[Federal Register Volume 75, Number 11 (Tuesday, January 19, 2010)]
[Pages 2917-2920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-797]



[Release No. 34-61314; File No. SR-NASDAQ-2009-112]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Amend NASDAQ Rules 1140 and 3080 to Reflect Changes to a Corresponding 

January 7, 2010.
    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 December 30, 2009, The NASDAQ Stock Market LLC (the ``Exchange'' or 
``NASDAQ'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The Exchange 
has designated the proposed rule change as constituting a non-
controversial rule change under Rule 19b-4(f)(6) under the Act,\3\ 
which renders the proposal effective upon filing with the Commission. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange is filing this proposed rule change to amend NASDAQ 
Rules 1140 and 3080 to reflect recent changes to a corresponding rule 
of the Financial Industry Regulatory Authority (``FINRA''). The 
Exchange will implement the proposed rule change thirty days after the 
date of the filing. The text of the proposed rule change is available 
at http://nasdaqomx.cchwallstreet.com, at the Exchange's principal 
office, on the Commission's Web site at http://www.sec.gov, 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, the Exchange 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

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places specified in Item IV below. The Exchange 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
    Many of NASDAQ's rules are based on rules of FINRA (formerly the 
National Association of Securities Dealers (``NASD'')). Beginning in 
2008, FINRA embarked on an extended process of moving rules formerly 
designated as ``NASD Rules'' into a consolidated FINRA rulebook. In 
most cases, FINRA has renumbered these rules, and in some cases has 
substantively amended them. Accordingly, NASDAQ also has initiated a 
process of modifying its rulebook to ensure that NASDAQ rules 
corresponding to FINRA/NASD rules continue to mirror them as closely as 
practicable. In some cases, it is not possible for the rule numbers of 
NASDAQ rules to mirror corresponding FINRA rules, because existing or 
planned NASDAQ rules make use of those numbers. However, wherever 
possible, NASDAQ plans to update its rules to reflect changes to 
corresponding FINRA rules.
    This filing addresses NASDAQ Rules 1140 and 3080 which follow or 
incorporate by reference former NASD Rules 1140 and 3080. In SR-FINRA-
2009-019,\4\ FINRA modified, re-numbered, and transitioned these NASD 
rules into the FINRA Consolidated Rule Manual. This proposal makes 
conforming changes to the NASDAQ rules but does not re-number them.

    \4\ See Securities Exchange Act Release No. 60348 (July 20, 
2009), 74 FR 37077 (July 27, 2009) (SR-FINRA-2009-019).

    Rule 1140 requires each Nasdaq member to file its Forms U4, U5, BR, 
BDW, and BD amendments (referred to collectively as ``Uniform Forms'') 
via electronic process or such other process as Nasdaq may prescribe to 
the Web CRD, the centralized database for registration and 
qualification information for firms and their associated persons. Rule 
1140 also requires that the member retain and provide upon regulatory 
request every original, signed initial and transfer Form U4 that form 
the basis of the member's electronically filed Forms U4 and every 
record of the member's electronically filed initial and amended Forms 
    In SR-FINRA-2009-019, FINRA proposed and the Commission approved 
the following changes to Rule 1140:
     Codified that every initial and transfer electronic Form 
U4 must be based on an original, manually signed Form U4 provided to 
the member by the person on whose behalf the Form U4 is being filed.
     Modified the signature requirement with respect to 
amendments to disclosure information in the Form U4. The new FINRA rule 
would permit a firm to file amendments to the Form U4 disclosure 
information without obtaining the registered person's manual signature 
if the firm uses reasonable efforts to (1) provide the registered 
person with a copy of the amended disclosure information prior to 
filing and (2) obtain the registered person's written acknowledgment 
(which may be electronic) prior to filing that the information has been 
received and reviewed. The proposed rule change also requires a member, 
as part of its recordkeeping requirements, to retain the written 
acknowledgment in accordance with SEA Rule 17a-4(e)(1) and make it 
available promptly upon regulatory request.
     Clarified that a member must submit disclosure information 
to which it has knowledge in those cases where the member is not able 
to obtain an associated person's manual signature or written 
acknowledgement of the amendment. Proposed supplementary material sets 
forth examples of reasons why a member may not be able to obtain the 
associated person's manual signature or written acknowledgement.
     Incorporated Web CRD's current practice of permitting Form 
U4 administrative information to be amended without obtaining the 
associated person's signature (manual or otherwise). Proposed 
supplementary material explains that such administrative information 
includes items such as the addition of state or self regulatory 
organization registrations, exam scheduling, and updates to 
residential, business, and personal history.
     Proposed supplementary material expressly permitted the 
registered principal(s) or corporate officer(s) who is responsible for 
supervising a firm's electronic filings to delegate to another 
associated person (who need not be registered) the electronic filing of 
the member's forms via Web CRD. The delegatee may also acknowledge, 
electronically, that he is making the filing on behalf of the member 
and the member's associated person. The proposed supplementary material 
makes clear, however, that the principal(s) or corporate officer(s) may 
not delegate any of his or her supervision, review and approval 
responsibilities and must take reasonable and appropriate action to 
ensure that all delegated electronic filing functions are properly 
executed and supervised.
     Continued to permit firms to enter into third-party 
agreements for the electronic filing of the required forms. The 
supplementary material makes clear that the firm remains responsible 
for complying with the requirements of the rule.
     Made other technical changes, such as making clarifying 
rule cross-references, replacing the reference to fingerprint ``cards'' 
with fingerprint ``information,'' and noting the applicable retention 
periods for the forms under SEA Rule 17a-4.

NASDAQ proposes to adopt these approved changes in Nasdaq Rule 1140. 
NASDAQ does not propose to re-number Rule 1140 to 1010 as did FINRA.
    Nasdaq Rule 3080 (Disclosure to Associated Persons When Signing 
Form U-4) requires members to provide each associated person, whenever 
the associated person is asked to sign a new or amended Form U4, with 
certain written disclosures regarding the nature and process of 
arbitration proceedings. The associated person agrees to be bound by 
this process upon signing a Form U4. The disclosures required by NASD 
Rule 3080 may be given by the same member firm to the same associated 
person on more than one occasion during that person's employment, if 
the associated person has reason to re-sign the Form U4. NASD Rule 3080 
does not address any private arbitration agreements that the associated 
person might enter into with the member firm. The disclosure language 
in NASD Rule 3080 explains that the Form U4 contains a pre-dispute 
arbitration clause, indicates in which Item of the Form U4 the clause 
is located and advises the associated person to read the pre-dispute 
arbitration clause. Rule 3080 was modeled on the disclosure given to 
customers when signing pre-dispute arbitration agreements with member 
firms, as contained in NASD Rule 3110(f).
    NASDAQ Rule 3080 currently incorporates by reference NASD Rule 
3080. In SR-FINRA-2009-019, FINRA transferred NASD Rule 3080 to the 
FINRA Consolidated Rule Manual and re-numbered it as FINRA Rule 2263. 
FINRA's proposed rule change made the following changes:
     Amended the current title ``Disclosure to Associated 
Person When

[[Page 2919]]

Signing Form U4'' to clarify that the rule relates to arbitration 
disclosures. Accordingly, the new proposed title is ``Arbitration 
Disclosure to Associated Persons Signing or Acknowledging Form U4.''
     Clarified that a member must provide the required 
arbitration disclosures whenever a member asks an associated person, 
pursuant to proposed FINRA Rule 1010 (as described above), to manually 
sign an initial or amended Form U4, or to otherwise provide written 
(which may be electronic) acknowledgement of an amendment to the Form.
     Updated the rule language to reflect recent amendments to 
FINRA's Code of Arbitration Procedure requiring arbitrators to provide 
an explained decision to the parties in eligible cases if there is a 
joint request by all parties at least 20 days before the first 
scheduled hearing date.

NASDAQ is proposing to continue to incorporate FINRA Rule 2263 in 
NASDAQ Rule 3080. This will result in NASDAQ adopting the changes 
described above.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\5\ in general, and with 
Sections 6(b)(5) of the Act,\6\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The proposed 
changes will conform NASDAQ Rules 1140 and 3080 to recent changes made 
to corresponding FINRA rules, to promote application of consistent 
regulatory standards.

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(5).

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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, as amended.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, if consistent with 
the protection of investors and the public interest, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6) thereunder.\8\

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires that a self-regulatory organization submit to the 
Commission written notice of its intent to file the proposed rule 
change, along with a brief description and text of the proposed rule 
change, at least five business days prior to the date of filing of 
the proposed rule change, or such shorter time as designated by the 
Commission. The Commission notes that Nasdaq satisfied the five-day 
pre-filing notice requirement.

    Normally, a proposed rule change filed under 19b-4(f)(6) may not 
become operative prior to 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) \9\ permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. Nasdaq has requested that the Commission waive the 
30-day operative delay. In its filing, Nasdaq noted that the proposal 
would amend NASDAQ Rules 1140 and 3080 to reflect recent changes to a 
corresponding rule of FINRA.

    \9\ 17 CFR 240.19b-4(f)(6)(iii).

    The Commission believes that waiver of the 30-day operative period 
is consistent with the protection of investors and the public interest. 
The proposed rule change would allow greater consistency between NASDAQ 
and FINRA rules, which should benefit NASDAQ and FINRA members, 
regulators, and the investing public. In addition, the Commission notes 
that the changes proposed in this filing are in all material respects 
the same as changes proposed in FINRA's filing, which was published for 
comment, and for which no comment letters were received.\10\ 
Accordingly, the Commission designates the proposal to be effective 
upon filing with the Commission.\11\

    \10\ See Securities Exchange Act Release No. 61151 (December 10, 
    \11\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 

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 [email protected]. Please include 
File Number SR-NASDAQ-2009-112 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-NASDAQ-2009-112. 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 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 offices of the Exchange. 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-NASDAQ-2009-112, and should be submitted on or before 
February 9, 2010.

[[Page 2920]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\

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

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-797 Filed 1-15-10; 8:45 am]