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]

Download as PDF 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 (http://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 (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, 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). VerDate Aug<31>2005 18:25 Aug 08, 2007 Jkt 211001 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 PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\09AUN1.SGM 09AUN1 44900 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 http://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). VerDate Aug<31>2005 18:25 Aug 08, 2007 Jkt 211001 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). PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 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 E:\FR\FM\09AUN1.SGM 09AUN1 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). VerDate Aug<31>2005 18:25 Aug 08, 2007 Jkt 211001 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). PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 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 (http://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 (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, 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 09AUN1 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 VerDate Aug<31>2005 18:25 Aug 08, 2007 Jkt 211001 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. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 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 (http://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.
---------------------------------------------------------------------------

    \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 http://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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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 (http://
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 (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, 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