Self-Regulatory Organizations: Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to the Reporting of Foreign Equity Securities to the Order Audit Trail System, 44899-44902 [E7-15551]
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Federal Register / Vol. 72, No. 153 / Thursday, August 9, 2007 / Notices
Exchange fees are generally assessed.
For example, CBOE Rule 2.20 provides
that CBOE membership dues are
assessed on a non-refundable basis.
Fourth, the explanatory provision
states that the access fee and any other
applicable monthly fees will be assessed
for a calendar month unless a person
with temporary CBOE membership
status provides written notice to the
CBOE Membership Department at least
five business days prior to the start of
that month that the person is
relinquishing that status effective on a
date prior to the start of that month. The
purpose of this requirement is to allow
time for the Exchange to process such a
change within its membership and
billing systems prior to the beginning of
the next month.
Fifth, the explanatory provision
indicates that the access fee will be
assessed through the integrated billing
system. This is consistent with how
Exchange fees are generally assessed
pursuant to CBOE Rule 3.23.
Finally, consistent with the
provisions of Rule 3.19.01, the
explanatory provision indicates that the
access fee will terminate when the SEC
takes final action on SR–CBOE–2006–
106 (at which time the Exchange will
also remove the access fee and the text
describing it from the CBOE Fee
Schedule); that all access fees shall be
payable to and held in an interestbearing escrow account maintained by
the Exchange until the Commission
takes such final action; that the
Exchange will retain such fees if the
Exchange approves SR–CBOE–2006–
106; and that such fees will be returned
to the payor, with interest, if the
Commission disapproves SR–CBOE–
2006–106. In addition to stating in the
explanatory provision that such fees
will be returned to the payor with
interest if the Commission disapproves
SR–CBOE–2006–106, Rule 3.19.01 is
also proposed to be revised to make
more explicit that a return of these fees
will be with interest. The Exchange
believes that the return of these fees
with interest in the event the
Commission disapproves SR–CBOE–
2006–106 was already provided for
under Rule 3.19.01 and is making the
foregoing change to Rule 3.19.01 solely
to eliminate any potential for ambiguity
in this regard.
mstockstill on PROD1PC66 with NOTICES
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,11 in general, and
furthers the objectives of Section 6(b)(4)
of the Act,12 in particular, in that it is
designed to provide for the equitable
allocation of reasonable dues, fees, and
other charges among persons using its
facilities.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose 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
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing rule change
establishes or changes a due, fee, or
other charge imposed by the Exchange,
it has become effective pursuant to
Section 19(b)(3)(A) of the Act 13 and
subparagraph (f)(2) of Rule 19b–4 14
thereunder. At any time within 60 days
of the filing of the proposed rule change,
the Commission may summarily
abrogate such rule change if it appears
to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–CBOE–2007–91 on the
subject line.
All submissions should refer to File
Number SR–CBOE–2007–91. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 am and 3 pm.
Copies of such filing also will be
available for inspection and copying at
the principal office 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 No.
SR–CBOE–2007–91 and should be
submitted on or before August 30, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15547 Filed 8–8–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56199; File No. SR–FINRA–
2007–001]
Self-Regulatory Organizations:
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change Relating to the
Reporting of Foreign Equity Securities
to the Order Audit Trail System
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington DC
20549–1090.
August 3, 2007.
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 July 31,
2007, the Financial Industry Regulatory
U.S.C. 78f(b).
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12 15
15 17
13 15
11 15
44899
U.S.C. 78f(b)(4).
U.S.C. 78s(b)(3)(A)(ii).
14 17 CFR 240.19b–4(f)(2).
1 15
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 72, No. 153 / Thursday, August 9, 2007 / Notices
Authority, Inc. (‘‘FINRA’’) (f/k/a the
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
substantially prepared by FINRA. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend Rule
6952 to exclude certain orders and
transactions in foreign equity securities
from the Order Audit Trail System
(‘‘OATS’’) recording and reporting
requirements. The text of the proposed
rule change is available at FINRA, the
Commission’s Public Reference Room,
and https://www.finra.org.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
mstockstill on PROD1PC66 with NOTICES
NASD Rules 6950 through 6958
(‘‘OATS Rules’’) impose obligations on
member firms to record in electronic
form and report to OATS on a daily
basis certain information regarding
orders in Nasdaq-listed equity securities
originated, received, transmitted,
modified, canceled, or executed by
members.3 FINRA integrates the OATS
information with quote and transaction
information to create a time-sequenced
3 Beginning on February 4, 2008, members also
will be required to record and report order
information regarding all OTC equity securities, as
defined in NASD Rule 6951. See Securities
Exchange Act Release No. 54585 (October 10, 2006);
71 FR 61112 (October 17, 2006) (SR–NASD–2005–
101); NASD Notice to Members 06–70 (December
2006); see also Securities Exchange Act Release No.
55440 (March 9, 2007), 72 FR 12852 (March 19,
2007) (SR–NASD–2007–019).
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record of orders, quotes, and
transactions.
Currently, a member has recording
and reporting obligations under the
OATS Rules only with respect to orders
in Nasdaq-listed equity securities. On
October 10, 2006, the Commission
approved SR–NASD–2005–101, which
amended the OATS Rules and extended
the OATS obligations to include orders
in OTC equity securities.4 As amended
by SR–NASD–2005–101, Rule 6951
defines the term ‘‘OTC equity security’’
to mean ‘‘any equity security that: (1) Is
not listed on a national securities
exchange; or (2) is listed on one or more
regional stock exchanges and does not
qualify for dissemination of transaction
reports via the facilities of the
Consolidated Tape.’’ This broad
definition of ‘‘OTC equity security’’
encompasses essentially all foreign
equity securities, except those that are
listed on a U.S. national securities
exchange.
After the Commission’s approval of
SR–NASD–2005–101 and the
publication of NASD Notice to Members
06–70 in December 2006, numerous
member firms and industry
organizations raised issues with FINRA
staff regarding the breadth of the
application of the OATS Rules to
foreign equity securities. The issues that
were raised included the lack of U.S.
symbols for many foreign securities, the
programming difficulties associated
with tracking trades in foreign symbols
and currencies, and the fact that, for
many firms, orders for foreign securities
are handled by foreign affiliates that are
not currently set up to record and report
OATS information. In addition, many
trades in foreign equity securities are
routed to foreign broker-dealers and
executed on a foreign stock exchange.
Consequently, although FINRA would
receive OATS information regarding the
order origination and routing for such
orders, FINRA would not receive
execution reports, and FINRA would
not have trade reporting data to
consolidate with the OATS data.5
4 See Securities Exchange Act Release No. 54585
(October 10, 2006); 71 FR 61112 (October 17, 2006)
(SR–NASD–2005–101); NASD Notice to Members
06–70 (December 2006). The effective date of these
amendments to the OATS Rules is February 4,
2008. See Securities Exchange Act Release No.
55440 (March 9, 2007), 72 FR 12852 (March 19,
2007) (SR–NASD–2007–019).
5 Trade reporting requirements under NASD Rule
6620 do not extend to a member’s transactions in
foreign equity securities executed on and reported
to a foreign securities exchange or transactions
executed over-the-counter in a foreign country that
are reported to the regulator of securities markets
for that country. See NASD Rule 6620(g); Securities
Exchange Act Release No. 55745 (May 11, 2007), 72
FR 27891 (May 17, 2007) (SR–NASD–2007–030).
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In response to these concerns, FINRA
reconsidered the issues associated with
extending the OATS recording and
reporting obligations to all foreign
equity securities in light of the
regulatory benefit provided by the
information. FINRA has filed the
proposed rule change to strike an
appropriate balance between ensuring
that FINRA can effectively monitor
members’ compliance with their order
handling obligations (e.g., best
execution and limit order protection)
and avoiding overly burdensome
reporting requirements. FINRA has
concluded that the appropriate balance
would be achieved by requiring firms to
record and report order information
regarding foreign equity securities only
in those instances where any resulting
execution is subject to the transaction
reporting requirements in Rule 6620.
This will provide FINRA with order
information for the same transactions
for which FINRA receives trade
reporting information, thus allowing
FINRA to review a complete audit trail
of those transactions. At the same time,
firms will not be required to record and
submit information to FINRA for orders
in a foreign equity security that do not
result in a trade report to FINRA.
At least two situations can arise in
connection with orders for foreign
equity securities that trade in the U.S.
and abroad that may raise questions as
to how these orders should be reported
to OATS. In some circumstances, an
order for a foreign equity security that
is traded in the U.S. and abroad may be
broken up and executed in multiple
markets. If a firm breaks up an order
and, as a result, part of the order is
executed in the U.S. and part of the
order is executed in a foreign market,
the firm should report the entire order
to OATS. The part of the order that was
executed abroad should be reported as
a route to a foreign broker-dealer or a
foreign market (i.e., the firm is a member
of the foreign market and is able to route
the order directly to the foreign market),
and the part of the order that was
executed in the U.S. would be reported
the same way as any other reportable
order event.
Similarly, with respect to foreign
equity securities that trade in the U.S.
and abroad, a firm may receive an order
for such a security in the U.S. symbol
and, at the time the order is received,
the firm is uncertain whether the order
will be executed in the U.S. or in the
foreign market. In some cases, the trade
may not be executed the day it is
received. If the order is not executed
before the firm is required to submit its
OATS information for that day, the firm
would not know whether it was
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Federal Register / Vol. 72, No. 153 / Thursday, August 9, 2007 / Notices
required to report the receipt of the
order to OATS because the firm would
not yet have a trade reporting obligation.
In such a case, because the security had
a U.S. symbol and the customer placed
the order in the U.S. symbol, the firm
should report the new order to OATS as
though it were going to be executed in
the U.S. (and, thus be subject to the
trade reporting requirements).6 If the
order is later executed in a foreign
market, the firm would submit a route
report indicating that the order was
routed to a foreign broker-dealer or
foreign market, as applicable. Of course,
if a firm receives an order and executes
that order the same day in a foreign
market, no OATS report would be
necessary if the firm was not required to
report the transaction under Rule 6620.
mstockstill on PROD1PC66 with NOTICES
Reportable Order Events for Foreign
Equity Securities With No U.S. Symbol
When a firm has a trade reporting
obligation in a foreign equity security
that does not have a U.S. symbol
assigned to it at the time of the trade,
the firm is required to: (1) Promptly
request a symbol so that it can comply
with its trade reporting obligations; and
(2) comply with the OATS recording
requirements under Rule 6954. Once a
symbol is assigned, the member must
report the trade to FINRA and report all
applicable order information to OATS
in accordance with Rule 6955. When
reporting the information to OATS, the
firm must properly code the report to
indicate that the reported event
occurred prior to the date of the OATS
report. In these situations, if normal
electronic trade reporting submission is
not possible (e.g., the trade reporting
facility will not accept a report because
the foreign equity security had not been
assigned a valid U.S. symbol on the
actual trade date), the firm is required
to report the transaction as soon as
practicable on Form T.7
In these instances where a Form T is
used for trade reporting purposes,
FINRA intends to provide firms the
option of reporting the required OATS
information through the firm’s normal
OATS reporting channels or as part of
the Form T submission. In this way,
firms will be able to fulfill both the
firm’s trade reporting and OATS
6 If the security had no U.S. symbol, the firm
could not report the information to OATS until a
U.S. symbol is assigned. If the security has both a
U.S. and foreign symbol and the order is received
from the customer in the foreign symbol, the
member would not be required to report the order
to OATS unless the order is executed and trade
reported to FINRA pursuant to Rule 6620 on the
same day the order was received from the customer.
7 See e.g., NASD Rule 6620(a)(4) (regarding the
use of Form T for trades reported to the OTC
Reporting Facility).
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obligations through its Form T
submission.8 The ability to use a Form
T to report OATS information will be
available only for trades in foreign
equity securities that do not have a U.S.
symbol assigned at the time the OATS
information would ordinarily be
reported.
The operative date of the proposed
rule change will be February 4, 2008, to
coincide with the implementation date
for the amendments to the OATS Rules
requiring members to record and report
order information for OTC Equity
Securities.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of section 15A(b)(6) of the Act,9 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 achieves a proper
balance between reporting requirements
that improve FINRA’s ability to monitor
members’ order handling obligations
and that have reasonable parameters
regarding those orders that are subject to
the requirements.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
As the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
8 The revised OATS Reporting Technical
Specifications that will be published following
Commission approval of the proposed rule change
will detail the precise procedures a firm may use
to file the OATS report(s) in this situation.
9 15 U.S.C. 78o–3(b)(6).
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44901
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2007–001 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2007–001. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of FINRA. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2007–001 and
should be submitted on or before
August 30, 2007.
E:\FR\FM\09AUN1.SGM
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44902
Federal Register / Vol. 72, No. 153 / Thursday, August 9, 2007 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15551 Filed 8–8–07; 8:45 am]
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.4
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8010–01–P
(1) Off-the-Market Transactions
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56189; File No. SR–FICC–
2007–07]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Filing and Immediate Effectiveness of
Proposed Rule To Make Technical
Changes To Update and Align
Provisions With Current Practice
August 2, 2007.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
June 21, 2007, the Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change described in Items
I, II, and III below, which items have
been prepared primarily by FICC. FICC
filed the proposal pursuant to section
19(b)(3)(A)(i) and (ii) of the Act 2 and
Rule 19b–4(f)(1) and (2) 3 thereunder so
that the proposal was effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the rule change
from interested parties.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of the rule change is to
make technical changes to certain
provisions of the Government Securities
Division (‘‘GSD’’) rules and the
Mortgage-Backed Securities Division
(‘‘MBSD’’) rules to update and to align
them with current practice.
mstockstill on PROD1PC66 with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
FICC included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FICC has prepared
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78s(b)(3)(A)(i) and (ii).
3 17 CFR 240.19b–4(f)(1) and (2).
1 15
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18:25 Aug 08, 2007
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The definition of Off-the-Market
Transactions in the GSD rules is
outdated and does not allow for
adjustments in market conditions. FICC
proposes to amend this definition by (i)
Deleting the reference to ‘‘option
exercises’’ so that they are no longer
automatically considered to be Off-theMarket Transactions, (ii) establishing a
System Price 5 as the basis for
determining whether a transaction will
be an Off-the-Market Transactions, and
(iii) allowing FICC to establish the
percentage, based on factors such as
market conditions, by which the price of
a transaction must exceed or fall short
of the System Price in order to
constitute an Off-the-Market
Transaction.
(2) The Bond Market Association
The Bond Market Association
(‘‘BMA’’) has merged with the Securities
Industry Association to form the
Securities Industry and Financial
Markets Association (‘‘SIFMA’’). FICC is
proposing to revise the MBSD Clearing
Rules and MBSD EPN Rules to replace
references to the BMA and BMA
Guidelines with references to SIFMA
and SIFMA Guidelines.
(3) Omnibus Account Fees and Access
Fees
MBSD’s EPN Schedule of Charges
currently provides for Omnibus
Account fees and for Access fees. These
fees no longer exist. FICC is proposing
to amend the MBSD EPN Schedule of
Charges to delete the reference to
Omnibus Account fees and Access fees.
The proposed rule change is
consistent with section 17A of the Act,6
as amended, because it constitutes
technical changes that do not adversely
affect the safeguarding of securities or
4 The Commission has modified the text of the
summaries prepared by FICC.
5 Rule 1 defines System Price as ‘‘the uniform
price (expressed in dollars per unit of par value),
not including accrued interest, established by
[FICC] on each Business Day, based on current
market information, for each Eligible Netting
Security with a separate CUSIP Number.
Notwithstanding the above, the System Price for the
Generic CUSIP Number that underlies a GCF Net
Settlement Position shall be equal to principal
value.’’
6 15 U.S.C. 78q–1.
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funds in the custody or control of FICC
or for which it is responsible.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
FICC does not believe that the
proposed rule change will have any
impact or impose any burden on
competition.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. FICC will notify
the Commission any written comments
received by FICC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
has become effective upon filing
pursuant to section 19(b)(3)(A)(i) and
(ii) of the Act 7 and Rule 19b–4(f)(1) and
(2) 8 thereunder because the proposed
rule change constitutes a stated policy
and interpretation with respect to the
meaning of existing FICC rules and
changes a fee imposed by FICC. At any
time within sixty days of the filing of
the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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 (https://www.sec.gov/
rules/sro.shtml) or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FICC–2007–07 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
7 15
8 17
E:\FR\FM\09AUN1.SGM
U.S.C. 78s(b)(3)(A)(i) and (ii).
CFR 240.19b–4(f)(1) and (2).
09AUN1
]]>Agencies
[Federal Register Volume 72, Number 153 (Thursday, August 9, 2007)]
[Notices]
[Pages 44899-44902]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15551]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56199; File No. SR-FINRA-2007-001]
Self-Regulatory Organizations: Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to
the Reporting of Foreign Equity Securities to the Order Audit Trail
System
August 3, 2007.
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 July 31, 2007, the Financial Industry Regulatory
[[Page 44900]]
Authority, Inc. (``FINRA'') (f/k/a the National Association of
Securities Dealers, Inc. (``NASD'')) filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been
substantially prepared by FINRA. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend Rule 6952 to exclude certain orders and
transactions in foreign equity securities from the Order Audit Trail
System (``OATS'') recording and reporting requirements. The text of the
proposed rule change is available at FINRA, the Commission's Public
Reference Room, and https://www.finra.org.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASD Rules 6950 through 6958 (``OATS Rules'') impose obligations on
member firms to record in electronic form and report to OATS on a daily
basis certain information regarding orders in Nasdaq-listed equity
securities originated, received, transmitted, modified, canceled, or
executed by members.\3\ FINRA integrates the OATS information with
quote and transaction information to create a time-sequenced record of
orders, quotes, and transactions.
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\3\ Beginning on February 4, 2008, members also will be required
to record and report order information regarding all OTC equity
securities, as defined in NASD Rule 6951. See Securities Exchange
Act Release No. 54585 (October 10, 2006); 71 FR 61112 (October 17,
2006) (SR-NASD-2005-101); NASD Notice to Members 06-70 (December
2006); see also Securities Exchange Act Release No. 55440 (March 9,
2007), 72 FR 12852 (March 19, 2007) (SR-NASD-2007-019).
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Currently, a member has recording and reporting obligations under
the OATS Rules only with respect to orders in Nasdaq-listed equity
securities. On October 10, 2006, the Commission approved SR-NASD-2005-
101, which amended the OATS Rules and extended the OATS obligations to
include orders in OTC equity securities.\4\ As amended by SR-NASD-2005-
101, Rule 6951 defines the term ``OTC equity security'' to mean ``any
equity security that: (1) Is not listed on a national securities
exchange; or (2) is listed on one or more regional stock exchanges and
does not qualify for dissemination of transaction reports via the
facilities of the Consolidated Tape.'' This broad definition of ``OTC
equity security'' encompasses essentially all foreign equity
securities, except those that are listed on a U.S. national securities
exchange.
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\4\ See Securities Exchange Act Release No. 54585 (October 10,
2006); 71 FR 61112 (October 17, 2006) (SR-NASD-2005-101); NASD
Notice to Members 06-70 (December 2006). The effective date of these
amendments to the OATS Rules is February 4, 2008. See Securities
Exchange Act Release No. 55440 (March 9, 2007), 72 FR 12852 (March
19, 2007) (SR-NASD-2007-019).
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After the Commission's approval of SR-NASD-2005-101 and the
publication of NASD Notice to Members 06-70 in December 2006, numerous
member firms and industry organizations raised issues with FINRA staff
regarding the breadth of the application of the OATS Rules to foreign
equity securities. The issues that were raised included the lack of
U.S. symbols for many foreign securities, the programming difficulties
associated with tracking trades in foreign symbols and currencies, and
the fact that, for many firms, orders for foreign securities are
handled by foreign affiliates that are not currently set up to record
and report OATS information. In addition, many trades in foreign equity
securities are routed to foreign broker-dealers and executed on a
foreign stock exchange. Consequently, although FINRA would receive OATS
information regarding the order origination and routing for such
orders, FINRA would not receive execution reports, and FINRA would not
have trade reporting data to consolidate with the OATS data.\5\
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\5\ Trade reporting requirements under NASD Rule 6620 do not
extend to a member's transactions in foreign equity securities
executed on and reported to a foreign securities exchange or
transactions executed over-the-counter in a foreign country that are
reported to the regulator of securities markets for that country.
See NASD Rule 6620(g); Securities Exchange Act Release No. 55745
(May 11, 2007), 72 FR 27891 (May 17, 2007) (SR-NASD-2007-030).
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In response to these concerns, FINRA reconsidered the issues
associated with extending the OATS recording and reporting obligations
to all foreign equity securities in light of the regulatory benefit
provided by the information. FINRA has filed the proposed rule change
to strike an appropriate balance between ensuring that FINRA can
effectively monitor members' compliance with their order handling
obligations (e.g., best execution and limit order protection) and
avoiding overly burdensome reporting requirements. FINRA has concluded
that the appropriate balance would be achieved by requiring firms to
record and report order information regarding foreign equity securities
only in those instances where any resulting execution is subject to the
transaction reporting requirements in Rule 6620. This will provide
FINRA with order information for the same transactions for which FINRA
receives trade reporting information, thus allowing FINRA to review a
complete audit trail of those transactions. At the same time, firms
will not be required to record and submit information to FINRA for
orders in a foreign equity security that do not result in a trade
report to FINRA.
At least two situations can arise in connection with orders for
foreign equity securities that trade in the U.S. and abroad that may
raise questions as to how these orders should be reported to OATS. In
some circumstances, an order for a foreign equity security that is
traded in the U.S. and abroad may be broken up and executed in multiple
markets. If a firm breaks up an order and, as a result, part of the
order is executed in the U.S. and part of the order is executed in a
foreign market, the firm should report the entire order to OATS. The
part of the order that was executed abroad should be reported as a
route to a foreign broker-dealer or a foreign market (i.e., the firm is
a member of the foreign market and is able to route the order directly
to the foreign market), and the part of the order that was executed in
the U.S. would be reported the same way as any other reportable order
event.
Similarly, with respect to foreign equity securities that trade in
the U.S. and abroad, a firm may receive an order for such a security in
the U.S. symbol and, at the time the order is received, the firm is
uncertain whether the order will be executed in the U.S. or in the
foreign market. In some cases, the trade may not be executed the day it
is received. If the order is not executed before the firm is required
to submit its OATS information for that day, the firm would not know
whether it was
[[Page 44901]]
required to report the receipt of the order to OATS because the firm
would not yet have a trade reporting obligation. In such a case,
because the security had a U.S. symbol and the customer placed the
order in the U.S. symbol, the firm should report the new order to OATS
as though it were going to be executed in the U.S. (and, thus be
subject to the trade reporting requirements).\6\ If the order is later
executed in a foreign market, the firm would submit a route report
indicating that the order was routed to a foreign broker-dealer or
foreign market, as applicable. Of course, if a firm receives an order
and executes that order the same day in a foreign market, no OATS
report would be necessary if the firm was not required to report the
transaction under Rule 6620.
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\6\ If the security had no U.S. symbol, the firm could not
report the information to OATS until a U.S. symbol is assigned. If
the security has both a U.S. and foreign symbol and the order is
received from the customer in the foreign symbol, the member would
not be required to report the order to OATS unless the order is
executed and trade reported to FINRA pursuant to Rule 6620 on the
same day the order was received from the customer.
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Reportable Order Events for Foreign Equity Securities With No U.S.
Symbol
When a firm has a trade reporting obligation in a foreign equity
security that does not have a U.S. symbol assigned to it at the time of
the trade, the firm is required to: (1) Promptly request a symbol so
that it can comply with its trade reporting obligations; and (2) comply
with the OATS recording requirements under Rule 6954. Once a symbol is
assigned, the member must report the trade to FINRA and report all
applicable order information to OATS in accordance with Rule 6955. When
reporting the information to OATS, the firm must properly code the
report to indicate that the reported event occurred prior to the date
of the OATS report. In these situations, if normal electronic trade
reporting submission is not possible (e.g., the trade reporting
facility will not accept a report because the foreign equity security
had not been assigned a valid U.S. symbol on the actual trade date),
the firm is required to report the transaction as soon as practicable
on Form T.\7\
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\7\ See e.g., NASD Rule 6620(a)(4) (regarding the use of Form T
for trades reported to the OTC Reporting Facility).
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In these instances where a Form T is used for trade reporting
purposes, FINRA intends to provide firms the option of reporting the
required OATS information through the firm's normal OATS reporting
channels or as part of the Form T submission. In this way, firms will
be able to fulfill both the firm's trade reporting and OATS obligations
through its Form T submission.\8\ The ability to use a Form T to report
OATS information will be available only for trades in foreign equity
securities that do not have a U.S. symbol assigned at the time the OATS
information would ordinarily be reported.
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\8\ The revised OATS Reporting Technical Specifications that
will be published following Commission approval of the proposed rule
change will detail the precise procedures a firm may use to file the
OATS report(s) in this situation.
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The operative date of the proposed rule change will be February 4,
2008, to coincide with the implementation date for the amendments to
the OATS Rules requiring members to record and report order information
for OTC Equity Securities.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of section 15A(b)(6) of the Act,\9\ 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 achieves
a proper balance between reporting requirements that improve FINRA's
ability to monitor members' order handling obligations and that have
reasonable parameters regarding those orders that are subject to the
requirements.
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\9\ 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 were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2007-001 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2007-001. 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 (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2007-001 and should be
submitted on or before August 30, 2007.
[[Page 44902]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15551 Filed 8-8-07; 8:45 am]
BILLING CODE 8010-01-P
