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Updated January 20, 2010

NASDR Notices to Members

10-04 SEC Approves Consolidated FINRA Rules Governing Clearly Erroneous Transactions
On December 1, 2009, the SEC approved FINRA's proposed rule change to adopt a new set of rules governing clearly erroneous transactions in the consolidated rulebook. The new FINRA Rule 11890 Series replaces NASD Rule 11890, IM-11890- 1 and IM-11890-2 and was adopted as part of a market-wide effort by multiple self-regulatory organizations to provide transparency and finality with respect to clearly erroneous executions. Among other things, the new rule series includes a new general rule defining "clearly erroneous" transactions, separate provisions for the determination of clearly erroneous transactions depending upon whether the transaction involves an exchange-listed security or an over-the- counter equity security and procedures for appealing FINRA clearly erroneous determinations. In addition, the new rule series codifies minimum numerical criteria necessary for a transaction to qualify as clearly erroneous.

10-03 FINRA Requests Comments on Proposed Consolidated FINRA Rules Governing Securities Loans and Borrowings, Permissible Use of Customers' Securities and Callable Securities
As part of the process of developing a new, consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on three proposed FINRA rules. Proposed FINRA Rule 4314 (Securities Loans and Borrowings) sets forth the requirements applicable to a member firm that is a party to an agreement for the loan or borrowing of securities. Proposed FINRA Rule 4330 (Customer Protection—Permissible Use of Customers' Securities) sets forth the requirements applicable to a member firm's borrowing or lending of a customer's margin securities that are eligible to be pledged or loaned. Proposed FINRA Rule 4340 (Callable Securities) sets forth the obligations applicable to any callable securities a member firm has in its possession or control.

10-02 Broker-Dealer, Investment Adviser Firm, Agent and Investment Adviser Representative, and Branch Renewals for 2010
FINRA is issuing this Notice to help firms review, reconcile and respond to their Final Renewal Statements and reports that are currently available in Web CRD/IARD for the 2010 Registration Renewal Program.

10-01 Proposed Consolidated FINRA Rules Governing FINRA’s Membership Application Proceedings
As part of the process of developing a new, consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on proposals relating to FINRA's membership rules. These rules, which were adopted in August 1997, provide a means for FINRA, through its Membership Application Process (MAP), to know and assess the proposed business activities of its potential and current member firms. The proposed amendments revise certain provisions of the existing membership rules to streamline the standards of review for new and continuing membership applications, clarify certain administrative aspects of the MAP process, update or eliminate outdated terminology and require certain additional information (including certain affiliate information) about the applicant and incorporate certain provisions from the Incorporated NYSE membership rules.

09-74 SEC Approves Changes to Arbitration Rules on Definition of Associated Person, Distribution of the FINRA Discovery Guide and Applicability of Hearing Session Fees
Effective January 18, 2010, amendments to the Customer and Industry Codes of Arbitration: 1- clarify the definition of "associated person" and make it conform to the same term in the FINRA By-Laws; 2-streamline a case administration procedure; and 3- clarify that customers could be assessed hearing session fees based on their own claims for relief in connection with an industry claim.The amendments will apply to claims filed on or after the effective date.

09-73 FINRA Reminds Firms of Their Sales Practice Obligations Relating to Principal-Protected Notes
The retail market for principal-protected notes (PPNs) has grown in recent years, in part because they are often marketed as combining the relative safety of bonds with a potential for growth not available with traditional fixed income products. However, these products are not risk-free, and their terms and structures can be complex. Firms must ensure that their promotional materials or communications to the public regarding these products are fair and balanced, and do not overstate either the level of protection offered or an investment's potential returns. Firms also have a duty to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to a customer.

FINRA Disciplinary and Other FINRA Actions for December 2009
FINRA has taken disciplinary actions against the following firms and individuals for violations of FINRA rules; federal securities laws, rules and regulations; and the rules of the Municipal Securities Rulemaking Board (MSRB).

09-71 SEC Approves Consolidated FINRA Rules Governing Financial Responsibility
The SEC approved FINRA's proposed rule change to adopt a new set of financial responsibility rules for the consolidated rulebook (the Consolidated FINRA Rulebook). FINRA Rules 4110, 4120, 4130, 4140 and 4521 are new consolidated rules governing financial responsibility that are based in part on, and replace, provisions in the NASD and Incorporated NYSE Rules. The rule change also amends FINRA Rules 9557 and 9559 to, among other things, provide members served with a notice under the financial responsibility rules an expedited appeal process, and makes certain conforming revisions to Section 4(g) of Schedule A to the FINRA By- Laws.

09-70 FINRA Requests Comment on Proposed Consolidated FINRA Rules Governing Registration and Qualification Requirements
As part of the process of developing a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a proposal to streamline and amend the FINRA registration and qualification rules.

09-69 FINRA Requests Comment on Proposed Consolidated FINRA Rule Governing Payments to Unregistered Persons
As part of the process to develop a new consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a proposed FINRA rule regarding payments to unregistered persons. Proposed FINRA Rule 2040 (Payments to Unregistered Persons) would be a new consolidated rule that streamlines the provisions of current rules.

09-66 SEC Approves Changes to FINRA's BrokerCheck Disclosure Rule to Retain and Make Publicly Available Information About Final Regulatory Actions Against Former Brokers
Beginning November 30, 2009, information concerning final regulatory actions against brokers—as well as certain administrative information (e.g., employment and registration history) and information about qualification examinations, if available, and the broker's most recently submitted comment, if any—will be permanently available in BrokerCheck,® regardless of when they were employed in the securities industry.

News Items

SEC Issues Concept Release Seeking Comment on Structure of Equity Markets SEC Issues Concept Release Seeking Comment on Structure of Equity Markets
The SEC issued a concept release as part of its review of the equity market structure, voting unanimously to issue a concept release seeking public comment on such issues as high frequency trading, co-locating trading terminals, and markets that do not publicly display price quotations.

SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations
The SEC announced a series of measures to further strengthen its enforcement program and encourage greater cooperation by individuals and companies in the agency's investigations and enforcement actions.

SEC Proposes New Rule to Effectively Prohibit Unfiltered Access and Maintain Market Access Controls
The Securities and Exchange Commission today voted unanimously to propose a new rule that would effectively prohibit broker-dealers from providing customers with "unfiltered" or "naked" access to an exchange or alternative trading system (ATS).

SEC Charges California Telecom Company With Bribery and Other FCPA Violations
The Securities and Exchange Commission today charged Alameda, Calif.- based telecommunications company UTStarcom, Inc. with violations of the Foreign Corrupt Practices Act (FCPA) for authorizing millions of dollars in unlawful payments to foreign government officials in Asia.

Merrill Veteran to lead JHS Capital Advisors
A former Merrill Lynch southeast regional managing director has been tapped to run JHS Capital Advisors, the brokerage arm of the firm founded by former GunnAllen chairman John Sykes. Mary Kennemur, who spent 22 years at Merrill Lynch, will lead the wealth management division that Tampa, Fla.- based JHS bought from GunnAllen Holdings through its purchase of Pointe Capital last week.

FINRA Fines Pacific Cornerstone Capital, CEO $750,000 for Private Placement Offering Failures
$750,000 in fines for failing to include full and complete information in private placement offering documents and marketing material. FINRA also charged Pacific Cornerstone and Roussel with advertising violations and supervisory failures.

SEC Blocks Early-Stage Ponzi Scheme Involving Purported Investments in Personal Injury Settlements
The Securities and Exchange Commission has halted a Ponzi scheme involving a New York firm that solicited investments involving personal injury lawsuit settlements but instead shipped the money overseas. The SEC obtained a court order freezing the assets of the firm, its president, and several companies holding money from the scam that began several months ago.

SEC Charges California Firm and CEO With Defrauding Customers in Sales of Risky Mortgage-Backed Securities
he Securities and Exchange Commission charged Irvine, Calif.-based Brookstreet Securities Corp. and its President and CEO Stanley C. Brooks with fraud for systematically selling risky mortgage-backed securities to customers with conservative investment goals. The fraud cost many Brookstreet investors their savings, homes, or retirement cushions, and eventually caused the firm to collapse.

SEC Charges Former Officers of Subprime Lender New Century With Fraud
The Securities and Exchange Commission charged three former top officers of New Century Financial Corporation with securities fraud for misleading investors as New Century's subprime mortgage business was collapsing in 2006. At the time of the fraud, New Century was one of the largest subprime lenders in the nation.

FINRA Expels Meeting Street Brokerage, Bars Broker, Sanctions Firm's Owner for Market Manipulation, Other Violations
All Three Schemed to Create Artificial Price and Trading Volume for Relay Capital Corporation

SEC Obtains Asset Freeze Against Co-Founder of Canopy Financial in $75 Million Offering Fraud
The Securities and Exchange Commission announced that it has filed fraud charges against a Chicago-based health care financial services company and has frozen the assets of its co-founder who allegedly provided investors with forged financial statements to lure them into a $75 million investment scheme.

The Top 40 Advisors Under 40
In On Wall Street's third annual ranking, a new class of young advisors emerges from the market meltdown. Here's how this year's top 40 advisors under 40 conquered a tough market.

FINRA Fines Terra Nova Financial $400,000; Firm Made Over $1 Million in Improper Soft Dollar Payments
Three Former Employees Also Sanctioned

  

 


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Copyright 2005, Mark J. Astarita. All Rights Reserved. Mark J. Astarita, Esq. is a partner in the law firm of Beam & Astarita, LLC, and represents financial professionals and firms nationwide, in a wide variety of matters. He can be reached at (212) 509-6544 or by e-mail at astarita@seclaw.com.

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  


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