
[Federal Register: May 21, 2009 (Volume 74, Number 97)]
[Notices]               
[Page 23912-23915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21my09-137]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59921; File No. SR-FINRA-2009-028]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rule 2231 (Customer Account Statements) in the Consolidated FINRA 
Rulebook

May 14, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``SEA'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on April 22, 2009, Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a National Association of Securities Dealers, 
Inc. (``NASD'')) filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by FINRA. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt NASD Rule 2340 (Customer Account 
Statements) with certain changes as FINRA Rule 2231 in the new 
consolidated FINRA rulebook (``Consolidated FINRA Rulebook'').\3\ The 
proposed rule change would also delete NYSE Rule 409 \4\ (Statements of 
Accounts of Customers), except for paragraph (f), and certain of its 
related interpretations.
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    \3\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see FINRA Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ For convenience, the proposed rule change refers to 
Incorporated NYSE Rules as NYSE Rules.
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    The text of the proposed rule change is available at FINRA, the 
Commission's Public Reference Room, and http://www.finra.org.

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
    As part of the process of developing a new consolidated rulebook, 
FINRA is proposing to adopt NASD Rule 2340 (Customer Account 
Statements) with certain changes as FINRA Rule 2231 in the Consolidated 
FINRA Rulebook. The proposed rule change would also delete: (1) NYSE 
Rule 409 (Statements of Accounts to Customers), except for paragraph 
(f) and its related supplementary material; and (2) NYSE Rule 
Interpretations 409(a) and 409(b), except for paragraphs 409(a)/01 and 
409(a)/03, as the rule and its related interpretations are, in main 
part, duplicative of NASD Rule 2340. However, as further described 
herein, the proposed rule change would incorporate certain provisions 
of NYSE Rule 409 and its interpretations into new FINRA Rule 2231.
PROPOSED FINRA RULE 2231 (CUSTOMER ACCOUNT STATEMENTS)
Frequency of Delivery of Account Statements and Disclosures
    NASD Rule 2340 generally requires each general securities member to 
send customers at least once each calendar quarter account statements 
containing a description of any securities positions, money balances or 
account activity in the accounts since the prior account statements 
were sent. NYSE Rule 409(a)

[[Page 23913]]

similarly requires member organizations to send customer account 
statements at least once each calendar quarter.
    In contrast, proposed FINRA Rule 2231(a) would impose an additional 
requirement that each general securities member send account statements 
at least once every calendar month to each customer whose account had 
account activity during the period since the last statement was sent to 
the customer, and continue to require that a statement be sent at least 
once every calendar quarter to each customer whose account had a 
security position or money balance during the period since the last 
statement was sent to the customer.
    Proposed FINRA Rule 2231 would adopt the definitions of the terms 
``general securities member'' and ``account activity'' set forth in 
NASD Rule 2340. A ``general securities member'' would be any member 
that conducts a general securities business and is required to 
calculate its net capital pursuant to the provisions of SEA Rule 15c3-
1(a).\5\ However, as is the case under NASD Rule 2340 currently, a 
member that does not carry customer accounts and does not hold customer 
funds or securities would continue to be exempt from the provisions of 
FINRA Rule 2231. ``Account activity'' would continue to be defined 
broadly and would include, but not be limited to, purchases, sales, 
interest credits or debits, charges or credits, dividend payments, 
transfer activity, securities receipts or deliveries and/or journal 
entries relating to securities or funds in the possession or control of 
the member.
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    \5\ 17 CFR 240.15c3-1(a).
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    FINRA believes the proposed amendment better reflects current 
industry practice as a significant number of members already send 
customers monthly account statements through their clearing firms. 
FINRA believes that receipt of monthly statements will allow customers 
to review their statements in a timely manner for errors, possible 
identify theft or other potential problems.
    Proposed FINRA Rule 2231(a) would also retain the requirement in 
NASD Rule 2340(a) (and NYSE Rule 409(e)) to include on customer account 
statements a statement advising customers to report promptly any 
inaccuracy or discrepancy in their account to the introducing firm and 
clearing firm (where there are two different firms) and to re-confirm 
any oral communications in writing to further protect the customer's 
rights, including rights under the Securities Investor Protection Act.
DVP/RVP Securities on Account Statements
    Proposed FINRA Rule 2231(b) would incorporate without substantive 
change the provisions in NASD Rule 2340(b) (and NYSE Rule 409(a)) 
providing that account statements do not need to be sent to a customer 
if the customer's account is carried solely for execution on a Delivery 
versus Payment/Receive versus Payment (``DVP/RVP'') basis, subject to 
certain specified conditions. The rule would continue to provide that 
it does not qualify or condition the obligations of members under SEA 
Rule 15c3-2 concerning quarterly notices of free credit balances on 
statements.\6\
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    \6\ 17 CFR 240.15c3-2.
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Value of DPP/REIT Securities on Account Statements
    Proposed FINRA Rule 2231(c) would incorporate without substantive 
change the provisions in NASD Rule 2340(c) regarding the disclosure of 
values for unlisted or illiquid direct participation program (``DPP'') 
and real estate investment trust (``REIT'') securities on customer 
account statements. The proposed rule would require that estimated 
values for DPP/REIT securities must be disclosed under certain 
circumstances and describe how such estimated values must be 
determined. NYSE Rule 409 does not include the requirement regarding 
disclosure of values for DPPs and REITS.
Definitions
    Proposed FINRA Rule 2231(d) would incorporate without substantive 
change the definitions of significant terms used in the rule, such as 
account activity, general securities member, direct participation 
program, real estate investment trust, annual report and DVP/RVP 
account (this last term is also defined in NYSE Rule 409(a)).
Exemptions
    Proposed FINRA Rule 2231(e) would incorporate without substantive 
change the provision in NASD Rule 2340(e) authorizing FINRA to exempt 
members from the provisions of the rule pursuant to the Rule 9600 
Series.
PROPOSED SUPPLEMENTARY MATERIALS TO FINRA RULE 2231
    FINRA is proposing to adopt the following provisions as 
supplementary materials to FINRA Rule 2231. As further described below, 
these provisions are adopted largely from NYSE Rule 409 and its related 
interpretations.
Proposed Supplementary Material .01 (Transmission of Customer Account 
Statements to Other Persons or Entities)
    This provision, which is based in part on NYSE Rule 409(b), would 
expressly require a firm to obtain written instructions from the 
customer in order to send/deliver customer statements, confirmations or 
other communications to other persons or entities.
Proposed Supplementary Material .02 (Use of Electronic Media To Satisfy 
Delivery Obligations)
    This provision would allow a firm to satisfy its delivery 
obligations under the rule by using electronic media, subject to 
compliance with standards established by the SEC on the use of 
electronic media for delivery purposes. This provision is consistent 
with prior guidance issued by FINRA on the use of electronic media to 
satisfy delivery obligations.\7\
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    \7\ See NASD Notice to Members 98-3 (January 1998).
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Proposed Supplementary Material .03 (Information To Be Disclosed on 
Statement)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
02, would require the following items to be prominently disclosed on 
the front of the statement: (i) The identity of the introducing and 
clearing firm (if different) and their respective contact information 
for customer service (though the identity of the clearing firm and its 
contact information may appear on the back of the statement provided 
such information is in ``bold'' or ``highlighted'' letters); (ii) that 
the clearing firm is a member of SIPC; and (iii) the opening and 
closing balances for the account.
Proposed Supplementary Material .04 (Assets Externally Held and 
Included on Statements Solely as a Service to Customers)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
04, would provide that account statements must clearly indicate those 
instances where certain assets are externally held but included on the 
statement as a courtesy.
Proposed Supplementary Material .05 (Use of Logos, Trademarks, etc.)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
05, would regulate the use of trademarks and logos of other persons on 
account statements.

[[Page 23914]]

Proposed Supplementary Material .06 (Use of Summary Statements)
    This provision, which is based on NYSE Rule Interpretation 409(a)/
06, would regulate the use of aggregated account statements for a 
customer who has accounts with other persons.
ELIMINATED PROVISIONS OF NYSE RULE 409
    FINRA is proposing to delete NYSE Rule 409 in its entirety (except 
for NYSE Rule 409(f) which will be reviewed as part of a later phase of 
the rulebook consolidation process).\8\ The following describes certain 
provisions that are found in NYSE Rule 409 and its related 
interpretations that would not be adopted in proposed FINRA Rule 2231:
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    \8\ NYSE Rule 409(f) states ``[c]onfirmations of all 
transactions (including those made ``over-the-counter'' and on other 
exchanges) in securities admitted to dealings on the Exchange, sent 
by members or member organizations to their customers, shall clearly 
set forth with a suitable legend the settlement date of each 
transaction. This requirement also applies to confirmations or 
reports from an organization to a correspondent, but does not apply 
to reports made by floor brokers to the member organization from 
whom the orders were received. (See SEC Rule 10b-10).''
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Duplicate Account Statements
    NYSE Rule 409(b) contains provisions prohibiting, without NYSE's 
consent, the delivery of statements, confirmations or other 
communications to non-member customers (1) in care of a person holding 
power of attorney over the customer's account unless the customer has 
provided written instructions to send such confirmations, statements or 
communications to such person, or duplicate copies are sent to the 
customer at some other address designated in writing; or (2) at the 
address of any member or in care of any partner, stockholder who is 
actively engaged in the member's business or employee of the member.
    NYSE Rule 409(g) also provides that members carrying margin 
accounts for customers should send duplicate copies of monthly 
statements of guaranteed accounts to the respective guarantors unless 
such guarantors have specifically provided in writing that they do not 
want such statements sent to them.
    NASD Rule 2340 does not contain a counterpart to either provision. 
As noted above, proposed supplementary material .01 to proposed FINRA 
Rule 2231 is based in part on NYSE Rule 409(b), but eliminates the 
reference to non-member customers and requires that a member have 
written instructions from a customer to send communications relating to 
the customer's account to any third parties designated by the customer. 
FINRA is proposing to eliminate NYSE Rule 409(g) because it believes 
that the provision generally advising members to send duplicate account 
statements to guarantors, absent contrary instructions from the 
guarantor, need not be incorporated into proposed FINRA Rule 2231, and 
the provision's purpose is better addressed by the general requirement 
described above to obtain written instructions from the customer to 
send customer statements to any third parties.
Legends on Account Statements
    NYSE Rule 409(e)(1) requires the inclusion of a legend on all 
account statements that notifies a customer that the firm's financial 
statements are available for inspection at its offices or a copy can be 
mailed upon request. FINRA is proposing to eliminate this requirement 
in light of existing requirements under SEA Rule 17a-5(c),\9\ which 
generally requires broker-dealers that carry customer accounts to 
provide statements of the broker-dealer's financial condition to their 
customers, and NASD Rule 2270 (Disclosure of Financial Condition to 
Customers), which requires a member to make information relative to a 
member's financial condition available to inspection by customers, upon 
request. FINRA will consider NASD Rule 2270 as part of a later phase of 
the rulebook consolidation process.
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    \9\17 CFR 240.17a-5(c).
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NYSE Supplementary Material and Interpretations To Be Deleted
    FINRA is proposing to eliminate NYSE Rule Interpretation 409(b)/01 
(Standards for Holding Mail for Foreign Customers), which provides 
guidelines for holding confirmations, statements and other 
communications for foreign customers. FINRA is addressing members' 
obligations with respect to customer mail as part of the consolidated 
FINRA rules governing supervision and the related proposal to adopt 
FINRA Rule 3150 (Holding of Customer Mail).\10\
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    \10\ See Regulatory Notice 08-24 (May 2008). FINRA is not 
proposing to eliminate the following NYSE Rule Interpretations as 
part of this rule filing: 409(a)/01 (Applicability), which provides 
that the member firm carrying the account is responsible for 
compliance with the rule unless responsibility has been allocated to 
a non-member broker-dealer carrying organization pursuant to an 
approved carrying agreement; and 409(a)/03 (Use of Third Party 
Agents), which regulates the use of third party agents to prepare 
and/or transmit statements. These interpretations will be reviewed 
as part of a later phase of the rulebook consolidation process.
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TECHNICAL CHANGES
    In addition, the proposal reflects certain technical, non-
substantive amendments to NASD Rule 2340 to change all references to 
``NASD'' to ``FINRA,'' and to change all references to ``SEC'' Rules to 
``SEA'' Rules.
    As noted above, FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following Commission approval.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change will 
provide customers with critical information regarding their accounts 
and will allow them to review their statements in a timely manner, 
while also clarifying and streamlining the customer account rules for 
adoption as FINRA Rules in the Consolidated FINRA Rulebook.
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    \11\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments were neither solicited nor received.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and

[[Page 23915]]

arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-028 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2009-028. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-FINRA-2009-028 and should be 
submitted on or before June 11, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11812 Filed 5-20-09; 8:45 am]

BILLING CODE 8010-01-P
