Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change Relating to the Reporting of Foreign Equity Securities to the Order Audit Trail System, 56816-56817 [E7-19593]

Download as PDF 56816 Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56573; File No. SR–CHX– 2007–16] Self-Regulatory Organizations; The Chicago Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change as Modified by Amendment No. 1 Thereto To Amend Its Bylaws to Confirm That an Exchange Director Cannot Participate in the Determination of Any Matter Involving an Issuer of a Security Listed or To Be Listed on the Exchange, if the Director is a Director, Officer, or Employee of the Issuer September 28, 2007. I. Introduction On July 27, 2007, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b-4 thereunder,2 a proposed rule change to amend Article II, Section 7 of its bylaws to confirm that, a CHX director cannot participate in the determination of any matter involving an issuer of a security listed or to be listed on the Exchange, if the CHX director is a director, officer, or employee of the issuer. On August 10, 2007, CHX filed an amendment to the proposed rule change.3 The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on August 24, 2007.4 The Commission received no comments on the proposal. This order approves the proposed rule change. II. Description of the Proposal CHX bylaws currently prohibit a CHX director from participating in the determination of any matter in which the CHX director is personally interested. In its filing, CHX stated that the proposal would add a clarification to its bylaws by confirming certain situations when a CHX director would be deemed ‘‘personally interested’’ in a matter involving an issuer of a security listed or to be listed on the Exchange. Specifically, under the proposal a CHX director is deemed ‘‘personally 1 15 U.S.C. 78s(b)(1). CFR 240.19b-4. 3 In Partial Amendment No. 1, the Exchange stated when a director recuses himself or herself from a decision, the Exchange would reflect that recusal in the minutes of the meeting at which the recusal occurred, in accordance with its internal written policies. 4 See Securities Exchange Act Release No. 56281 (August 17, 2007), 72 FR 48708. pwalker on PROD1PC71 with NOTICES 2 17 VerDate Aug<31>2005 16:20 Oct 03, 2007 Jkt 214001 interested’’ when the CHX director is a director, officer, or employee of the issuer of the security listed or to be listed on the Exchange. Further, this proposed provision is non-exclusive and the proposed changes to the bylaws specifically state that CHX would evaluate other relationships between the CHX director and the issuer on a caseby-case basis. III. Discussion After a careful review of the proposed rule change, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the regulations thereunder applicable to a national securities exchange.5 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,6 which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that CHX’s bylaws currently prohibit a CHX director from participating in the determination of any matter in which the CHX director is personally interested. However, in a matter involving an issuer of a security listed or to be listed on the Exchange, CHX’s bylaws do not specify under what situations the CHX director would be deemed personally interested. The proposal would specifically state that a CHX director could not participate in a matter involving an issuer listed or to be listed on the Exchange if the CHX director is a director, officer, or employee of the issuer. As noted above, this is not an exclusive list defining all situations involving an issuer and a CHX director in which a CHX director would be deemed ‘‘personally interested’’ and shall not participate in a matter pursuant to CHX bylaws. Under the proposal, CHX would evaluate other relationships between a CHX director and an issuer on a case-by-case basis. Examples of other situations the Commission would expect to involve a personal interest would include, among others, when a CHX director is serving as a consultant to an issuer, is a significant shareholder of the issuer or has some other relationship with the issuer. Moreover, CHX represented that when CHX directors recuse themselves 5 In approving the proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(4). PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 from a decision, CHX would reflect such recusals in the minutes of the meeting in which the recusal occurs, consistent with CHX’s internal written policies. The Commission believes that it is good corporate practice for CHX to confirm in its bylaws certain situations when an Exchange director is deemed personally interested in a matter involving an issuer of a security listed or to be listed on CHX and to reflect recusals in the minutes of the meetings in which the recusal occurs. This will help to ensure that matters involving the listing and delisting of issuer’s securities on CHX is considered in a fair and impartial manner which furthers the protection of investors and the public interest consistent with Section (6)(b)(5) of the Act. Based on the above, the Commission believes that the proposal is consistent with the requirements of the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,7 that the proposed rule change (SR–CHX–2007– 16) as modified by Amendment No. 1, be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–19559 Filed 10–3–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56571; File No. SR–FINRA– 2007–001] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change Relating to the Reporting of Foreign Equity Securities to the Order Audit Trail System September 28, 2007. I. Introduction On July 31, 2007, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a the National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change relating to 7 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 8 17 E:\FR\FM\04OCN1.SGM 04OCN1 Federal Register / Vol. 72, No. 192 / Thursday, October 4, 2007 / Notices reporting of order information for foreign equity securities to the Order Audit Trail System (‘‘OATS’’). The proposed rule change was published for comment in the Federal Register on August 9, 2007.3 The Commission received no comments on the proposal. This order approves the proposed rule change. pwalker on PROD1PC71 with NOTICES II. Description of the Proposal 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. FINRA integrates the OATS information with quote and transaction information from a number of different sources to create a time-sequenced 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. 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 6951.4 The definition of ‘‘OTC equity security’’ encompasses essentially all foreign equity securities, except those that are listed on a U.S. national securities exchange. After approval of NASD–2005–101, FINRA indicated that numerous member firms and industry organizations raised issues with its staff regarding the breadth of the application of the OATS Rules to foreign equity securities, as well as issues presented by 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, FINRA noted that many trades in foreign equity securities are routed to foreign brokerdealers and executed on a foreign stock exchange. Consequently, pursuant to the OATS Rules although FINRA would receive OATS information regarding the 3 See Securities Exchange Act Release No. 56199 (August 3, 2007), 72 FR 44899 (the ‘‘Notice’’). 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); 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 16:20 Oct 03, 2007 Jkt 214001 origination and routing of such orders, FINRA would not receive execution reports, and FINRA would not have trade report data to consolidate with the OATS data.5 In response to these concerns, FINRA proposed to amend Rule 6952 to exclude certain orders and transactions in foreign equity securities from the OATS recording and reporting requirements. With this change members will only have 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. Members would 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.6 FINRA will receive order information for the same transactions for which FINRA receives trade report information. FINRA believes this change strikes the appropriate balance enabling FINRA to effectively monitor its members’ compliance with their order handling requirements while avoiding overly burdensome reporting requirements. In addition, FINRA proposed to permit firms to use Form T to report required OATS information instead for reporting through the firm’s normal OATS reporting channels in instances where a firm has a reporting obligation in a foreign equity security, but does not have a U.S. symbol assigned to it at the time of the trade. III. Discussion and Commission Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.7 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act,8 which, among other things, requires that FINRA rules be designed to prevent fraudulent and manipulative acts and 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). 6 See the Notice at 44900–44901 for examples of trade reporting scenarios. 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 8 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 56817 practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change addresses concerns unique to OATS reporting requirements for orders in foreign equity securities in a manner consistent with the Act, and strikes an appropriate balance between ensuring that FINRA can effectively monitor members’ compliance with their order handling obligations and avoiding overly burdensome reporting requirements. Members will continue to be required to record and report OATS data to FINRA in those instances where a resulting execution in a foreign equity security is subject to a transaction reporting requirement pursuant to Rule 6620(g). Therefore, FINRA will receive OATS data that it can use in connection with trade reports to effectively monitor its members’ activities in foreign equity securities. However, members will be relieved of the obligation to record and report OATS data to FINRA in instances where there is not a transaction reporting requirement. Further, the Commission believes that allowing members to report required OATS data for orders in a foreign equity security that has not been assigned a symbol at the time of the reportable event on Form T instead of through a member’s normal OATS report channels will allow members to fulfill their trade reporting obligations and OATS obligations more efficiently while still ensuring the FINRA receives the information it requires to effectively monitor its members’ trading activity in foreign equity securities. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,9 that the proposed rule change (SR–FINRA– 2007–001), be, and hereby is, approved. It will become operative on February 4, 2008. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.10 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–19593 Filed 10–3–07; 8:45 am] BILLING CODE 8011–01–P 9 15 U.S.C. 78s(b)(2). 10 17 E:\FR\FM\04OCN1.SGM CFR 200.30–3(a)(12). 04OCN1

Agencies

[Federal Register Volume 72, Number 192 (Thursday, October 4, 2007)]
[Notices]
[Pages 56816-56817]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19593]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56571; File No. SR-FINRA-2007-001]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change Relating to the 
Reporting of Foreign Equity Securities to the Order Audit Trail System

September 28, 2007.

I. Introduction

    On July 31, 2007, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a the National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change relating to

[[Page 56817]]

reporting of order information for foreign equity securities to the 
Order Audit Trail System (``OATS''). The proposed rule change was 
published for comment in the Federal Register on August 9, 2007.\3\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56199 (August 3, 
2007), 72 FR 44899 (the ``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposal

    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. FINRA integrates the OATS information with quote 
and transaction information from a number of different sources to 
create a time-sequenced 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. 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.\4\ The definition of 
``OTC equity security'' encompasses essentially all foreign equity 
securities, except those that are listed on a U.S. national securities 
exchange.
---------------------------------------------------------------------------

    \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); see also Securities 
Exchange Act Release No. 55440 (March 9, 2007), 72 FR 12852 (March 
19, 2007) (SR-NASD-2007-019).
---------------------------------------------------------------------------

    After approval of NASD-2005-101, FINRA indicated that numerous 
member firms and industry organizations raised issues with its staff 
regarding the breadth of the application of the OATS Rules to foreign 
equity securities, as well as issues presented by 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, FINRA noted that many trades 
in foreign equity securities are routed to foreign broker-dealers and 
executed on a foreign stock exchange. Consequently, pursuant to the 
OATS Rules although FINRA would receive OATS information regarding the 
origination and routing of such orders, FINRA would not receive 
execution reports, and FINRA would not have trade report 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 proposed to amend Rule 6952 to 
exclude certain orders and transactions in foreign equity securities 
from the OATS recording and reporting requirements. With this change 
members will only have 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. Members would 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.\6\ FINRA will receive order information for the 
same transactions for which FINRA receives trade report information. 
FINRA believes this change strikes the appropriate balance enabling 
FINRA to effectively monitor its members' compliance with their order 
handling requirements while avoiding overly burdensome reporting 
requirements.
---------------------------------------------------------------------------

    \6\ See the Notice at 44900-44901 for examples of trade 
reporting scenarios.
---------------------------------------------------------------------------

    In addition, FINRA proposed to permit firms to use Form T to report 
required OATS information instead for reporting through the firm's 
normal OATS reporting channels in instances where a firm has a 
reporting obligation in a foreign equity security, but does not have a 
U.S. symbol assigned to it at the time of the trade.

III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association.\7\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A(b)(6) of the Act,\8\ which, 
among other things, requires that FINRA rules 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.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The Commission believes that the proposed rule change addresses 
concerns unique to OATS reporting requirements for orders in foreign 
equity securities in a manner consistent with the Act, and strikes an 
appropriate balance between ensuring that FINRA can effectively monitor 
members' compliance with their order handling obligations and avoiding 
overly burdensome reporting requirements. Members will continue to be 
required to record and report OATS data to FINRA in those instances 
where a resulting execution in a foreign equity security is subject to 
a transaction reporting requirement pursuant to Rule 6620(g). 
Therefore, FINRA will receive OATS data that it can use in connection 
with trade reports to effectively monitor its members' activities in 
foreign equity securities. However, members will be relieved of the 
obligation to record and report OATS data to FINRA in instances where 
there is not a transaction reporting requirement.
    Further, the Commission believes that allowing members to report 
required OATS data for orders in a foreign equity security that has not 
been assigned a symbol at the time of the reportable event on Form T 
instead of through a member's normal OATS report channels will allow 
members to fulfill their trade reporting obligations and OATS 
obligations more efficiently while still ensuring the FINRA receives 
the information it requires to effectively monitor its members' trading 
activity in foreign equity securities.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-FINRA-2007-001), be, and 
hereby is, approved. It will become operative on February 4, 2008.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
---------------------------------------------------------------------------
pursuant to delegated authority.\10\

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-19593 Filed 10-3-07; 8:45 am]
BILLING CODE 8011-01-P