: March 13, 2008 (Volume 73, Number 50)]
[Notices]
[Page 13596-13597]
[DOCID:fr13mr08-93]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57452; File No. SR-NASDAQ-2008-004]

 Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Order Granting Approval of Proposed Rule Change Related to Supplemental
Market Participant Identifiers

March 7, 2008.

I. Introduction

    On January 9, 2008, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 make permanent the pilot program that allows
market makers and Electronic Communication Networks (``ECNs'') to
obtain supplemental market participant identifiers (``MPIDs''). In
addition, Nasdaq proposes to remove any restrictions on the number of
MPIDs a market participant may request for displaying attributable
quotes or orders. The proposed rule change was published for comment in
the Federal Register on February 1, 2008.\3\ The Commission received no
comments on the proposed rule change. This order approves the proposed
rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57212 (January 28,
2008), 73 FR 6229 (``Notice'').
---------------------------------------------------------------------------

II. Description of Proposal

    Nasdaq proposes to make permanent the pilot program incorporated in

Nasdaq Rule 4613(a)(2) that allows market makers and ECNs to obtain
supplemental MPIDs. The rule has operated as a temporary pilot since it
was first adopted in June 2003 and since that time, Nasdaq continued to
apply the procedures set forth in the rule and the related interpretive
material.\4\ In accordance with the pilot program, market makers and
ECNs can be issued a maximum of nine supplemental MPIDs. Nasdaq
proposes to remove the current restriction that limits the number of
supplemental MPIDs that market makers and ECNs can request for
displaying attributable quotes or orders. In addition, Nasdaq proposes
to remove IM-4613, which sets forth the procedures for allocating
supplemental MPIDs.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 47954 (May 30,
2003), 68 FR 34017 (June 6, 2003). See also IM-4613--Procedures for
Allocation of Second Displayable MPIDs. According to Nasdaq, the
pilot inadvertently was permitted to lapse on November 30, 2006.
---------------------------------------------------------------------------

    Nasdaq's proposal will prohibit market makers and ECNs from using a
supplemental MPID to violate Exchange or Commission rules.\5\ If it is
determined that a supplemental MPID is being used improperly, Nasdaq
will withdraw its grant of the supplemental MPID for all purposes for
all securities. In addition, if a market maker or ECN fails to fulfill
the conditions appurtenant to its primary MPID (e.g., by being placed
into an unexcused withdrawal), it will not be permitted to use any
supplemental MPID for any purpose in that security.
---------------------------------------------------------------------------

    \5\ Members will be prohibited from using a supplemental MPID to
avoid their Manning obligations under IM-2110-2, best execution
obligations under Nasdaq Rule 2320, or their obligations under the
Commission's Order Handling Rules. Members will be required to
continue to comply with the firm quote rule, the OATS rules, and the
Commission's order routing and execution quality disclosure rules.
See Notice, supra note 3, at 6229-30.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    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 exchange.\6\ In
particular, the Commission believes that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\7\ in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \6\ In approving this rule, the Commission notes that it has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that the proposal to make permanent the
pilot program that allows market makers and ECNs to obtain supplemental
MPIDs is consistent with the Act. The proposal should provide market
participants with flexibility to organize diverse order flows from
customers and to route orders from different trading desks and units
within their organizations.
    The Exchange also proposes to remove any restrictions on the number
of MPIDs a market participant may request for displaying attributable
quotes or orders. According to Nasdaq, this restriction was adopted due
to technological limitations. The Exchange has represented that this
technological limitation no longer exists.\8\ In addition, Nasdaq
proposes to remove IM-4613, which sets forth the procedures for
allocating supplemental MPIDs. This method of allocating supplemental
MPIDs was necessary due to the limited number of available MPIDs. The
removal of Nasdaq's technological limitation on the number of MPIDs for
a given security makes the procedures unnecessary.
---------------------------------------------------------------------------

    \8\ See Notice, supra note 3, at 6229.
---------------------------------------------------------------------------

    The Commission notes that Nasdaq represents that a supplemental
MPID would be withdrawn for all purposes and for all securities if it
were to be determined that such supplemental MPID was being used
improperly.\9\ In addition, Nasdaq represents that a market maker or
ECN will be prohibited from using any supplemental MPID for any purpose
in a security, if it fails to fulfill the conditions appurtenant to its
primary MPID for such security.\10\ In the Commission's view, these
procedures should ensure that market makers and ECNs utilize MPIDs in
accordance with Exchange rules.
---------------------------------------------------------------------------

    \9\ See Notice, supra note 3, at 6230.
    \10\ Id.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-NASDAQ-2008-004) be, and it
hereby is, approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12 \
---------------------------------------------------------------------------

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

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4984 Filed 3-12-08; 8:45 am]

BILLING CODE 8011-01-P