Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of Proposed Rule Change To Exempt From TRACE Reporting Transactions in TRACE-Eligible Securities Resulting From Certain Derivative-Related Transactions, 61924-61925 [E7-21498]

Download as PDF 61924 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices ECB would provide subcustody services such as principal and income collection and corporate action processing on securities held in DTC’s omnibus account at ECB in accordance with ECB procedures. DTC in turn would provide its participants with principal and income payment and corporate actions services without the need for its participants to interact directly with ECB. The primary benefits of the proposed rule change are that it would facilitate the expanded dual listing programs of marketplaces operating in the U.S. and Europe and that it should help to reduce the number of transactions that fail on settlement date because of inefficient methods of inventory repositioning. The realization of these benefits would be consistent with DTC’s objectives of providing efficient book-entry clearance and settlement facilities and of reducing risk to DTC participants by immobilizing certificates. The proposed rule change is consistent with the requirements of Section 17A of the Act and the rules and regulations thereunder because it should reduce risks and associated costs to DTC and ECB participants by streamlining the processing of crossborder securities transactions between U.S. and European entities. B. Self-Regulatory Organization’s Statement on Burden on Competition DTC 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 been solicited or received. mstockstill on PROD1PC66 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty five 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 ninety 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 the proposed rule change or (b) Institute proceedings to determine whether the proposed rule change should be disapproved. VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 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: For the Commission by the Division of Market Regulation, pursuant to delegated authority.3 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–21496 Filed 10–31–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 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–DTC–2007–12 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. [Release No. 34–56709; File No. SR–FINRA– 2007–007] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of Proposed Rule Change To Exempt From TRACE Reporting Transactions in TRACE-Eligible Securities Resulting From Certain Derivative-Related Transactions October 26, 2007. On August 10, 2007, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) All submissions should refer to File filed with the Securities and Exchange Number SR–DTC–2007–12. This file Commission (‘‘Commission’’) pursuant number should be included on the subject line if e-mail is used. To help the to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule Commission process and review your 19b–4 thereunder,2 a proposed rule comments more efficiently, please use only one method. The Commission will change to exempt from reporting to the post all comments on the Commission’s Trade Reporting and Compliance Engine (‘‘TRACE’’) transactions in TRACEInternet Web site (https://www.sec.gov/ eligible securities resulting from the rules/sro.shtml). Copies of the exercise or settlement of an option or a submission, all subsequent similar instrument, or the termination or amendments, all written statements settlement of a credit default swap with respect to the proposed rule (‘‘CDS’’), other types of swap, or a change that are filed with the similar instrument (collectively, Commission, and all written ‘‘Derivative-Related Transactions’’).3 communications relating to the The Commission published the proposed rule change between the proposed rule change for comment in Commission and any person, other than the Federal Register on September 21, those that may be withheld from the 2007.4 The Commission received no public in accordance with the comments on the proposed rule change. provisions of 5 U.S.C. 552, will be This order approves the proposed rule available for inspection and copying in change. the Commission’s Public Reference As described above, FINRA proposed Room, 100 F Street, NE., Washington, to amend its Rules to exempt DC 20549, on official business days transactions in TRACE-eligible between the hours of 10 a.m. and 3 p.m. securities 5 that are Derivative-Related Copies of such filing also will be 3 17 CFR 200.30–3(a)(12). available for inspection and copying at 1 15 U.S.C. 78s(b)(1). the principal office of DTC. All 2 17 CFR 240.19b–4. comments received will be posted 3 On July 26, 2007, the Commission approved a without change; the Commission does proposed rule change filed by NASD to amend NASD’’s Certificate of Incorporation to reflect its not edit personal identifying name change to Financial Industry Regulatory information from submissions. You Authority Inc., or FINRA, in connection with the should submit only information that consolidation of the member firm regulatory you wish to make available publicly. All functions of NASD and NYSE Regulation, Inc. See Securities Exchange Act Release No. 56146 (July 26, submissions should refer to File 2007), 72 FR 42190 (August 1, 2007). Number SR–DTC–2007–12 and should 4 See Securities Exchange Act Release No. 56439 be submitted on or before November 23, (September 13, 2007), 72 FR 54087. 5 See NASD Rule 6210 for definition of ‘‘TRACE2007. PO 00000 eligible security.’’ Frm 00070 Fmt 4703 Sfmt 4703 E:\FR\FM\01NON1.SGM 01NON1 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices mstockstill on PROD1PC66 with NOTICES Transactions from the TRACE reporting requirements.6 FINRA believes that Derivative-Related Transactions should be exempt from TRACE reporting requirements because the information regarding price (and yield) being reported to FINRA and disseminated to the public does not reflect a currently negotiated transaction price. Further, FINRA believes that reporting and dissemination of certain DerivativeRelated Transactions does not foster price discovery and may contribute to investor confusion, which FINRA believes is consistent with previously recognized rationale for exempting certain transactions from trade reporting and dissemination. FINRA noted in its proposal that, historically, purchases and sales of equity securities that occurred as a result of the exercise of an over-the-counter option were subject to a similar exemption and were not required to be reported to FINRA.7 The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities association.8 In particular, the Commission believes that the proposed rule change is consistent with Section 15A(b)(6) of the Act,9 which requires, among other things, that FINRA rules 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. FINRA’s proposal will relieve its members of the administrative burdens of reporting transactions in TRACE-eligible securities resulting from DerivativeRelated Transactions. The Commission agrees with FINRA that requiring members to report such transactions does little to enhance market transparency, because the price of the TRACE-eligible security in this case has been previously negotiated and does not reflect the present market value. The Commission notes that it previously has approved similar proposals that exclude 6 The TRACE reporting requirement does not exist in connection with any cash-settled derivative, even if the derivative relates to one or several securities that are TRACE-eligible securities. 7 But see Securities Exchange Act Release No. 53977 (June 12, 2006), 71 FR 34976 (June 16, 2006) (requiring members to report equity trades resulting from the exercise of a physically settled option for purposes of fee calculation, but not for transparency purposes). 8 In approving this rule, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 9 15 U.S.C. 78o–3(b)(6). VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 61925 from trade reporting obligations ‘‘transactions effected upon the exercise of an option or any other right to acquire securities at a preestablished consideration unrelated to the current market.’’ 10 It is therefore ordered, pursuant to Section 19(b)(2) of the Act,11 that the proposed rule change (SR–FINRA– 2007–007), be, and it hereby is, approved. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–21498 Filed 10–31–07; 8:45 am] II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56708; File No. SR– NASDAQ–2007–078] Self-Regulatory Organizations; The NASDAQ Stock Market, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Nasdaq’s Outbound Routing Broker 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 September 7, 2007, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by Nasdaq. On October 19, 2007, Nasdaq submitted Amendment No. 1 to the proposed rule change. The Exchange has filed the proposal as a ‘‘non-controversial’’ rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 10 See Securities Exchange Act Release No. 30569 (April 10, 1992), 57 FR 13396, n.5 (April 16, 1992) (SR–NASD–91–50). 11 15 U.S.C. 78s(b)(2). 12 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). Frm 00071 Fmt 4703 In its filing with the Commission, Nasdaq 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. Nasdaq 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 October 26, 2007. PO 00000 Nasdaq proposes to codify the functions of its wholly-owned routing broker-dealer Nasdaq Execution Services, LLC (‘‘NES’’). The text of the proposed rule change is available at Nasdaq, the Commission’s Public Reference Room, and https:// www.nasdaq.com. Sfmt 4703 In July 2006, the Commission approved the integration of Nasdaq’s three execution systems—the Nasdaq Market Center, the Brut ECN, and the INET ECN—into a single execution system with routing functionality commonly known as the Nasdaq Single Book (‘‘Single Book’’).5 In coordination with Nasdaq’s transition to a registered national securities exchange, Single Book commenced full operation for Nasdaq-listed securities on October 30, 2006, and for other exchange-listed securities on February 12, 2007. Since that time, NES has operated solely and exclusively as the routing broker for the Exchange, and the method for the Exchange to obtain access to better prices displayed in other market centers and, more recently, as required under Regulation NMS. NES is a facility of Nasdaq and operates no trade matching or execution system. Nasdaq states that NES has no customers or users other than the Nasdaq exchange itself. Nasdaq states that this filing merely seeks the adoption of a rule formally codifying this existing and ongoing relationship, and does not alter in any way the current operation of either the Exchange 5 See Securities Exchange Act Release No. 54155 (July 14, 2006), 71 FR 41291 (July 20, 2006) (SR– NASDAQ–2006–001). E:\FR\FM\01NON1.SGM 01NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 211 (Thursday, November 1, 2007)]
[Notices]
[Pages 61924-61925]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-21498]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56709; File No. SR-FINRA-2007-007]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of Proposed Rule Change To 
Exempt From TRACE Reporting Transactions in TRACE-Eligible Securities 
Resulting From Certain Derivative-Related Transactions

 October 26, 2007.
    On August 10, 2007, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') (f/k/a 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 to exempt from reporting to the Trade Reporting 
and Compliance Engine (``TRACE'') transactions in TRACE-eligible 
securities resulting from the exercise or settlement of an option or a 
similar instrument, or the termination or settlement of a credit 
default swap (``CDS''), other types of swap, or a similar instrument 
(collectively, ``Derivative-Related Transactions'').\3\ The Commission 
published the proposed rule change for comment in the Federal Register 
on September 21, 2007.\4\ The Commission received no comments on the 
proposed rule change. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD''s Certificate of Incorporation 
to reflect its name change to Financial Industry Regulatory 
Authority Inc., or FINRA, in connection with the consolidation of 
the member firm regulatory functions of NASD and NYSE Regulation, 
Inc. See Securities Exchange Act Release No. 56146 (July 26, 2007), 
72 FR 42190 (August 1, 2007).
    \4\ See Securities Exchange Act Release No. 56439 (September 13, 
2007), 72 FR 54087.
---------------------------------------------------------------------------

    As described above, FINRA proposed to amend its Rules to exempt 
transactions in TRACE-eligible securities \5\ that are Derivative-
Related

[[Page 61925]]

Transactions from the TRACE reporting requirements.\6\ FINRA believes 
that Derivative-Related Transactions should be exempt from TRACE 
reporting requirements because the information regarding price (and 
yield) being reported to FINRA and disseminated to the public does not 
reflect a currently negotiated transaction price. Further, FINRA 
believes that reporting and dissemination of certain Derivative-Related 
Transactions does not foster price discovery and may contribute to 
investor confusion, which FINRA believes is consistent with previously 
recognized rationale for exempting certain transactions from trade 
reporting and dissemination. FINRA noted in its proposal that, 
historically, purchases and sales of equity securities that occurred as 
a result of the exercise of an over-the-counter option were subject to 
a similar exemption and were not required to be reported to FINRA.\7\
---------------------------------------------------------------------------

    \5\ See NASD Rule 6210 for definition of ``TRACE-eligible 
security.''
    \6\ The TRACE reporting requirement does not exist in connection 
with any cash-settled derivative, even if the derivative relates to 
one or several securities that are TRACE-eligible securities.
    \7\ But see Securities Exchange Act Release No. 53977 (June 12, 
2006), 71 FR 34976 (June 16, 2006) (requiring members to report 
equity trades resulting from the exercise of a physically settled 
option for purposes of fee calculation, but not for transparency 
purposes).
---------------------------------------------------------------------------

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities association.\8\ 
In particular, the Commission believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act,\9\ which requires, among 
other things, that FINRA rules 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. FINRA's 
proposal will relieve its members of the administrative burdens of 
reporting transactions in TRACE-eligible securities resulting from 
Derivative-Related Transactions. The Commission agrees with FINRA that 
requiring members to report such transactions does little to enhance 
market transparency, because the price of the TRACE-eligible security 
in this case has been previously negotiated and does not reflect the 
present market value. The Commission notes that it previously has 
approved similar proposals that exclude from trade reporting 
obligations ``transactions effected upon the exercise of an option or 
any other right to acquire securities at a preestablished consideration 
unrelated to the current market.'' \10\
---------------------------------------------------------------------------

    \8\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ See Securities Exchange Act Release No. 30569 (April 10, 
1992), 57 FR 13396, n.5 (April 16, 1992) (SR-NASD-91-50).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-FINRA-2007-007), be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-21498 Filed 10-31-07; 8:45 am]
BILLING CODE 8011-01-P

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