
[Federal Register Volume 76, Number 148 (Tuesday, August 2, 2011)]
[Notices]
[Pages 46340-46346]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64969; File No. SR-FINRA-2009-028]


 Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Amendment No. 1 to Proposed Rule 
Change To Adopt FINRA Rule 2231 (Customer Account Statements) in the 
Consolidated FINRA Rulebook

July 26, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``SEA'') \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. The proposed rule 
change was published for comment in the Federal Register on May 21, 
2009.\3\ On July 12, 2011, FINRA filed Amendment No. 1 to the proposed 
rule change, which addresses the comments and proposes responsive 
amendments. Amendment No. 1 is 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 Amendment No. 1 to 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-2009-028 responds to comments 
received on the original proposed rule change and proposes 
amendments to the original rule change pursuant to the comments. See 
Securities Exchange Act Release No. 59921 (May 14, 2009), 74 FR 
23912 (May 21, 2009) (``Notice'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing this Amendment No. 1 to SR-FINRA-2009-028, a 
proposed rule change to adopt NASD Rule 2340 (Customer Account 
Statements) as FINRA Rule 2231 in the consolidated FINRA rulebook with 
moderate changes. The proposed rule change would delete Incorporated 
NYSE Rule 409 (Statements of Accounts of Customers), except for 
paragraph (f),\4\ and certain of its related interpretations. FINRA 
filed SR-FINRA-2009-028 with the Commission on April 22, 2009. On May 
21, 2009, the Commission published the proposed rule change for comment 
in the Federal Register \5\ and received 12 comment letters.\6\ Based 
on the comments received, FINRA is filing this Amendment No. 1 to 
respond to the comments received and to propose amendments, where 
appropriate. FINRA requests that the Commission publish Amendment No. 1 
in the Federal Register to allow interested parties the ability to 
comment on changes made to the proposal in light of comments.
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    \4\ The SEC approved the deletion of Incorporated NYSE Rule 
409(f) in connection with the adoption of FINRA Rule 2232 (Customer 
Confirmations). See Securities Exchange Act Release No. 63150 
(October 21, 2010); 75 FR 66173 (October 27, 2010) (Order Granting 
Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1, To Adopt FINRA Rule 2232 (Customer Confirmations) 
in the Consolidated FINRA Rulebook and To Delete NASD Rule 2230, 
NASD IM-2110-6 and Incorporated NYSE Rule 409(f)). The rule change 
became effective on June 17, 2011. See Regulatory Notice 10-62 
(December 2010).
    \5\ See Securities Exchange Act Release No. 59921 (May 19, 
2009), 75 FR 23912 (May 21, 2009) (``Proposing Release''). The 
comment period closed on June 11, 2009.
    \6\ Letter from Gene Woodham, Chief Operating Officer, Sterne 
Agee Group, Inc., dated June 9, 2009 (``Sterne Agee Letter''); 
letter from Tamara K. Salmon, Senior Associate Counsel, Investment 
Company Institute, dated June 10, 2009 (``ICI Letter''); letter from 
Jesse Hill, Director of Regulatory Services, Edward Jones, dated 
June 10, 2009 (``Edward Jones Letter''); letter from Dale E. Brown, 
President & CEO, Financial Services Institute, Inc., dated June 11, 
2009 (``FSI Letter''); letter from Sean C. Davy, Managing Director, 
Corporate Credit Markets Division, Securities Industry and Financial 
Markets Association (SIFMA), New York, New York, dated June 11, 2009 
(``SIFMA Letter''); letter from David J. Pearlman, Chair, Regulatory 
Affairs Committee, College Savings Foundation, dated June 11, 2009 
(``College Savings Foundation Letter''); letter from John S. Markle, 
Deputy General Counsel, Regulatory Operations, TD AMERITRADE Holding 
Corporation, dated June 11, 2009 (``TD Ameritrade Letter''); letter 
from Bari Havlik, Chief Compliance Officer, Senior Vice President, 
Charles Schwab & Co., Inc., dated June 11, 2009 (``Schwab Letter); 
letter from John Muschalek, Managing Director, Clearing Services 
Division, First Southwest Company, dated June 11, 2009 (``First 
Southwest Company Letter''); letter from Jonathan Feigelson, SVP, 
General Counsel, TIAA-CREF, New York, New York, dated June 11, 2009 
(``TIAA-CREF June Letter''); letter from Sutherland Asbill & Brennan 
LLP on behalf of the Committee of Annuity Insurers, dated June 11, 
2009 (``Sutherland Asbill & Brennan Letter''); and letter from 
Jonathan Feigelson, SVP, General Counsel, TIAA-CREF, New York, New 
York, dated June 13, 2009 (``TIAA-CREF July Letter'').
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    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.

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

[[Page 46341]]

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 
(``Consolidated FINRA Rulebook''),\7\ FINRA is proposing to adopt NASD 
Rule 2340 (Customer Account Statements) as FINRA Rule 2231 in the 
Consolidated FINRA Rulebook with moderate changes. The proposed rule 
change would delete: (1) Incorporated NYSE Rule 409 (Statements of 
Accounts of Customers), except for paragraph (f); \8\ and (2) 
Incorporated NYSE Rule Interpretations 409(a) and 409(b), except for 
paragraphs 409(a)/01 and 409(a)/03, as such 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 Incorporated NYSE Rule 409 and its 
interpretations into new FINRA Rule 2231.
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    \7\ 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).
    \8\ See supra note 4.
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Rule Filing History
    On April 22, 2009, FINRA filed with the Commission SR-FINRA-2009-
028, a proposed rule change to adopt FINRA Rule 2231 (Customer Account 
Statements) in the Consolidated FINRA Rulebook. The proposed rule 
change would require each general securities member to send account 
statements at least once each calendar month to each customer whose 
account had account activity during the period since the last statement 
was sent to the customer, subject to certain new exceptions proposed in 
this Amendment No. 1; and 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. The 
proposed rule change would also continue the exception (subject to 
specified conditions) for customer accounts carried solely for the 
purpose of execution on a delivery versus payment/receive versus 
payment (DVP/RVP) basis.
    On May 21, 2009, the SEC published the proposed rule change for 
comment in the Federal Register \9\ and received 12 comment 
letters.\10\ Based on the comments received, FINRA is filing this 
Amendment No. 1 to respond to the comments received and to propose 
amendments, where appropriate.
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    \9\ See supra note 5.
    \10\ See supra note 6.
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    FINRA requests that the Commission publish Amendment No. 1 in the 
Federal Register to allow interested parties the ability to comment on 
changes made to the proposal in light of comments.
Proposed Changes in Amendment No. 1
    In light of the comments, FINRA is proposing to exclude certain 
account activities from the proposed monthly account statement delivery 
requirement by adding new paragraph (c) to proposed FINRA Rule 2231. 
Proposed paragraph (c) of FINRA Rule 2231 would expressly exclude 
certain account activities from the monthly account statement delivery 
requirement. These activities would continue to require delivery of 
quarterly account statements, subject to new proposed Supplementary 
Material .01 (Compliance with SEA Rule 10b-10) that provides a general 
reminder that members remain subject to any conditions or requirements 
specified in any release, interpretation, ``no-action'' position or 
exemption issued by the SEC or its staff in the context of SEA Rule 
10b-10 (Confirmation of Transactions) that a member may rely on for 
relief from certain delivery obligations of trade confirmations as 
specified in such rule (e.g., the manner and frequency of delivering 
periodic account statements in lieu of immediate trade confirmations) 
and FINRA Rule 2231 is not intended to alter any such conditions or 
requirements. FINRA also is proposing to amend proposed Supplementary 
Material .02 (Transmission of Customer Account Statements to Other 
Persons or Entities) \11\ to: (1) Clarify that members are not required 
to obtain prior written consent to send duplicate account statements or 
other communications for accounts of associated persons of another 
member to such other member in complying with NASD Rule 3050 and 
Incorporated NYSE Rule 407; \12\ (2) clarify (consistent with any SEC 
release, interpretation, ``no-action'' position or exemption issued by 
the SEC or its staff in the context of SEA Rule 10b-10 that have 
established the policy that customers should continue to receive 
periodic account statements when not receiving immediate trade 
confirmations under SEA Rule 10b-10) that members must continue to 
deliver customer account statements to customers as provided in the 
proposed rule even when directed by the customer in writing to send 
duplicates to a third party; \13\ and (3) delete the term 
``confirmation,'' from the proposed rule text as delivery requirements 
for confirmations are governed by SEA Rule 10b-10 and FINRA Rule 
2232.\14\
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    \11\ FINRA is proposing to add new Supplementary Material .01 
(Compliance with SEA Rule 10b-10) as part of this Amendment No. 1 
and has therefore renumbered the other proposed Supplementary 
Material items.
    \12\ FINRA is proposing to adopt FINRA Rule 3210 (Personal 
Securities Transactions for or by Associated Persons), which 
combines and streamlines certain provisions of NASD Rule 3050 and 
Incorporated NYSE Rule 407. See Regulatory Notice 09-22 (April 
2009).
    \13\ See Securities Exchange Act Release No. 34962 (November 10, 
1994); 59 FR 59612 (November 17, 1994) (Confirmation of 
Transactions).
    \14\ See supra note 4.
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Comments to the Proposed Rule Change
    The commenters express general support for the proposed rule 
change, but have concerns with certain aspects of the proposed rule. 
Most commenters believe the proposal is too broad. Specifically, most 
of the comments focus on the following two issues: (1) The proposal to 
change the delivery requirement for customer account statements from 
quarterly to monthly; and (2) the proposal's potential conflict with 
SEA Rule 10b-10 and related guidance. Commenters also raised concerns 
regarding the general utility of customer account statements, potential 
environmental impact, availability of alternatives, need for written 
customer consent to transmit customer account statements to third 
parties, clarification of provisions requiring display of the identity 
of clearing firms and other issues. In addition, several commenters 
requested sufficient time to comply with the proposal if it is 
approved. FINRA discusses its responses to these comments below.
a. General
    Three commenters questioned the value of customer account 
statements generally and stated that the significance of customer 
account statements has diminished in recent

[[Page 46342]]

years.\15\ Several commenters argue that customer account statements 
are outdated the day after they are generated and customers now 
routinely use other up-to-date mediums to review current account 
activities such as on-line account access, automated phone systems and 
call centers.\16\ In addition, several commenters expressed concern 
that customer account statements are less effective at helping 
customers' spot errors, identify theft or other potential problems than 
these more timely alternatives.\17\ One commenter urged FINRA to 
encourage firms to include disclosure on customer account statements 
apprising customers of available alternatives for obtaining the most 
current information.\18\ FINRA, however, disagrees with the notion that 
customer account statements have little or limited utility. FINRA 
believes that customer account statements continue to serve a 
significant regulatory purpose and that customers benefit from the 
receipt of periodic customer account statements.
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    \15\ See SIFMA Letter, TIAA-CREF June Letter and Schwab Letter.
    \16\ See TD Ameritrade Letter, TIAA-CREF June Letter and First 
Southwest Company Letter.
    \17\ See FSI Letter, TIAA-CREF June Letter and First Southwest 
Company Letter.
    \18\ See TIAA-CREF June Letter.
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    Several commenters also raised concerns regarding the environmental 
impact of the proposal.\19\ One commenter estimates the proposal will 
generate 60 million additional pages each year. The commenter estimates 
that this would be the equivalent of 7,200 trees or 300 tons of paper 
annually--almost a half of it destined for landfills.\20\ While FINRA 
is mindful of the potential impact of its rulemaking on the environment 
and related burdens on its members, FINRA believes customer account 
statements serve a significant purpose in protecting customers and 
enhancing the overall integrity of the securities market. Moreover, 
consistent with current guidance, FINRA is proposing to adopt 
Supplementary Material .03 (Use of Electronic Media to Satisfy Delivery 
Obligations) which allows a firm to provide electronic delivery of 
customer statements upon affirmative consent of the customer.\21\
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    \19\ See TIAA-CREF June Letter and First Southwest Company 
Letter.
    \20\ See TIAA-CREF June Letter.
    \21\ SEC guidance to date on the use of electronic media 
continues to require the affirmative consent of the investor/
customer, and FINRA believes such consent should be required for 
electronic delivery of customer account statements. See Notice to 
Members 98-3 (January 1998). See also Securities Exchange Act 
Release No. 42728 (April 28, 2000); 65 FR 25843 (May 4, 2000).
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b. Proposed Monthly Account Statement Delivery Requirement
1. Monthly Delivery Is Not Industry Standard
    As set forth in the Proposing Release, paragraph (a) of the 
proposed rule would impose a new requirement that each general 
securities member firm send a customer account statement not less than 
once every calendar month to each customer whose account had account 
activity during the period since the last statement, and continue to 
require that such firms send customer account statements not less than 
once every calendar quarter to each customer whose account had a 
security position or money balance during the period since the last 
statement. All 12 commenters objected to the scope of the proposed 
monthly delivery requirement.\22\
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    \22\ See supra note 6.
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    Several commenters state that current industry practice continues 
to be providing customers with account statements on a quarterly-basis, 
not monthly.\23\ They contend that FINRA offers little support for the 
statement that requiring monthly account statements for customer 
accounts with account activity ``better reflects current industry 
practice.'' \24\ Another commenter notes that quarterly reporting is 
the retirement plan industry legal standard and monthly reporting would 
be at odds with other rules governing the retirement plan industry, 
including laws enacted by Congress.\25\
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    \23\ See TIAA-CREF July Letter, SIFMA Letter, TD Ameritrade 
Letter, FSI Letter and Schwab Letter and Sutherland Asbill & Brennan 
Letter.
    \24\ Id.
    \25\ See TIAA-CREF June Letter.
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    Another commenter notes that although a majority of its customers 
already receive monthly account statements, some customers have 
expressed a desire to receive them quarterly and mandatory monthly 
delivery would be costly.\26\ Several commenters project that the cost 
to comply with the new requirement, e.g., to produce, print, stuff and 
mail additional statements, plus train personnel, would be in the 
millions.\27\ One commenter argues that ``[s]caling up the member's 
compliance systems, training programs, personnel, policies and 
procedures, and acquiring the resources necessary for such an 
undertaking, would impose immense administrative costs and burdens on 
these firms, and ultimately result in the imposition of increased costs 
on customers.'' \28\ Commenters state that the practical benefits 
received by investors from monthly statements versus quarterly 
statements are substantially disproportionate to the inherent cost 
under a cost benefit analysis.\29\
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    \26\ See Schwab Letter.
    \27\ TD Ameritrade estimates the new requirement will increase 
costs by $4-$7 million annually and by tens of millions or more 
across the industry. TIAA-CREF estimates that the move to monthly 
statements will cost an additional $16 million in printing and 
postage expenses per year, which would be passed on to customers. 
Edward Jones estimates the cost of monthly account statements in 
2009 would have been $1.5 million.
    \28\ See Sutherland Asbill & Brennan LLP Letter.
    \29\ See Sterne Agee Letter, ICI Letter, Edward Jones Letter, 
FSI Letter, SIFMA Letter, TD Ameritrade Letter, Schwab Letter, First 
Southwest Company Letter, TIAA-CREF June Letter, Sutherland Asbill & 
Brennan Letter and TIAA-CREF July Letter.
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    One commenter further contends that the proposed move to monthly 
account statement delivery requirements contradicts the 2008 Rand Study 
and recent efforts by the SEC to streamline disclosures to investors to 
make them more user-friendly and readable.\30\ Another commenter 
suggests that customers should be permitted to affirmatively elect 
quarterly delivery of customer account statements with the right to 
revert to monthly delivery anytime they choose.\31\ Another commenter 
recommends that firms be able to condition the customer's right to 
receive monthly statements upon consent to electronic delivery.\32\
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    \30\ See FSI Letter.
    \31\ See Schwab Letter.
    \32\ See TIAA-CREF June Letter.
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    In light of the comments, FINRA is proposing to exclude certain 
account activities from the proposed monthly account statement delivery 
requirement. FINRA believes the proposed exclusions (outlined in detail 
below) strike the correct balance between investor protection and the 
concerns raised by the commenters.
2. Monthly Delivery Is Inconsistent With SEA Section 15A
    One commenter asserts that the monthly statement requirement is 
inconsistent with the statutory requirements of Sections 6 and 15A of 
the SEA and therefore the proposal should not be approved by the 
SEC.\33\ The commenter contends that FINRA's statement on burden on 
competition in the rule filing is cursory and falls short of satisfying 
the instructions in Form 19b-4 to provide detailed and specific 
statements.
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    \33\ See TIAA-CREF July Letter. FINRA notes that is not a 
``national securities exchange'' and therefore is not subject to the 
requirements of Section 6 of the SEA.
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    FINRA has complied with all rulemaking obligations imposed by the 
SEA. As required under Section 19(b)(1)

[[Page 46343]]

of the SEA, FINRA submitted to the SEC a concise general statement of 
the basis and purpose of the proposed rule. As stated in its rule 
filing, 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. In addition, as also 
stated in the rule filing, the proposed rule change does not create ``a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the SEA].'' \34\ Further, FINRA tailors its proposed 
rule changes as narrowly as possible to achieve the intended and 
necessary regulatory benefit. In this regard, FINRA notes that, as 
further detailed below, in response to commenters' concerns, it is 
proposing to exclude certain account activities from the proposed 
monthly account statement delivery requirement.
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    \34\ See 15 U.S.C. 78o-3(b)(9).
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3. Monthly Delivery Creates Potential Conflict With SEA Rule 10b-10
    All commenters contend that the adoption of a monthly delivery 
requirement for customer account statements would cause the proposed 
rule change to conflict with SEA Rule 10b-10 (Confirmation of 
Transactions) and its related interpretations and guidance.\35\
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    \35\ See supra note 6.
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    Several commenters note that SEA Rule 10b-10 generally requires 
that at, or before, the completion of a securities transaction for a 
customer, a broker-dealer must deliver to the customer written 
notification (a ``confirmation'') that contains certain prescribed 
information about the transaction.\36\ Commenters assert that the more 
immediate nature of transaction confirmations makes them a very 
effective tool for customers for identifying discrepancies in a 
customer's account related to erroneous transactions, identity theft, 
or other potential problems.\37\
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    \36\ See Schwab Letter and SIFMA Letter.
    \37\ See Sutherland Asbill & Brennan Letter.
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    All commenters also emphasize that the Commission, through SEA Rule 
10b-10(b), rule interpretations, no-action guidance and exemptive 
relief, has considered the disclosures appropriate for certain types of 
transactions, balanced risks to investor protection against cost 
savings for broker-dealers, and determined that it is unnecessary for 
broker-dealers to send confirmations of certain transactions if certain 
information regarding the transactions is disclosed in a quarterly 
statement.\38\ The commenters state that these transactions include, 
but are not limited to, transactions effected pursuant to a ``periodic 
plan'' or ``investment company plan,'' the automatic reinvestment of 
dividends in the shares of money market funds, other open-end 
investment companies and unit investment trusts and transactions in 
certain sorts of ``wrap fee'' or ``payroll deduction'' 
arrangements.\39\
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    \38\ See supra note 6.
    \39\ See SIFMA Letter.
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    In light of the comments, as further detailed below, FINRA is 
proposing to add new paragraph (c) to exclude certain account 
activities from the proposed monthly account statement delivery 
requirement.\40\
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    \40\ In proposing the exceptions in new paragraph (c), FINRA 
reminds firms that they remain subject to any conditions or 
requirements specified in any release, interpretation, ``no-action'' 
position or exemption issued by the SEC or its staff in the context 
of SEA Rule 10b-10 that a firm may rely on for relief from certain 
delivery obligations of trade confirmations as specified in such 
rule (e.g., the manner and frequency of delivering periodic account 
statements in lieu of immediate trade confirmations) and proposed 
FINRA Rule 2231 is not intended to alter any such conditions or 
requirements. See proposed FINRA Rule 2231.01.
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4. Monthly Delivery Creates Potential Conflict With ERISA and Rules 
Relating to Retirement Plans and MSRB Rules Relating to 529 College 
Savings Plans
    Two commenters are concerned that the proposed monthly delivery 
requirement for customer account statements will conflict with current 
quarterly reporting standards in the retirement plan industry.\41\ The 
commenters note that multiple service providers, including broker-
dealers, banks and trust companies, offer services to retirement plan 
participants. These parties are subject to SEA Rule 10b-10, Section 105 
of the Employee Retirement Income Securities Act of 1974, as amended 
(``ERISA''), and applicable banking regulations. The commenters state 
that these various regulations recognize quarterly statements and 
changing the requirement for broker-dealers would add confusion and 
place broker-dealers at a competitive disadvantage with few, if any, 
benefits.
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    \41\ See TIAA-CREF June Letter and ICI Letter.
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    Similarly, another commenter is concerned that the proposed monthly 
delivery requirement is at odds with Rule G-15 of the Municipal 
Securities Rulemaking Board (``MSRB''), which permits that confirmation 
of transaction in college savings plan transactions may be done on a 
quarterly basis provided that they are part of a regular investment 
program meeting the definition of ``periodic municipal fund security 
plan'' under the applicable MSRB Rules.\42\ The commenter states the 
proposed rule would create an anomaly because a broker-dealer would be 
required to provide a monthly statement under FINRA Rules, but would be 
permitted under MSRB Rules to provide a quarterly statement. Moreover, 
they argue that such periodic activity does not seem to be the sort 
that would lend itself to account security issues and/or identity theft 
concerns. FINRA notes that nothing in this rule proposal is intended to 
alter the balance of jurisdiction between FINRA and the MSRB and the 
continued application of MSRB Rules to municipal fund securities. 
Further, FINRA believes that proposed paragraph (c) that establishes 
exceptions from the proposed monthly delivery requirement would 
generally make the proposed rule consistent with the frequency of 
delivery requirements in MSRB Rule G-15.\43\
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    \42\ See College Savings Foundation Letter.
    \43\ See MSRB Rule G-15(a) (Confirmation, Clearance, Settlement 
and Other Uniform Practice Requirements with Respect to Transactions 
with Customers), which provides in relevant part that ``such broker, 
dealer or municipal securities dealer gives or sends to such 
customer within five business days after the end of each quarterly 
period, in the case of a customer participating in a periodic 
municipal fund security plan, or each monthly period, in the case of 
a customer participating in a non-periodic municipal fund security 
program, a written statement disclosing * * *.''
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5. Carve-Outs From Monthly Delivery Recommended by Commenters
    Several commenters recommend that FINRA should permit quarterly 
account reporting where the only activity in the customer's account 
consists of (A) certain types of routine activity that does not involve 
the active participation of the customer (``Passive Activity''); (B) 
activity that the Commission has determined need only be reported on 
quarterly account statements rather than in Rule 10b-10 transaction 
confirmations (``10b-10 Exempt Activity''); and (C) occasional 
transactions in retirement accounts for which an immediate confirmation 
is sent to the customer when the predominant activities in such account 
are either Passive Activity or 10b-10 Exempt Activity.\44\ In addition, 
one commenter notes that similar activity with respect to ERISA plans 
should be exempted as well from the monthly delivery requirements.\45\ 
The commenters note that the activities described above are generally 
routine

[[Page 46344]]

and recurring activities in a customer's account that are better suited 
to quarterly reporting. In addition, they state that these routine and 
regular activities in a customer's account are of the type that 
typically do not raise fraud and/or identity theft concerns.\46\
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    \44\ See SIFMA Letter, FSI Letter, Sutherland Asbill & Brennan 
Letter and TIAA-CREF June Letter.
    \45\ See TIAA-CREF June Letter.
    \46\ See supra note 44.
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6. FINRA Response to Monthly Delivery Comments
    In response to the comments raised, FINRA is proposing to add new 
paragraph (c) to proposed FINRA Rule 2231. Proposed paragraph (c) would 
expressly exclude certain account activities from the monthly account 
statement delivery requirement. These activities would continue to 
require delivery of quarterly account statements, subject to new 
proposed Supplementary Material .01 (Compliance with SEA Rule 10b-10) 
that provides a general reminder that members remain subject to any 
conditions or requirements specified in any release, interpretation, 
``no-action'' position or exemption issued by the SEC or its staff in 
the context of SEA Rule 10b-10 (Confirmation of Transactions) that a 
member may rely on for relief from certain delivery obligations of 
trade confirmations as specified in such rule (e.g., the manner and 
frequency of delivering periodic account statements in lieu of 
immediate trade confirmations) and FINRA Rule 2231 is not intended to 
alter any such conditions or requirements.
    Specifically, subject to proposed Supplementary Material .01, a 
member could send quarterly account statements to customers instead of 
monthly account statements pursuant to paragraph (a) of the proposed 
rule if:
    (1) The member relies on an appropriate rule, regulation, release, 
interpretation, ``no-action'' position or exemption issued by the SEC 
or its staff that (A) specifically applies to the fact situation of the 
activity; (B) provides relief from the immediate transaction 
confirmation delivery requirements of SEA Rule 10b-10; and (C) permits 
quarterly delivery of customer account statements; or
    (2) The activity to the account consists only of the kind listed 
below:
    (A) the receipt of funds in the account that are not directly from 
a purchase or sale transaction, including the receipt of interest and 
dividends;
    (B) the automatic reinvestment of funds in the account pursuant to 
and in accordance with a customer's standing instructions (e.g., a 
dividend reinvestment plan);
    (C) the transfer of uninvested customer credit balances into or out 
of money market mutual funds or bank deposits pursuant to a ``sweep 
program'' pursuant to consent of the customer and implemented 
consistent with applicable regulatory guidance, except where the 
customer's balance in the bank deposit ``sweep program'' during the 
period exceeds the amount insured by the FDIC coverage;
    (D) all fees and charges to the account that have been fully 
disclosed to the customer and comply with all disclosure and applicable 
regulatory requirements (e.g., account fees, short position charges, 
interest on debit balances or charges for dividends on securities held 
short in the account).
    (3) A member may rely on an exclusion under this paragraph (c) only 
if customers are provided access to current information on their 
accounts via the Internet and by telephone.
    FINRA believes the proposed exclusions for these types of account 
activities are appropriate as they strike the correct balance between 
investor protection and the concerns raised by the commenters.
c. Proposed Supplementary Material .02 (Transmission of Customer 
Account Statements to Other Persons or Entities)
    Proposed Supplementary Material .02 would require written 
instructions from the customer to address and/or send customer 
statements or other communications relating to the customer's account 
to other persons or entities. One commenter contends that this 
requirement would conflict with Incorporated NYSE Rule 407 and NASD 
Rule 3050.\47\ As further detailed therein, these rules generally 
address the obligation of a member carrying an account in which an 
associated person of another member has an interest to send duplicate 
confirmations and accounts statements to such other member. The 
commenter seeks clarification that members are not required to obtain 
the written consent of the customer before sending duplicate 
statements, confirmations or other communications pursuant to NYSE Rule 
407 or NASD Rule 3050. FINRA agrees that compliance with such rules 
should not be deemed a violation of this provision and is proposing to 
revise the proposed rule text to make this clear.
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    \47\ See SIFMA Letter. See also supra note 12.
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    Two commenters assert that the proposed rule should allow a 
customer's oral consent to be sufficient to send a duplicate account 
statement, confirmation, or other communication, provided that the 
customer also receives such account statement, confirmation or other 
communication and the member relying on such oral consent lists on the 
customer's (quarterly or monthly) account statement the names of any 
other persons to whom duplicate communications are being sent.\48\ One 
of these commenters notes that firms are permitted to accept oral 
instructions for a variety of customer transactions and contends that 
customers should be afforded the same level of convenience in this 
regard so long as the firm has adequate controls in place.\49\ FINRA 
does not believe that oral instructions are sufficient in this context. 
Due to several concerns (e.g., identify theft, privacy concerns, etc.), 
FINRA believes firms must be able to document and record customer 
consent to send customer account statements to third-parties. FINRA has 
permitted firms to act on oral instructions from customers in other 
contexts (e.g., trading instructions) largely to allow customer and 
firms to act expeditiously to execute securities transactions that are 
time-sensitive in nature. However, the delivery of customer account 
statements presents no such concerns and therefore should require 
written customer consent.
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    \48\ See SIFMA Letter and Schwab Letter.
    \49\ See Schwab Letter.
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    Accordingly, in response to comments, FINRA is proposing to amend 
proposed Supplementary Material .02 to: (1) Clarify that members are 
not required to obtain prior written consent to send duplicate account 
statements or other communications for accounts of associated persons 
of another member to such other member in complying with NASD Rule 3050 
and Incorporated NYSE Rule 407; (2) clarify (consistent with any SEC 
release, interpretation, ``no-action'' position or exemption issued by 
the SEC or its staff in the context of SEA Rule 10b-10 that have 
established the policy that customers should continue to receive 
periodic account statements when not receiving immediate trade 
confirmations under SEA Rule 10b-10) that members must continue to 
deliver customer account statements to customers as provided in the 
proposed Rule even when directed by the customer in writing to send 
duplicates to a third party;\50\ and (3) delete the term 
``confirmation,'' from the proposed rule text as delivery requirements 
for confirmations are governed by SEA Rule 10b-10 and FINRA Rule 
2232.\51\
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    \50\ See supra note 13.
    \51\ See supra note 4.

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[[Page 46345]]

d. Proposed Supplementary Material .03 (Use of Electronic Media To 
Satisfy Delivery Obligations)
    One commenter urges FINRA to adopt electronic delivery of customer 
account statements as the default delivery mechanism.\52\ The commenter 
argues that electronic delivery provides more timely information to 
customers and a cost savings to firms. However, another commenter is 
concerned that requiring individual customers to affirmatively opt for 
electronic delivery will act to negate these benefits, but notes that 
further use of electronic delivery methods raises larger issues that 
FINRA should consider on a more global basis, rather than solely in the 
context of periodic customer account statements.\53\ FINRA believes 
that proposed Supplementary Material .03 is consistent with current SEC 
guidance on the use of electronic media which, among other things, 
requires affirmative consent of the customer for electronic delivery of 
certain documents.\54\
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    \52\ See TIAA-CREF June Letter.
    \53\ See Sutherland Asbill & Brennan Letter.
    \54\ See supra note 21.
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e. Proposed Supplementary Material .04 (Information To Be Disclosed on 
Statement)
    One commenter seeks clarification of the requirements in paragraphs 
(a) and (b) and contends that the requirements are in conflict.\55\ 
Proposed paragraph (a) requires disclosure of the identity of the 
introducing firm and the clearing firm, if different, and their 
respective contact information on the front of the statement, but 
allows the identity and contact information of the clearing firm to be 
appear on the back of the statement so long as it is bold and 
prominent. Proposed paragraph (b) requires that the front of the 
statement must clearly disclose that the clearing firm is a member of 
SIPC. FINRA believes the two provisions are not inconsistent. Proposed 
paragraph (a) gives firms the option to provide the identity and 
contact information of the clearing firm on the back of the statement 
if the firm chooses; it does not require such placement. Proposed 
paragraph (b) simply requires SIPC disclosure, which can be 
accomplished either by a general statement or by identifying the 
clearing firm by name. FINRA believes these provisions allow firms some 
flexibility in providing this information, while also ensuring that the 
SIPC status of the clearing firm is disclosed on the front of the 
statement.
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    \55\ See SIFMA Letter.
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f. Proposed Supplementary Material .07 (Use of Summary Statements)
    One commenter objects to proposed Supplementary Material .07 (as 
renumbered in this Amendment No. 1) on the Use of Summary 
Statements.\56\ The supplementary material would require, among other 
things, that the ``beginning and end of each separate statement (e.g., 
summary, brokerage, mutual fund, banking, insurance, etc.) be clearly 
distinguishable by color, pagination or other distinct form of 
demarcation.'' The commenter asks FINRA to ``clarify that the use of 
prominent disclosure within summary statements that aggregate accounts 
held or serviced by multiple parties is adequate to satisfy, or may be 
used in lieu of, [the above set forth requirement].'' FINRA believes 
the term ``other distinct form of demarcation,'' provides firms the 
flexibility to format summary statements. Firms are not required to 
place separate statements on separate pages, but are required to format 
the statements in such a manner as to make them distinguishable on 
their face. The use of prominent disclosure with footnotes or other 
distinct forms of demarcation can be sufficient so long as accounts 
held or serviced by multiple parties are clearly distinguishable. FINRA 
believes these guidelines are beneficial because they establish 
standards to provide clarity and reduce confusion to customers when 
receiving summary statements.
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    \56\ See TIAA-CREF June Letter.
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g. Miscellaneous Comments
    One commenter seeks clarification on what constitutes a ``general 
securities business'' for purposes of triggering the customer account 
statement delivery requirement.\57\ They argue that a firm that has 
multiple business lines which include varied brokerage and securities 
products and services may carry customer accounts or receive or hold 
customer funds or securities in connection with one business line or 
product or service but not another. They seek clarification that the 
rule will apply only to those portions of a firm's business which 
triggers the classification--not all lines or services. Another 
commenter requests clarification that a ``general securities member'' 
does not include members that are relying on an SEC Exemptive Order 
relating to FINRA Rule 2330 (formerly NASD Rule 2821), which 
established sales practice standards regarding recommended purchases 
and exchanges of deferred variable annuities.\58\
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    \57\ Id.
    \58\ See Sutherland Asbill & Brennan Letter. See also Securities 
Exchange Act Release No. 56376 (September 7, 2007) (``Exemptive 
Order''). The Exemptive Order issued in conjunction with the 
approval of FINRA Rule 2330 provides that a broker-dealer will not 
be ``deemed'' to hold customer funds for purposes of SEA Rule 15c3-1 
and SEA Rule 15c3-3 if, among other things, the transaction to which 
the check relates is subject to the registered principal requirement 
of the Rule and the broker-dealer promptly transmits the check after 
the principal's review has been completed.
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    In defining the term ``general securities member,'' current NASD 
Rule 2340 and proposed FINRA Rule 2231 provide that a member that does 
not carry customer accounts and does not hold customer funds or 
securities is exempt from the provisions of this rule. FINRA notes that 
the proposed rule change does not amend the current definition of 
``general securities member'' as set forth in NASD Rule 2340 and 
nothing in this proposal is intended to alter the obligations between 
clearing firms and introducing firms. If the commenter or others have 
concerns about the application of the rule in particular situations 
based on the structure of the firm, FINRA believes that such questions 
can be best resolved through its interpretative letter process.
    One commenter seeks confirmation that the proposal is not intended 
to require members to send account statements to other broker-
dealers.\59\ The commenter notes that NASD Rule 0120(g) defines the 
term ``customer'' to exclude a broker or dealer. The commenter seeks 
clarification because NASD Rule 0120(g) has not been adopted into the 
Consolidated FINRA Rulebook at this time. NASD Rule 2340 and NYSE 409 
have not required firms to send account statements to other broker-
dealers, and FINRA does not intend to broaden the scope of the 
rules.\60\
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    \59\ See SIFMA Letter.
    \60\ See SR-FINRA-2008-021 (Proposed Rule Change Relating to the 
Adoption of NASD Rules 4000 through 10000 Series and the 12000 
through 14000 Series as FINRA Rules in the New Consolidated FINRA 
Rulebook) (discussing ``Rules of General Applicability,'' including 
NASD Rule 0120); Securities Exchange Act Release No. 58176 (July 16, 
2008); 73 FR 42844 (July 23, 2008).
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    Another commenter expressed support of proposed Supplementary 
Material .05 (as renumbered in this Amendment No. 1) (Assets Externally 
Held and Included on Statements Solely as a Service to Customers), 
which adopts Incorporated NYSE Rule Interpretation 409(a)/04, as 
appropriately recognizing the responsibilities of member firms.\61\
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    \61\ See Sutherland Asbill & Brennan Letter.

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[[Page 46346]]

h. Implementation Timeframe
    Assuming the SEC approves the proposal, several commenters 
requested additional time to comply with the proposed requirements, 
particularly if the monthly delivery obligations remain as originally 
proposed.\62\ FINRA appreciates these factors and notes that in 
response to commenters' concerns, it is proposing to exclude certain 
activities from the monthly account statement requirement. Such change 
should significantly reduce the potential costs and burdens on firms. 
Nonetheless, FINRA intends to give firms sufficient time to comply with 
new FINRA Rule 2231.
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    \62\ See Sutherland Asbill & Brennan Letter, TIAA-CREF June 
Letter and SIFMA Letter.
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    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. The implementation date 
will be no later than 365 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,\63\ 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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    \63\ 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 on the proposed rule change were solicited by the 
Commission in response to the publication of SR-FINRA-2009-028.\64\ The 
SEC received 12 comment letters. The comments are summarized above. 
FINRA is submitting its response to comments on the original filing 
contemporaneously with this Amendment No. 1.
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    \64\ See Proposing Release.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove 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 Amendment No. 1, 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 Web site 
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; 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 August 23, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\65\
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    \65\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19420 Filed 8-1-11; 8:45 am]
BILLING CODE 8011-01-P


