
[Federal Register: July 27, 2010 (Volume 75, Number 143)]
[Notices]               
[Page 44033-44037]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27jy10-142]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62539; File No. SR-FINRA-2010-029]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving the Proposed Rule Change To Adopt 
FINRA Rule 5141 (Sale of Securities in a Fixed Price Offering) in the 
Consolidated FINRA Rulebook

July 21, 2010.

I. Introduction

    On May 27, 2010, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 
proposal to adopt FINRA Rule 5141 (Sale of Securities in a Fixed Price 
Offering) in the consolidated FINRA rulebook and to delete NASD Rules 
0120(h), 2730, 2740 and 2750, and NASD IM-2730, IM-2740 and IM-2750. 
This proposal was published for comment in the Federal Register on June 
21, 2010.\3\ The Commission received no comments regarding the 
proposal. This order approves this proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 62299 (June 16, 2010), 
75 FR 35105 (June 21, 2010) (SR-FINRA-2010-029) (``Notice'').
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II. Description of the Proposed Rule Change

    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\4\ FINRA proposed to adopt FINRA 
Rule 5141 (Sale of Securities in a Fixed Price Offering) in the 
Consolidated FINRA Rulebook and to delete NASD Rules 0120(h), 2730, 
2740 and 2750, and NASD IM-2730, IM-2740 and IM-2750.
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    \4\ 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).
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    Proposed FINRA Rule 5141 would be a new, consolidated rule intended 
to protect the integrity of fixed price offerings \5\ by ensuring that 
securities in such offerings are sold to the public at the stated 
public offering price or prices, thereby preventing an undisclosed 
better price. The proposed rule is based in part on, and would replace, 
the current fixed price offering rules (NASD Rules 0120(h), 2730, 2740 
and 2750 and associated Interpretive Materials (``IMs'') 2730, 2740 and 
2750).\6\ Like the current fixed price offering rules, the proposed 
rule would prohibit the grant of certain preferences (e.g., selling 
concessions, discounts, other allowances or various economic 
equivalents) in connection with fixed price offerings of securities.
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    \5\ NASD Rule 0120(h) defines the term ``fixed price offering'' 
to mean the offering of securities at a stated public offering price 
or prices, all or part of which securities are publicly offered in 
the United States or any territory thereof, whether or not 
registered under the Securities Act of 1933. The term does not 
include offerings of ``exempted securities'' or ``municipal 
securities'' as those terms are defined in Sections 3(a)(12) and 
3(a)(29), respectively, of the Securities Exchange Act or offerings 
of redeemable securities of investment companies registered pursuant 
to the Investment Company Act of 1940 which are offered at prices 
determined by the net asset value of the securities. The proposed 
rule change would incorporate the definition of ``fixed price 
offering'' into the proposed rule in substantially identical form. 
See proposed FINRA Rule 5141.04. See also Section II.B infra and 
Section (C) under Item II.C in the Notice.
    \6\ The current fixed price offering rules are also known as the 
Papilsky rules because of the court decision with which they are 
commonly associated. See Papilsky v. Berndt, Fed. Sec. L. Rep (CCH) 
] 95,627 (S.D.N.Y. June 24, 1976). For more information regarding 
the background of NASD Rules 0120(h), 2730, 2740 and 2750 and the 
associated IMs, see Notice to Members 81-3 (February 1981) (Adoption 
of New Rules Concerning Securities Distribution Practices) (``Notice 
to Members 81-3''); see also Securities Exchange Act Release No. 
17371 (December 12, 1980), 45 FR 83707 (December 19, 1980) (File No. 
SR-NASD-78-3).
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A. Proposed FINRA Rule 5141

    Paragraph (a) of the proposed rule would provide that no member or 
person associated with a member that participates in a selling 
syndicate or

[[Page 44034]]

selling group \7\ or that acts as the single underwriter \8\ in 
connection with a fixed price offering may offer or grant, directly or 
indirectly, to any person \9\ or account that is not a member of the 
selling syndicate or selling group or that is a person or account other 
than the single underwriter \10\ any securities in the offering at a 
price below the stated public offering price (i.e., a ``reduced 
price'').\11\
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    \7\ The terms ``selling group'' and ``selling syndicate'' are 
defined in NASD Rules 0120(p) and (q), respectively. Other than to 
reflect the new conventions of the Consolidated FINRA Rulebook, 
FINRA did not propose to alter these two definitions.
    \8\ In response to commenter suggestion, FINRA revised the 
proposed rule to clarify that it would apply to any member acting as 
the single underwriter in an offering. See Section (A) under Item 
II.C in the Notice; see also proposed FINRA Rules 5141(a), 5141.02 
and 5141.03.
    \9\ NASD Rule 0120(n) defines ``person'' to include any natural 
person, partnership, corporation, association, or other legal 
entity. Other than to reflect the new conventions of the 
Consolidated FINRA Rulebook, FINRA did not propose to alter this 
definition.
    \10\ Proposed FINRA Rule 5141(a) is based in part on NASD Rule 
2740(a), which provides, among other things, that in connection with 
the sale of securities which are part of a fixed price offering a 
member may not grant or receive selling concessions, discounts, or 
other allowances except as consideration for services rendered in 
distribution and may not grant such concessions, discounts or other 
allowances to anyone other than a broker or dealer actually engaged 
in the investment banking or securities business. FINRA stated that 
it believes that it serves the interest of clarity for the new, 
consolidated rule to specify that its requirements apply to members 
of the selling syndicate or selling group, as those terms are 
defined under the FINRA rulebook, or the member acting as the single 
underwriter, as applicable.
    \11\ As discussed below, proposed FINRA Rule 5141.01 defines the 
term ``reduced price'' for purposes of the proposed rule.
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    Proposed FINRA Rule 5141(a) further provides that, subject to the 
requirements of FINRA Rule 5130,\12\ a member of a selling syndicate or 
selling group, or a member that acts as the single underwriter, would 
be permitted to sell securities in the offering to an affiliated 
person, provided the member does not sell the securities to the 
affiliated person at a reduced price as set forth under proposed FINRA 
Rule 5141.01.\13\ The requirements of the proposed rule would apply 
until the termination of the offering or until a member, having made a 
bona fide public offering of the securities, is unable to continue 
selling such securities at the stated public offering price.\14\
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    \12\ FINRA Rule 5130 (former NASD Rule 2790) addresses 
restrictions on the purchase and sale of initial equity public 
offerings. The rule generally prohibits sales to and purchases by a 
broker-dealer and accounts in which a broker-dealer has a beneficial 
interest.
    \13\ The proposed rule change would eliminate the general 
prohibition on transactions with related persons as set forth in 
current NASD Rule 2750 (subject, as already discussed, to the 
requirements of FINRA Rule 5130). FINRA stated that it believes that 
the new, consolidated rule serves the core purpose of the fixed 
price offering rules because it prohibits the conferring of a 
reduced price on a person or account that is not a member of the 
selling syndicate or selling group or that is a person or account 
other than the single underwriter, regardless of whether they are an 
affiliated person. Accordingly, the new rule would render Rule 
2750's general prohibition on related person transactions redundant. 
See Section II.B infra.
    \14\ The proposed rule provides that, for purposes of the rule, 
securities in a fixed price offering would be presumed salable if 
the securities immediately trade in the secondary market at a price 
or prices which are above the stated public offering price. This is 
based in part on NASD Rule 2750(d), which provides among other 
things that a member or a related person of a member is ``presumed 
not to have made a bona fide public offering * * * if the securities 
being offered immediately trade in the secondary market at a price 
or prices which are at or above the public offering price.'' FINRA 
stated that it believes that the standard set forth in the proposed 
rule is clear and easily applied. See Section (F) under Item II.C in 
the Notice. FINRA noted that the proposed rule does not attempt to 
define ``bona fide public offering'' per se because the term ``bona 
fide'' speaks for itself and, as noted in current IM-2750, any such 
determination must rest on the basis of all relevant facts and 
circumstances.
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    Proposed FINRA Rule 5141(b) provides that nothing in the proposed 
rule would prohibit the purchase and sale of securities in a fixed 
price offering between members of the selling syndicate or selling 
group.\15\
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    \15\ FINRA stated that it believes that it serves the interest 
of regulatory clarity for the new, consolidated rule to provide that 
the rule does not prohibit this aspect of the underwriting process.
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    Proposed FINRA Rule 5141.01 defines the term ``reduced price.'' The 
proposed rule provides that, for purposes of the rule, ``reduced 
price'' includes, without limitation, any offer or grant of any selling 
concession, discount or other allowance, credit, rebate, reduction of 
any fee (including any advisory or service fee), any sale of products 
or services at prices below reasonable commercially available rates for 
similar products and services (except for research, which, as discussed 
below, is subject to proposed FINRA Rule 5141.02), or any purchase of 
or arrangement to purchase securities from the person or account at 
more than their fair market price in exchange for securities in the 
offering.\16\ FINRA noted that the proposed rule's approach of setting 
forth a definition for the term ``reduced price'' is new and is 
designed, like the current fixed price offering rules, to prohibit in 
comprehensive terms the direct or indirect offering of various economic 
equivalents of a price below the stated public offering price. For 
example, under the proposed definition of ``reduced price'' the 
practice of overtrading--addressed under current NASD Rule 2730 \17\--
would be prohibited. Similarly, under the proposed definition improper 
underwriting recapture--addressed under current NASD Rule 2740 \18\--
would also be prohibited.
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    \16\ The proposed rule defines ``fair market price'' to refer 
generally to a price or range of prices at which a buyer and a 
seller, each unrelated to the other, would purchase the securities 
in the ordinary course of business in transactions that are of 
similar size and similar characteristics and are independent of any 
other transaction. FINRA stated that it believes that this standard, 
based in part on current NASD Rule 2730(b)(2), is straightforward 
and easily applied. For further discussion, see Section (E) under 
Item II.C in the Notice. Similarly, FINRA stated that it believes 
that the standard ``reasonable commercially available rates for 
similar products and services''--new for purposes of the proposed 
rule--is clear and effective. Lastly, FINRA noted that the proposed 
definition of ``fair market price'' is solely for purposes of 
proposed FINRA Rule 5141 and is not intended to affect any other 
provisions with respect to pricing that are set forth in FINRA 
rules.
    \17\ When Rule 2730 was adopted in its current form--then 
designated as Section 8 of Article III of the Rules of Fair 
Practice--FINRA explained: ``An overtrade occurs when, as part of a 
swap, a dealer pays more for securities purchased from an 
institution than their fair market price. It also occurs if the 
member acting as agent charges less than a normal commission. In 
either event, the net effect of what the customer receives is a 
discount from the public offering price and is therefore 
prohibited.'' See Notice to Members 81-3.
    \18\ In Notice to Members 81-3, FINRA explained that Rule 2740, 
then designated as Section 24 of Article III of the Rules of Fair 
Practice, ``serves the twofold function of promoting the securities 
distribution process and assuring that the selling concession, 
discount or other allowance offered to professional broker/dealers 
to facilitate the distribution of securities to investors is given, 
consistent with the representations made to the public in 
prospectuses, only to persons who are entitled to it. Thus, the 
section prohibits the surreptitious and unfair discriminatory 
granting of a discount to select investors who are in a position to 
take advantage of various recapture devices.''
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    Proposed FINRA Rule 5141.02 is based generally on NASD Rules 
2740(a)(1) and (b) and IM-2740 and would preserve the allowance 
permitted under those rules with respect to research services. 
Specifically, the proposed rule provides that nothing in the new rule 
would prohibit a member or person associated with a member that 
participates in a selling syndicate or selling group, or that acts as 
the single underwriter, from selling securities in the offering to a 
person or account to which it has provided or will provide research, 
provided the person or account pays the stated public offering price 
for the securities and the research is provided pursuant to \19\ the 
requirements of Section 28(e) of the Act.\20\ The proposed rule would 
provide

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that, like current NASD Rule 2740(b) and IM-2740, investment management 
or investment discretionary services are not research. The proposed 
rule further requires that any product or service provided by a member 
or person associated with a member that does not qualify as research 
must not confer a reduced price as set forth in proposed FINRA Rule 
5141.01.
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    \19\ FINRA made a minor revision to proposed FINRA Rule 5141.02 
so as to clarify that research, in order to qualify under the 
proposed rule, must be provided pursuant to the cited provision of 
the Act. See Regulatory Notice 09-45 (Fixed Price Offerings) (August 
2009).
    \20\ FINRA noted their belief that proposed FINRA Rule 5141.02 
serves the interest of regulatory clarity by articulating the 
allowance for research in straightforward and streamlined fashion.
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    Proposed FINRA Rule 5141.03 is new and provides that transactions 
between a member of a selling syndicate or selling group, or between a 
single underwriter, and an affiliated person that are part of the 
normal and ordinary course of business and are unrelated to the sale or 
purchase of securities in a fixed price offering would not be deemed to 
confer a reduced price under the rule.\21\
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    \21\ FINRA believes that this provision is a useful 
clarification that would generally protect ordinary-course business 
transactions between members of a selling syndicate or selling 
group, or between a single underwriter, and affiliates from being 
deemed transactions that confer a reduced price (so long as such 
transactions are unrelated to the sale or purchase of securities in 
a fixed price offering). See Section (D) under Item II.C in the 
Notice.
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    Proposed FINRA Rule 5141.04 incorporates the current definition of 
``fixed price offering'' as set forth in current NASD Rule 0120(h) with 
only minor changes, primarily to reflect the new conventions of the 
Consolidated FINRA Rulebook.\22\
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    \22\ See note 5.
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    Lastly, proposed FINRA Rule 5141.05 is new and would clarify that a 
member that is an investment adviser may exempt securities that are 
purchased as part of a fixed price offering from the calculation of 
annual or periodic asset-based fees that the member charges a customer, 
provided the exemption is part of the member's normal and ordinary 
course of business with the customer and is not in connection with an 
offering.

B. Deletion of NASD Rules 2730, 2740, 2750 and 0120(h) and Associated 
IMs 2730, 2740 and 2750

    As noted above, proposed FINRA Rule 5141 is a new, consolidated 
rule that is based in part on, and replaces, the current fixed price 
offering rules (NASD Rules 2730, 2740, 2750 and 0120(h) and associated 
IMs 2730, 2740 and 2750). Following are the specific requirements set 
forth in the current fixed price offering rules that would be deleted 
as rendered redundant or obsolete by the new, consolidated rule:
1. NASD Rule 2730 and IM-2730
    NASD Rule 2730(a) generally prohibits overtrading by providing that 
a member engaged in a fixed price offering, who purchases or arranges 
the purchase of securities taken in trade, must purchase the securities 
at a fair market price at the time of purchase or act as agent in the 
sale of such securities and charge a normal commission. NASD Rule 
2730(b) defines the terms ``taken in trade,'' ``fair market price'' and 
``normal commission.'' NASD Rule 2730(c) sets forth certain criteria as 
to what constitutes the fair market price of securities taken in 
trade.\23\ FINRA proposed to delete NASD Rules 2730(a) through (c) and 
the corresponding provisions under IM-2730 because FINRA believed that 
proposed FINRA Rule 5141(a) and the definitions of ``reduced price'' 
and ``fair market price'' set forth in proposed FINRA Rule 5141.01 
would serve the purposes of the NASD provisions in more straightforward 
and streamlined fashion and accordingly render them obsolete.\24\
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    \23\ Corresponding interpretive material in the first paragraph 
of IM-2730 addresses in detail, for compliance purposes, a ``safe 
harbor'' for certain transactions in securities with respect to the 
fair market price requirements. Corresponding interpretive materials 
under ``Presumption of Noncompliance,'' ``No Presumptions'' and 
``Fair Market Price at the Time of Purchase,'' all under IM-2730, 
address additional fair market price-related criteria.
    \24\ See notes 16 and 17 and accompanying text.
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    NASD Rule 2730(d) addresses how bid and offer quotations for 
transactions subject to Rule 2730 must be obtained.\25\ FINRA proposed 
to delete NASD Rule 2730(d) and the corresponding provisions under IM-
2730 because FINRA believed that they are rendered obsolete in view of 
FINRA's proposed deletion of the other portions of NASD Rule 2730.
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    \25\ The quotations requirements set forth in NASD Rule 2730(d) 
are further elaborated by corresponding interpretive material under 
``Quotations'' under IM-2730.
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    NASD Rule 2730(e) imposes certain recordkeeping requirements. Among 
other things, the rule requires a member who purchases a security taken 
in trade to keep adequate records to demonstrate compliance with the 
rule and to preserve the records for at least 24 months after the 
transaction.\26\ FINRA proposed to delete NASD Rule 2730(e) and the 
corresponding provisions under IM-2730 because FINRA believed that they 
are rendered obsolete in light of FINRA's proposed deletion of the 
other portions of Rule 2730 and in light of members' supervisory and 
transactional recordkeeping obligations under FINRA and Commission 
rules.\27\
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    \26\ Corresponding interpretive material under ``Adequate 
Records'' under IM-2730 sets forth additional requirements with 
respect to recordkeeping.
    \27\ The Commission staff remind FINRA members of their 
recordkeeping obligations under Rules 17a-3 and 17a-4 under the Act.
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2. NASD Rule 2740 and IM-2740
    NASD Rule 2740(a) generally provides that in connection with a 
fixed price offering, selling concessions, discounts or other 
allowances may only be paid to brokers or dealers actually engaged in 
the investment banking or securities business and only as consideration 
for services rendered in distribution.\28\ Rule 2740(a)(1) provides 
that nothing in the rule prohibits a member from selling securities in 
a fixed price offering to any person or account to whom the member has 
provided, or will provide, bona fide research, if the purchaser pays 
the stated public offering price for the securities. Rule 2740(a)(2) 
provides that nothing in the rule prohibits a member from selling 
securities in a fixed price offering that the member owns to any person 
at any net price which may be fixed by the member unless prevented by 
agreement. FINRA proposed to delete NASD Rules 2740(a), (a)(1) and 
(a)(2) and the corresponding provisions under IM-2740 because FINRA 
believed that proposed FINRA Rules 5141(a), 5141.01 and 5141.02, in 
combination, achieve the purpose of the NASD provisions and accordingly 
render them obsolete.\29\
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    \28\ Corresponding interpretive material in the first four 
paragraphs of IM-2740 provide further elaboration of requirements 
with respect to the term ``services in distribution'' and related 
issues.
    \29\ See notes 10 and 18 and accompanying text.
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    NASD Rule 2740(b) defines ``bona fide research'' to mean advice, 
rendered either directly or through publications or writings, as to the 
value of securities, the advisability of investing in, purchasing, or 
selling securities, and the availability of securities or purchasers or 
sellers of securities, or analyses and reports concerning issuers, 
industries, securities, economic factors and trends, portfolio 
strategy, and performance of accounts.\30\ Rule 2740(b) and the 
interpretive material under ``Bona Fide Research Exclusion'' under IM-
2740 further provide that investment

[[Page 44036]]

management or investment discretionary services are not bona fide 
research. FINRA proposed to delete NASD Rule 2740(b) and the 
corresponding provisions under IM-2740 because FINRA believed that 
proposed FINRA Rule 5141.02 serves the purpose of the NASD provisions 
in more straightforward and streamlined fashion and accordingly renders 
them obsolete.\31\
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    \30\ Corresponding interpretive material under ``Bona Fide 
Research Exclusion'' under IM-2740 provides that the definition of 
``bona fide research'' is ``substantially the same'' as the 
definition of research that is set forth under Securities Exchange 
Act Section 28(e)(3), and incorporates by reference Commission 
guidance as to the circumstances when the exclusion for bona fide 
research is available. The ``Bona Fide Research Exclusion'' 
interpretive material further reiterates that investment management 
or investment discretionary services are not bona fide research. 
Additional corresponding interpretive material under ``Indirect 
Discounts'' under IM-2740 addresses products or services that fail 
to qualify as bona fide research.
    \31\ See notes 19 and 20 and accompanying text.
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    NASD Rule 2740(c) requires a member who grants a selling 
concession, discount or other allowance to another person to obtain a 
written agreement from that person that he or she will comply with Rule 
2740. If a member grants a selling concession, discount or other 
allowance to a non-member broker or dealer in a foreign country, the 
rule requires that the member must obtain from that non-member an 
agreement that it will comply with NASD Rules 2730 and 2750 (in 
addition to Rule 2740) as if the non-member were a member, and that the 
non-member will comply with NASD Rule 2420 as that rule applies to a 
non-member broker-dealer in a foreign country. FINRA proposed to delete 
NASD Rule 2740(c) because FINRA believed that it is sufficient to apply 
the requirements of the new, consolidated rule to FINRA members. The 
relationships between foreign non-members and their customers are 
beyond the scope of the proposed rule change.\32\ FINRA noted that the 
requirements of proposed FINRA Rule 5141 would apply to members--and 
would reach any reduced prices that members offer or grant to non-
members--regardless of whether agreements to comply with rules are 
obtained.\33\
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    \32\ Underwriting terms in foreign jurisdictions vary 
considerably, as do applicable regulatory requirements.
    \33\ For further discussion see Section (G) under Item II.C in 
the Notice. FINRA notes that NASD Rule 2420 is being addressed 
separately as part of the rulebook consolidation process. See 
Regulatory Notice 09-69 (FINRA Requests Comment on Proposed 
Consolidated FINRA Rule Governing Payments to Unregistered Persons) 
(December 2009).
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    NASD Rule 2740(d) requires a member that receives an order from any 
person designating another broker or dealer to receive credit for the 
sale to file reports with FINRA within thirty days after the end of 
each calendar quarter with respect to each fixed price offering that 
terminated during the quarter. The rule further specifies certain 
information the reports must contain. NASD Rule 2740(e) requires a 
member that is designated by its customer for the sale of securities to 
keep and maintain for twenty-four months records of information similar 
to that set forth in NASD Rule 2740(d). FINRA proposed to delete NASD 
Rules 2740(d) and (e) because FINRA believed that they are rendered 
obsolete in light of the proposed deletion of the other portions of 
NASD Rule 2740 and in light of members' supervisory and transactional 
recordkeeping obligations under FINRA and Commission rules.\34\ 
Further, FINRA noted that its regulatory programs in connection with 
the proposed rule change will not require specific quarterly filings 
such as those currently required pursuant to NASD Rule 2740(d).
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    \34\ The Commission staff again remind FINRA members of their 
recordkeeping obligations under Rules 17a-3 and 17a-4 under the Act.
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3. NASD Rule 2750 and IM-2750
    NASD Rule 2750(a) provides that no member engaged in a fixed price 
offering of securities is permitted to sell the securities to, or place 
the securities with, any person or account which is a related person of 
the member, unless the related person is itself subject to the rule or 
is a non-member broker-dealer that has entered into the agreements 
required under Rule 2740(c). NASD Rules 2750(b) and (c) address 
criteria pertaining to the term ``related person.'' As discussed 
earlier, the proposed rule change would eliminate the prohibitions 
under Rule 2750(a), which FINRA believes would be redundant in light of 
the proposed rule's overall protections against the conferring of a 
reduced price.\35\ Accordingly, FINRA proposed to delete NASD Rule 
2750(a), as well as Rules 2750(b) and (c), as FINRA believed that the 
criteria pertaining to the term ``related person'' would be rendered 
obsolete.
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    \35\ See note 13 and accompanying text.
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    NASD Rule 2750(d) provides that the rule's prohibitions do not 
apply to the sale or placement of securities in a trading or investment 
account of a member or a related person of a member after the 
termination of the fixed price offering if the member or related person 
has made a bona fide public offering of the securities.\36\ FINRA 
proposed to delete NASD Rule 2750(d) and the corresponding provisions 
under IM-2750 because FINRA believed that the provisions are obsolete 
in light of the proposed deletion of the other portions of Rule 2750.
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    \36\ NASD Rule 2750(d) and corresponding interpretive material 
in the second paragraph under IM-2750 further set forth certain 
provisions with respect to bona fide public offerings. See note 13 
and accompanying text.
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    The first paragraph of IM-2750 addresses certain conditions under 
which a member that acts or plans to act as a sponsor of a unit 
investment trust is deemed not to violate Rule 2750. FINRA proposed to 
delete the IM provisions because FINRA believed that they are obsolete 
in light of the proposed deletion of the other portions of NASD Rule 
2750.
    Lastly, as noted earlier in this filing, the proposed rule change 
would incorporate the definition of ``fixed price offering'' set forth 
in current NASD Rule 0120(h) into the proposed rule in substantially 
identical form.\37\ Accordingly, NASD Rule 0120(h) would be deleted.
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    \37\ See note 5.
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no later than 90 days following 
Commission approval. The effective date will be no later than 180 days 
following publication of the Regulatory Notice announcing Commission 
approval.

III. Discussion and 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 that are applicable to a national securities 
association.\38\ In particular, the Commission believes that the 
proposed rule change is consistent with the provisions of Section 
15A(b)(6) of the Act,\39\ which requires, among other things, that 
FINRA rules 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 Commission 
believes that the proposed rule change will streamline and reorganize 
the existing rules and protect the integrity of fixed price offerings 
by ensuring that securities in such offerings are sold to the public at 
the stated public offering price or prices, thereby preventing an 
undisclosed better price.
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    \38\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \39\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\40\ that the proposed rule change (File No. SR-FINRA-2010-029) be, 
and hereby is, approved.\41\
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    \40\ 15 U.S.C. 78s(b)(2).
    \41\ 17 CFR 200.30-3(a)(12).


[[Page 44037]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18301 Filed 7-26-10; 8:45 am]
BILLING CODE 8010-01-P

