Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Trade Reporting Transfers of Proprietary Securities Positions in Connection With Certain Corporate Control Transactions, 17271-17273 [E9-8417]
Download as PDF
Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices
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, and not be designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers.
The Commission believes that the
proposed rule change will increase
efficiency in trade reporting and remove
potential confusion about which party
to a transaction is responsible for
reporting such information.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (SR–NYSEArca–
2009–11) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–8419 Filed 4–13–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59713; File No. SR–FINRA–
2009–024]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Trade
Reporting Transfers of Proprietary
Securities Positions in Connection
With Certain Corporate Control
Transactions
April 6, 2009.
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 April 3,
2009, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) (f/k/a
National Association of Securities
Dealers, Inc. (‘‘NASD’’)) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II
and III below, which Items have been
prepared by FINRA. FINRA has
designated the proposed rule change as
constituting a ‘‘non-controversial’’ rule
change under Section 19(b)(3)(A) of the
Act 3 and paragraph (f)(6) thereunder,4
which renders the proposal effective
U.S.C. 78s(b)(2).
11 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).
16:39 Apr 13, 2009
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
trade reporting rules to codify the
reporting requirements applicable to
over-the-counter (‘‘OTC’’) transfers of
proprietary positions in debt and equity
securities between a member and
another member or non-member brokerdealer effected in connection with
certain corporate control transactions.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
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
FINRA trade reporting rules require
that OTC transactions in debt and equity
securities be reported to FINRA unless
they qualify for an express exception
under the rules.5 For purposes of the
trade reporting rules, a ‘‘trade’’ or
‘‘transaction’’ entails a beneficial change
of ownership of securities between
parties (e.g., a purchase or sale of
securities) in which a FINRA member
participates.6 As a general matter, when
members report trades to a FINRA trade
reporting facility, FINRA facilitates the
public dissemination of the trade
information and/or assesses regulatory
transaction fees.7
5 See
Rules 6282, 6380A, 6380B, 6622 and 6730.
Trade Reporting Frequently Asked
Questions, FAQ 100.4, available at https://
www.finra.org/Industry/Regulation/Guidance/
P038942.
7 Certain trades are reported to FINRA, but not for
publication purposes (referred to as ‘‘non-tape
reports’’). For example, FINRA rules require
6 See
10 15
VerDate Nov<24>2008
upon receipt of this filing by the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
Jkt 217001
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17271
Occasionally, broker-dealers may
transfer proprietary securities positions,
along with other assets, in connection
with corporate control transactions such
as mergers and acquisitions. Such
transfers are ‘‘trades’’ or ‘‘transactions’’
because they result in a change of
beneficial ownership, but unlike the
typical securities transaction, they are
not driven by a trading or investment
strategy (e.g., a desire to exit a position
or lock in a profit) relating to a
particular security position. Rather, the
transfers are in furtherance of the
consolidation of the broker-dealers’
separate sales and proprietary trading
businesses. Additionally, the securities
that are transferred typically are
assigned a value, such as the closing
price of the security on a date certain,
solely for purposes of effectuating the
transfer.
As such, FINRA believes that public
dissemination of such transfers would
not provide meaningful price discovery
information to the market. To the
contrary, dissemination could confuse
investors and other market participants,
particularly where the positions being
transferred are substantial. Public
dissemination of significant and
perhaps unusual trading activity could
give the false impression of investor
interest, market participant transactions
and significant price discovery
activities, and the volume reports could
skew a variety of trading activity
indicators.8
Accordingly, FINRA is proposing to
amend its trade reporting rules to clarify
members to submit non-tape reports for transactions
that are effected upon the exercise of an OTC option
or for ‘‘away from the market sales’’ (e.g., a gift
between two parties). The non-tape reports are used
for audit trail and regulatory fee assessment
purposes only and are not reported to the
appropriate exclusive Securities Information
Processor (‘‘SIP’’) for public dissemination. See
Rules 6282(i)(2) and 7130(c) (relating to the
Alternative Display Facility); 6380A(e)(2) and
7230A(g) (relating to the FINRA/Nasdaq Trade
Reporting Facility); 6380B(e)(2) and 7230B(f)
(relating to the FINRA/NYSE Trade Reporting
Facility); and 6622(e)(2) and 7330(g) (relating to the
OTC Reporting Facility).
8 Similarly, FINRA amended its trade reporting
rules to clarify that in the limited circumstance
where securities are transferred pursuant to an asset
purchase agreement (‘‘APA’’), such transfer does
not have to be reported if (1) the APA is subject to
the jurisdiction and approval of a court of
competent jurisdiction in insolvency matters; and
(2) the purchase price under the APA is not based
on, and cannot be adjusted to reflect, the current
market prices of the securities on or following the
effective date of the APA. FINRA believes that
transfers effected pursuant to an APA under these
circumstances are not trade reportable events and
that reporting and dissemination of these transfers
would not provide meaningful price discovery
information to the market. See Securities Exchange
Act Release No. 59126 (December 19, 2008), 73 FR
79948 (December 30, 2008) (notice of filing and
immediate effectiveness of SR–FINRA–2008–060).
E:\FR\FM\14APN1.SGM
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17272
Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices
that members are not required to report
to FINRA for purposes of publication
transfers of proprietary securities
positions between a member and
another member or non-member brokerdealer where the transfer (1) is effected
in connection with a merger of one
broker-dealer with the other brokerdealer or a direct or indirect acquisition
of one broker-dealer by the other brokerdealer or the other broker-dealer’s
parent company and (2) is not in
furtherance of a trading or investment
strategy. However, while such transfers
are not reportable for publication
purposes, they nonetheless must be
reported to FINRA for purposes of
assessing applicable regulatory
transaction fees pursuant to Section 3 of
Schedule A to the FINRA By-Laws 9
and/or trading activity fees under
Section 1(b) of Schedule A to the FINRA
By-Laws.10
Specifically, with respect to equity
securities, FINRA is proposing to amend
Rule 6282(i)(2) and paragraph (e)(2) of
Rules 6380A, 6380B and 6622, which
provisions identify the transactions that
are not required to be reported for
publication, but must be reported for
regulatory fee assessment purposes.
FINRA also is proposing corresponding
amendments to Rules 7130(c), 7230A(g),
7230B(f) and 7330(g), which provisions
set forth the specific reporting
requirements for trades reported for
regulatory transaction fee assessment
purposes. With respect to debt
securities, FINRA is proposing to amend
Rule 6750(b), which identifies the
transactions in TRACE-eligible
securities that are reported, but not
disseminated.
The distinguishing factor is whether
the position transfer is being effected as
part of an overall sale and the
consolidation of the broker-dealers’
separate proprietary trading businesses
(in which case it would fall within the
proposed exception) rather than being
driven by a trading or investment
strategy (in which case it would not fall
within the exception). For example, as
a result of a corporate control
transaction, a member, Firm 1, acquires
9 Pursuant to Section 31 of the Act, FINRA and
the national securities exchanges are required to
pay transaction fees and assessments to the SEC
that are designed to recover the costs related to the
government’s supervision and regulation of the
securities markets and securities professionals.
FINRA obtains its Section 31 fees and assessments
from its membership, in accordance with Section 3
of Schedule A to the FINRA By-Laws.
10 The trading activity fee is used by FINRA solely
to fund its member regulatory activities, including
the supervision and regulation of members through
examinations, financial monitoring, policy,
rulemaking, interpretive and enforcement activities.
See Section 1(a) of Schedule A to the FINRA ByLaws.
VerDate Nov<24>2008
16:39 Apr 13, 2009
Jkt 217001
all of the assets of another member (or
non-member broker-dealer), Firm 2, or
Firm 1’s parent company acquires Firm
2, such that Firm 1 and Firm 2 become
wholly owned by the same parent
company. In connection with the
corporate control transaction, Firm 1
and Firm 2 consolidate their separate
sales and trading businesses onto a
single platform and, along with the
migration of sales and trading
personnel, clients and systems and
technology, Firm 2’s proprietary
positions are transferred to Firm 1. In
this instance, the transfer from Firm 2
to Firm 1 would fall within the
proposed exception and would not be
reportable for publication purposes, but
must be reported for regulatory
purposes.
By way of further example, a member,
Firm 1 and another member (or nonmember broker-dealer), Firm 2,
currently are wholly owned by the same
parent company and operate separately.
Firm 1 owns 100,000 shares of ABCD
security and the value of ABCD has
increased substantially since Firm 1
purchased the shares. As part of an
investment strategy, Firm 1 sells the
shares to Firm 2. In this instance, the
sale from Firm 1 to Firm 2 would not
fall within the proposed exception and
must be reported for publication
purposes.
The proposed rule change would
expressly limit the exception to
transfers between two members or
between a member and a non-member
broker-dealer that are effected in
connection with a merger of one brokerdealer with the other broker-dealer or a
direct or indirect acquisition of one
broker-dealer by the other broker-dealer
or the other broker-dealer’s parent
company. FINRA notes that these
corporate control transactions are
among the changes in a member’s
ownership or control that would trigger
the notice requirements and
membership application process under
FINRA rules.11 Thus, the proposed
exception generally would apply where
the merger or acquisition would require
the member to submit notice and/or an
application under FINRA rules.
However, because FINRA membership
application rules are broader than the
scope of the proposed trade reporting
exception, FINRA is clarifying that the
proposed exception will not be
considered satisfied merely because a
member has submitted an application or
notice under FINRA membership rules.
Pursuant to the proposed rule change,
members will be required to report in
11 See NASD Rule 1017(a)(1) and (2). See also,
Incorporated NYSE Rule 312.
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
the manner prescribed by FINRA to
designate that the reports are submitted
for regulatory and not publication
purposes.12 Members generally should
report to FINRA on the same day as the
ultimate transfer of the positions on
their books and records, unless later
reporting is warranted under specific
circumstances.13
In addition, members will be required
to provide FINRA at least three business
days advance written notice of their
intent to use this exception, including
the basis for their determination that the
transfer meets the terms of the
exception. FINRA notes that while the
advance notice requirement is not
intended to establish a protocol for prior
approval by FINRA, it may help reduce
the potential for improper use of the
proposed exception. Advance written
notice to FINRA shall not constitute an
estoppel as to FINRA or bind FINRA in
any subsequent administrative, civil or
disciplinary proceeding with respect to
a member’s use of the proposed
exception. In other words, advance
notice to FINRA should not be taken to
mean that FINRA approved the
transaction as properly qualifying under
the terms of the exception. A member
relying on the proposed exception must
ensure that the transfer satisfies the
terms of the exception.
Finally, FINRA is proposing certain
technical, non-substantive changes to
these rules. First, FINRA is proposing to
reorganize Rules 7130(c), 7230A(g),
7230B(f) and 7330(g), and to delete the
references to the ‘‘.RA’’ and ‘‘.RX’’
modifiers in the rules.14 Second, FINRA
is proposing to change the heading of
paragraph (b) of Rule 6750 to
‘‘Transaction Information Not
Disseminated,’’ and to create new
numbered subparagraphs for the
transactions that are reported to the
12 FINRA will publish a Notice setting forth the
specific reporting requirements applicable to the
proposed exception. Members also should refer to
the applicable technical specifications for the
FINRA facility to which they are reporting trades.
13 FINRA expects that in most instances, if
members cannot report on the same day that the
transfers are reflected on their books and records
(for example, if the transfers take place after the
close of the FINRA trade reporting facilities),
members will report no later than the following
business day (T+1). However, FINRA recognizes
that for some transfers, manual processing may be
required or other operational issues may arise.
14 This is consistent with Rules 6282, 6380A and
6380B, which no longer refer to specific labels (e.g.,
‘‘.PRP’’ or ‘‘.W’’) for the trade report modifiers that
members are required to use when reporting trades
to FINRA. Rather, the rules identify the types of
transactions that must have a unique modifier
associated with them and such modifiers are
labeled in the facility’s technical specifications
rather than in the rules.
E:\FR\FM\14APN1.SGM
14APN1
Federal Register / Vol. 74, No. 70 / Tuesday, April 14, 2009 / Notices
Trade Reporting and Compliance Engine
(‘‘TRACE’’), but not disseminated.
FINRA has filed the proposed rule
change for immediate effectiveness. The
operative date of the proposed rule
change will be 30 days after the date of
filing.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,15 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 will clarify
members’ trade reporting obligations,
enhance market transparency and
protect investors and other market
participants by ensuring that transfers
that do not contribute to market price
discovery and could confuse market
participants are not disseminated.
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 16 and Rule 19b–
4(f)(6) thereunder.17
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.
15 15
U.S.C. 78o–3(b)(6).
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(6).
16 15
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16:39 Apr 13, 2009
Jkt 217001
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–2009–024 on the
subject line.
Paper Comments
17273
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–8417 Filed 4–13–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59712; File No. SR–
NASDAQ–2009–028]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing of Proposed Rule Change To
Reduce Fees for NASDAQ Basic Data
Feeds
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
April 6, 2009.
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–2009–024 and
should be submitted on or before May
5, 2009.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
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 March 27,
2009, The NASDAQ Stock Market LLC
All submissions should refer to File
Number SR–FINRA–2009–024. This file (‘‘NASDAQ’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
number should be included on the
subject line if e-mail is used. To help the Commission (‘‘Commission’’) the
proposed rule change as described in
Commission process and review your
Items I, II, and III below, which Items
comments more efficiently, please use
only one method. The Commission will have been prepared by the Exchange.
post all comments on the Commission’s The Commission is publishing this
notice to solicit comments on the
Internet Web site (https://www.sec.gov/
proposed rule change from interested
rules/sro.shtml). Copies of the
persons.
submission, all subsequent
PO 00000
Frm 00131
Fmt 4703
Sfmt 4703
NASDAQ is proposing a rule change
to reduce fees for ‘‘NASDAQ Basic’’
which is a real time data feed combining
both NASDAQ’s Best Bid and Offer
(‘‘QBBO’’) and the ‘‘NASDAQ Last Sale.
NASDAQ Basic was approved on March
16, 2009,3 as a pilot program (‘‘Basic
Pilot’’) that included fees for usage and
distribution of the data. NASDAQ has
determined to further promote the
deployment and usage of NASDAQ
Basic by reducing the fee for its
distribution. NASDAQ is seeking
approval to implement this change
effective April 1, 2009.
The text of the proposed rule change
is available from NASDAQ’s Web site at
https://nasdaq.cchwallstreet.com, at
NASDAQ’s principal office, and at the
Commission’s Public Reference Room.
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59582
(March 16, 2009) (SR–NASDAQ–2008–102).
1 15
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Agencies
[Federal Register Volume 74, Number 70 (Tuesday, April 14, 2009)]
[Notices]
[Pages 17271-17273]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-8417]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59713; File No. SR-FINRA-2009-024]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Relating to Trade Reporting Transfers of
Proprietary Securities Positions in Connection With Certain Corporate
Control Transactions
April 6, 2009.
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 April 3, 2009, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by FINRA. FINRA has
designated the proposed rule change as constituting a ``non-
controversial'' rule change under Section 19(b)(3)(A) of the Act \3\
and paragraph (f)(6) thereunder,\4\ which renders the proposal
effective upon receipt of this filing by the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA trade reporting rules to codify
the reporting requirements applicable to over-the-counter (``OTC'')
transfers of proprietary positions in debt and equity securities
between a member and another member or non-member broker-dealer
effected in connection with certain corporate control transactions.
The text of the proposed rule change is available on FINRA's Web
site at https://www.finra.org, at the principal office of FINRA and at
the Commission's Public Reference Room.
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
FINRA trade reporting rules require that OTC transactions in debt
and equity securities be reported to FINRA unless they qualify for an
express exception under the rules.\5\ For purposes of the trade
reporting rules, a ``trade'' or ``transaction'' entails a beneficial
change of ownership of securities between parties (e.g., a purchase or
sale of securities) in which a FINRA member participates.\6\ As a
general matter, when members report trades to a FINRA trade reporting
facility, FINRA facilitates the public dissemination of the trade
information and/or assesses regulatory transaction fees.\7\
---------------------------------------------------------------------------
\5\ See Rules 6282, 6380A, 6380B, 6622 and 6730.
\6\ See Trade Reporting Frequently Asked Questions, FAQ 100.4,
available at https://www.finra.org/Industry/Regulation/Guidance/P038942.
\7\ Certain trades are reported to FINRA, but not for
publication purposes (referred to as ``non-tape reports''). For
example, FINRA rules require members to submit non-tape reports for
transactions that are effected upon the exercise of an OTC option or
for ``away from the market sales'' (e.g., a gift between two
parties). The non-tape reports are used for audit trail and
regulatory fee assessment purposes only and are not reported to the
appropriate exclusive Securities Information Processor (``SIP'') for
public dissemination. See Rules 6282(i)(2) and 7130(c) (relating to
the Alternative Display Facility); 6380A(e)(2) and 7230A(g)
(relating to the FINRA/Nasdaq Trade Reporting Facility); 6380B(e)(2)
and 7230B(f) (relating to the FINRA/NYSE Trade Reporting Facility);
and 6622(e)(2) and 7330(g) (relating to the OTC Reporting Facility).
---------------------------------------------------------------------------
Occasionally, broker-dealers may transfer proprietary securities
positions, along with other assets, in connection with corporate
control transactions such as mergers and acquisitions. Such transfers
are ``trades'' or ``transactions'' because they result in a change of
beneficial ownership, but unlike the typical securities transaction,
they are not driven by a trading or investment strategy (e.g., a desire
to exit a position or lock in a profit) relating to a particular
security position. Rather, the transfers are in furtherance of the
consolidation of the broker-dealers' separate sales and proprietary
trading businesses. Additionally, the securities that are transferred
typically are assigned a value, such as the closing price of the
security on a date certain, solely for purposes of effectuating the
transfer.
As such, FINRA believes that public dissemination of such transfers
would not provide meaningful price discovery information to the market.
To the contrary, dissemination could confuse investors and other market
participants, particularly where the positions being transferred are
substantial. Public dissemination of significant and perhaps unusual
trading activity could give the false impression of investor interest,
market participant transactions and significant price discovery
activities, and the volume reports could skew a variety of trading
activity indicators.\8\
---------------------------------------------------------------------------
\8\ Similarly, FINRA amended its trade reporting rules to
clarify that in the limited circumstance where securities are
transferred pursuant to an asset purchase agreement (``APA''), such
transfer does not have to be reported if (1) the APA is subject to
the jurisdiction and approval of a court of competent jurisdiction
in insolvency matters; and (2) the purchase price under the APA is
not based on, and cannot be adjusted to reflect, the current market
prices of the securities on or following the effective date of the
APA. FINRA believes that transfers effected pursuant to an APA under
these circumstances are not trade reportable events and that
reporting and dissemination of these transfers would not provide
meaningful price discovery information to the market. See Securities
Exchange Act Release No. 59126 (December 19, 2008), 73 FR 79948
(December 30, 2008) (notice of filing and immediate effectiveness of
SR-FINRA-2008-060).
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Accordingly, FINRA is proposing to amend its trade reporting rules
to clarify
[[Page 17272]]
that members are not required to report to FINRA for purposes of
publication transfers of proprietary securities positions between a
member and another member or non-member broker-dealer where the
transfer (1) is effected in connection with a merger of one broker-
dealer with the other broker-dealer or a direct or indirect acquisition
of one broker-dealer by the other broker-dealer or the other broker-
dealer's parent company and (2) is not in furtherance of a trading or
investment strategy. However, while such transfers are not reportable
for publication purposes, they nonetheless must be reported to FINRA
for purposes of assessing applicable regulatory transaction fees
pursuant to Section 3 of Schedule A to the FINRA By-Laws \9\ and/or
trading activity fees under Section 1(b) of Schedule A to the FINRA By-
Laws.\10\
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\9\ Pursuant to Section 31 of the Act, FINRA and the national
securities exchanges are required to pay transaction fees and
assessments to the SEC that are designed to recover the costs
related to the government's supervision and regulation of the
securities markets and securities professionals. FINRA obtains its
Section 31 fees and assessments from its membership, in accordance
with Section 3 of Schedule A to the FINRA By-Laws.
\10\ The trading activity fee is used by FINRA solely to fund
its member regulatory activities, including the supervision and
regulation of members through examinations, financial monitoring,
policy, rulemaking, interpretive and enforcement activities. See
Section 1(a) of Schedule A to the FINRA By-Laws.
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Specifically, with respect to equity securities, FINRA is proposing
to amend Rule 6282(i)(2) and paragraph (e)(2) of Rules 6380A, 6380B and
6622, which provisions identify the transactions that are not required
to be reported for publication, but must be reported for regulatory fee
assessment purposes. FINRA also is proposing corresponding amendments
to Rules 7130(c), 7230A(g), 7230B(f) and 7330(g), which provisions set
forth the specific reporting requirements for trades reported for
regulatory transaction fee assessment purposes. With respect to debt
securities, FINRA is proposing to amend Rule 6750(b), which identifies
the transactions in TRACE-eligible securities that are reported, but
not disseminated.
The distinguishing factor is whether the position transfer is being
effected as part of an overall sale and the consolidation of the
broker-dealers' separate proprietary trading businesses (in which case
it would fall within the proposed exception) rather than being driven
by a trading or investment strategy (in which case it would not fall
within the exception). For example, as a result of a corporate control
transaction, a member, Firm 1, acquires all of the assets of another
member (or non-member broker-dealer), Firm 2, or Firm 1's parent
company acquires Firm 2, such that Firm 1 and Firm 2 become wholly
owned by the same parent company. In connection with the corporate
control transaction, Firm 1 and Firm 2 consolidate their separate sales
and trading businesses onto a single platform and, along with the
migration of sales and trading personnel, clients and systems and
technology, Firm 2's proprietary positions are transferred to Firm 1.
In this instance, the transfer from Firm 2 to Firm 1 would fall within
the proposed exception and would not be reportable for publication
purposes, but must be reported for regulatory purposes.
By way of further example, a member, Firm 1 and another member (or
non-member broker-dealer), Firm 2, currently are wholly owned by the
same parent company and operate separately. Firm 1 owns 100,000 shares
of ABCD security and the value of ABCD has increased substantially
since Firm 1 purchased the shares. As part of an investment strategy,
Firm 1 sells the shares to Firm 2. In this instance, the sale from Firm
1 to Firm 2 would not fall within the proposed exception and must be
reported for publication purposes.
The proposed rule change would expressly limit the exception to
transfers between two members or between a member and a non-member
broker-dealer that are effected in connection with a merger of one
broker-dealer with the other broker-dealer or a direct or indirect
acquisition of one broker-dealer by the other broker-dealer or the
other broker-dealer's parent company. FINRA notes that these corporate
control transactions are among the changes in a member's ownership or
control that would trigger the notice requirements and membership
application process under FINRA rules.\11\ Thus, the proposed exception
generally would apply where the merger or acquisition would require the
member to submit notice and/or an application under FINRA rules.
However, because FINRA membership application rules are broader than
the scope of the proposed trade reporting exception, FINRA is
clarifying that the proposed exception will not be considered satisfied
merely because a member has submitted an application or notice under
FINRA membership rules.
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\11\ See NASD Rule 1017(a)(1) and (2). See also, Incorporated
NYSE Rule 312.
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Pursuant to the proposed rule change, members will be required to
report in the manner prescribed by FINRA to designate that the reports
are submitted for regulatory and not publication purposes.\12\ Members
generally should report to FINRA on the same day as the ultimate
transfer of the positions on their books and records, unless later
reporting is warranted under specific circumstances.\13\
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\12\ FINRA will publish a Notice setting forth the specific
reporting requirements applicable to the proposed exception. Members
also should refer to the applicable technical specifications for the
FINRA facility to which they are reporting trades.
\13\ FINRA expects that in most instances, if members cannot
report on the same day that the transfers are reflected on their
books and records (for example, if the transfers take place after
the close of the FINRA trade reporting facilities), members will
report no later than the following business day (T+1). However,
FINRA recognizes that for some transfers, manual processing may be
required or other operational issues may arise.
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In addition, members will be required to provide FINRA at least
three business days advance written notice of their intent to use this
exception, including the basis for their determination that the
transfer meets the terms of the exception. FINRA notes that while the
advance notice requirement is not intended to establish a protocol for
prior approval by FINRA, it may help reduce the potential for improper
use of the proposed exception. Advance written notice to FINRA shall
not constitute an estoppel as to FINRA or bind FINRA in any subsequent
administrative, civil or disciplinary proceeding with respect to a
member's use of the proposed exception. In other words, advance notice
to FINRA should not be taken to mean that FINRA approved the
transaction as properly qualifying under the terms of the exception. A
member relying on the proposed exception must ensure that the transfer
satisfies the terms of the exception.
Finally, FINRA is proposing certain technical, non-substantive
changes to these rules. First, FINRA is proposing to reorganize Rules
7130(c), 7230A(g), 7230B(f) and 7330(g), and to delete the references
to the ``.RA'' and ``.RX'' modifiers in the rules.\14\ Second, FINRA is
proposing to change the heading of paragraph (b) of Rule 6750 to
``Transaction Information Not Disseminated,'' and to create new
numbered subparagraphs for the transactions that are reported to the
[[Page 17273]]
Trade Reporting and Compliance Engine (``TRACE''), but not
disseminated.
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\14\ This is consistent with Rules 6282, 6380A and 6380B, which
no longer refer to specific labels (e.g., ``.PRP'' or ``.W'') for
the trade report modifiers that members are required to use when
reporting trades to FINRA. Rather, the rules identify the types of
transactions that must have a unique modifier associated with them
and such modifiers are labeled in the facility's technical
specifications rather than in the rules.
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FINRA has filed the proposed rule change for immediate
effectiveness. The operative date of the proposed rule change will be
30 days after the date of filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\15\ 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 will
clarify members' trade reporting obligations, enhance market
transparency and protect investors and other market participants by
ensuring that transfers that do not contribute to market price
discovery and could confuse market participants are not disseminated.
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\15\ 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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
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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 rule-comments@sec.gov. Please include
File Number SR-FINRA-2009-024 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2009-024. 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-2009-024 and should be
submitted on or before May 5, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-8417 Filed 4-13-09; 8:45 am]
BILLING CODE 8010-01-P