
[Federal Register: November 25, 2009 (Volume 74, Number 226)]
[Notices]               
[Page 61727-61729]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25no09-113]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61026; File No. SR-FINRA-2009-076]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the 
FINRA Rule 9550 Series (Expedited Proceedings)

November 18, 2009.
    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 November 5, 2009, 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. On November 
17, 2009, FINRA filed Amendment No. 1. \3\ 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\ Amendment No. 1 to SR-FINRA-2009-076 supersedes and replaces 
in its entirety the proposed rule change as filed on November 5, 
2009. FINRA filed Amendment No. 1 so that the text of Proposed FINRA 
Rule 9559 as set forth in this rule filing could reflect amendments 
adopted pursuant to proposed rule change SR-FINRA-2008-067. See 
Securities Exchange Act Release No. 60933 (November 4, 2009), 74 FR 
58334 (November 12, 2009) (Order Approving File No. SR-FINRA-2008-
067).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to (1) Modify various time requirements 
regarding expedited proceedings, (2) add an expedited proceeding for 
failure to pay restitution, and (3) harmonize a remedy in an expedited 
procedure with a remedy in the FINRA By-Laws.
    The text of the proposed rule change is available on FINRA's Web 
site at: http://www.finra.org, at the principal office of FINRA and at 
the Commission's Public Reference Room.

[[Page 61728]]

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
    In March 2004, the SEC approved a rule change that created the NASD 
Rule 9550 Series to consolidate, clarify, and streamline most 
procedural rules that had an expedited proceeding component.\4\ Having 
used the procedures for five years and having conducted a recent 
analysis of their effectiveness, FINRA is proposing a few modifications 
that will strengthen investor protection and improve administrative 
efficiency. The proposed changes are discussed separately below.
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    \4\ See Securities Exchange Act Release No. 49380 (March 9, 
2004), 69 FR 12386 (March 16, 2004) (Order Approving File No. SR-
NASD-2003-110)); Notice to Members 04-36 (May 2004). Expedited 
proceedings in this context refer to fast-tracked matters that take 
place outside the ordinary FINRA disciplinary process. In September 
2008, the SEC approved the adoption of the NASD Rule 9550 Series as 
the FINRA Rule 9550 Series. See Securities Exchange Act Release No. 
58643 (September 25, 2008), 73 FR 57174 (October 1, 2008) (Order 
Approving File Nos. SR-FINRA-2008-021; SR-FINRA-2008-022; SR-FINRA-
2008-026; SR-FINRA-2008-028 and SR-FINRA-2008-029); Regulatory 
Notice 08-57 (October 2008).
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Shortening Time Periods
    The Rule 9550 Series provides a procedural mechanism for FINRA to 
address certain types of misconduct more quickly than would be possible 
using the ordinary disciplinary process. At the same time, the Rule 
9550 Series provides firms and associated persons with numerous 
procedural protections, including the ability to request a hearing that 
often results in a stay of the action. FINRA proposes shortening the 
time within which a hearing must be held from the current 60 days after 
a hearing request to 30 days after the request in relation to the 
following FINRA rules:
     Rule 9551 (Failure To Comply With Public Communication 
Standards);
     Rule 9552 (Failure To Provide Information or Keep 
Information Current);
     Rule 9553 (Failure To Pay FINRA Dues, Fees and Other 
Charges);
     Rule 9554 (Failure To Comply With an Arbitration Award or 
Related Settlement); and
     Rule 9555 (Failure to Meet the Eligibility or 
Qualification Standards or Prerequisites for Access to Services).
    The proposed change \5\ strengthens investor protection while 
maintaining procedural safeguards for respondents, makes the timing of 
the hearings more consistent with other hearings in the rule series, 
and reflects FINRA's experience over the past five years in resolving 
these matters. The change would increase investor protection by 
limiting the period during which a wrongdoer could continue doing 
business while the matter is pending. Moreover, the issues involved in 
these cases usually are straightforward (e.g., whether the respondent 
paid an arbitration award or FINRA fee or provided required 
information) and do not require lengthy preparation time. The change 
also would bring these hearing provisions more in line with the other 
expedited actions in the Rule 9550 Series, which require hearings to be 
held within 14 days or five business days of the respondent's request 
for a hearing depending on the type of conduct at issue. Finally, five 
years' experience has established that hearings can be held much more 
quickly than the current scheme contemplates.
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    \5\ FINRA would implement the proposed change by amending Rule 
9559, which contains the hearing provisions for the Rule 9550 
Series. FINRA also would make conforming changes to Rule 9559 
regarding the pre-hearing exchange of documents between the parties 
to the expedited proceeding.
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    In addition to modifying the timing of hearings, FINRA proposes 
amending Rule 9552 to shorten the period before a suspension 
automatically turns into an expulsion or bar. Rule 9552 allows FINRA to 
suspend a member or associated person for failure to provide any 
information requested or required to be filed pursuant to the FINRA By-
Laws or rules, such as FOCUS reports or annual audits. Under the rule, 
FINRA may provide written notice to such member or person specifying 
the nature of the failure and stating that failure to take corrective 
action within 21 days after service of the notice will result in 
suspension. The rule also provides that a member or person suspended 
under the rule who fails to request termination of the suspension 
within six months is automatically expelled or barred. FINRA proposes 
shortening that timeframe from six months to three months. Three months 
provides sufficient time for respondents to seek to lift the suspension 
while moving the process forward at a more efficient and reasonable 
pace.
Adding an Expedited Procedure for Failure To Pay Restitution
    FINRA proposes amending Rule 9554, which contains expedited 
procedures for failure to pay FINRA arbitration awards, to also permit 
FINRA to take expedited action for failure to comply with a FINRA order 
of restitution or a FINRA settlement providing for restitution. 
Restitution is an equitable remedy used to restore victims to their 
position before the wrongful conduct occurred and to compensate them 
for unjust losses or injury suffered as the result of another's 
wrongdoing.\6\ The SEC and FINRA have long stressed the importance of 
imposing restitution where an ``identifiable person [hellip] has 
suffered a quantifiable loss as a result of a respondent's 
misconduct.'' \7\
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    \6\ See David Joseph Dambro, 51 S.E.C. 513, 518 (1993).
    \7\ FINRA Sanction Guidelines, at 4; see also Dambro, 51 S.E.C. 
at 518 (emphasizing importance of getting money back to investors 
who were harmed by broker's misconduct).
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    Although FINRA can take expedited action against a member firm or 
associated person for failure to pay fines, dues, and fees to FINRA and 
for failure to pay an arbitration award to a third party, FINRA 
currently does not have explicit authority to take expedited action 
against firms or associated persons who fail to pay restitution to a 
third party (usually investors who have been harmed). FINRA's only 
recourse is to initiate an ordinary disciplinary action, which can take 
several months to conclude. FINRA believes that firms and associated 
persons should not be permitted to continue doing business for 
prolonged periods when they have failed to pay restitution to third 
parties. The proposal would close this loophole.
Harmonizing Remedies
    FINRA proposes harmonizing the remedy for an individual's failure 
to pay an arbitration award in Rule 9554 with the remedy for the same 
misconduct in the FINRA By-Laws. At present, Rule 9554 states that 
FINRA may suspend or cancel the membership of a firm and may suspend or 
bar an individual for failure to pay an arbitration award. Article VI, 
Section 3(b) of the FINRA By-Laws, however, limits the remedy regarding 
an individual's failure to pay an arbitration award to a suspension. To 
make the rule consistent with the By-Laws, the proposed change would 
limit the remedy against individuals in such

[[Page 61729]]

cases to suspension and would eliminate any reference to barring 
individuals.
    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 60 days following 
Commission approval. The effective date will be 30 days following 
publication of the Regulatory Notice announcing Commission approval.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of 
Section 15A(b)(6) of the Act,\8\ which requires, among other things, 
that FINRA's 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. The proposal also is consistent with Section 15A(b)(7) 
of the Act,\9\ which provides that FINRA members and associated persons 
must be appropriately disciplined for violations of any provisions of 
the Act or FINRA rules. The proposed rule change is consistent with 
these purposes because it promotes a fair and efficient disciplinary 
process and provides a mechanism to take expedited action when a member 
or associated person fails to pay restitution.
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    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ 15 U.S.C. 78o-3(b)(7).
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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 
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-2009-076 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-2009-076. 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 publicly available. All 
submissions should refer to File Number SR-FINRA-2009-076 and should be 
submitted on or before December 16, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-28224 Filed 11-24-09; 8:45 am]

BILLING CODE 8011-01-P
