
[Federal Register: September 25, 2009 (Volume 74, Number 185)]
[Notices]               
[Page 49051]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25se09-146]                         


[[Page 49051]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60697; File No. SR-FINRA-2009-052]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of Proposed Rule Change To 
Adopt FINRA Rule 2264 (Margin Disclosure Statement) in the Consolidated 
FINRA Rulebook

September 21, 2009.

    On July 29, 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'') a proposed rule change pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 
thereunder \2\ to adopt NASD Rule 2341 (Margin Disclosure Statement) 
with minor changes as FINRA Rule 2264 as part of the process of 
developing a new consolidated rulebook (``Consolidated FINRA 
Rulebook'').\3\ Notice of the proposal was published for comment in the 
Federal Register on August 11, 2009.\4\ 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\ The current FINRA rulebook consists of (1) FINRA Rules; (2) 
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \4\ Exchange Act Release No. 60437 (Aug. 5, 2009), 74 FR 40256 
(Aug. 11, 2009).
---------------------------------------------------------------------------

I. Description of the Proposal

    FINRA Rule 2264 requires members that open margin accounts for or 
on behalf of non-institutional customers \5\ to deliver to such 
customers, prior to or at the time of opening the account, a specified 
margin disclosure statement to highlight the risks involved in trading 
securities in a margin account. Members also must provide the margin 
disclosure statement (or an abbreviated version as provided by the 
rule) to non-institutional margin account customers not less than once 
a calendar year. The rule provides members with the flexibility to use 
an alternative disclosure statement to the language specified in the 
rule provided that the alternative disclosures are substantially 
similar to the disclosures specified in the rule. Members must deliver 
the initial and annual disclosure statement, in writing or 
electronically, to customers covered by the rule on an individual 
basis. In addition, the rule requires members that permit non-
institutional customers to open accounts online, or engage in 
transactions in securities online, to post the margin disclosure 
statement on their Web sites in a clear and conspicuous manner.
---------------------------------------------------------------------------

    \5\ For purposes of the rule, a non-institutional customer means 
a customer that does not qualify as an ``institutional account'' 
under NASD Rule 3110(c)(4). NASD rule 3110(c)(4) provides, ``the 
term `institutional account' shall mean the account of: (A) A bank, 
savings and loan association, insurance company, or registered 
investment company; (B) an investment adviser registered either with 
the Securities and Exchange Commission under Section 203 of the 
Investment Advisers Act of 1940 or with a state securities 
commission (or any agency or office performing like functions); or 
(C) any other entity (whether a natural person, corporation, 
partnership, trust, or otherwise) with total assets of at least $50 
million.'' FINRA is proposing to adopt NASD Rule 3110(c)(4) as FINRA 
Rule 4512(c). See Regulatory Notice 08-25 (May 2008).
---------------------------------------------------------------------------

    FINRA stated that it would announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 90 days following Commission approval.

II. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\6\ In particular, the Commission finds that the proposed 
rule change is consistent with the provisions of Section 15A(b)(6) of 
the Act,\7\ 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. These margin disclosures are 
important because they provide investors with information with which 
they can better understand the operation of margin accounts and the 
risks associated with margin trading.
---------------------------------------------------------------------------

    \6\ In approving this rule proposal, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-FINRA-2009-052) be, and hereby is, 
approved. For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23148 Filed 9-24-09; 8:45 am]

BILLING CODE 8010-01-P
