Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rules 2262 (Disclosure of Control Relationship With Issuer), 2269 (Disclosure of Participation or Interest in Primary or Secondary Distribution) and 5260 (Prohibition on Transactions, Publication of Quotations, or Publication of Indications of Interest During Trading Halts) in the Consolidated FINRA Rulebook, 36787-36790 [E9-17633]
Download as PDF
<![CDATA[
srobinson on DSKHWCL6B1PROD with NOTICES
Federal Register / Vol. 74, No. 141 / Friday, July 24, 2009 / Notices
be included in such report by the fund’s
registration form.
The purpose of this requirement is to
apprise current shareholders of the
operational and financial condition of
the UIT. Absent the requirement to
disclose all material information in
reports, investors would be unable to
obtain accurate information upon which
to base investment decisions and
consumer confidence in the securities
industry might be adversely affected.
Requiring the submission of these
reports to the Commission permits us to
verify compliance with securities law
requirements. In addition, Rule 30e–2
permits, under certain conditions,
delivery of a single shareholder report to
investors who share an address
(‘‘householding’’). Specifically, Rule
30e–2 permits householding of annual
and semi-annual reports by UITs to
satisfy the delivery requirements of Rule
30e–2 if, in addition to the other
conditions set forth in the rule, the UIT
has obtained from each applicable
investor written or implied consent to
the householding of shareholder reports
at such address. The rule requires UITs
that wish to household shareholder
reports with implied consent to send a
notice to each applicable investor
stating that the investors in the
household will receive one report in the
future unless the investors provide
contrary instructions. In addition, at
least once a year, UITs relying on the
rule for householding must explain to
investors who have provided written or
implied consent how they can revoke
their consent. Preparing and sending the
initial notice and the annual
explanation of the right to revoke
consent are collections of information
under the Paperwork Reduction Act.
The purpose of the notice and annual
explanation requirements associated
with the householding provisions of the
rule is to ensure that investors who wish
to receive individual copies of
shareholder reports are able to do so.
The Commission estimates that as of
2009, approximately 820 UITs were
subject to the provisions of Rule 30e–2.
The Commission further estimates that
the annual burden associated with Rule
30e–2 is 121 hours for each UIT,
including an estimated 20 hours
associated with the notice requirement
for householding and an estimated 1
hour associated with the explanation of
the right to revoke consent to
householding, for a total of 99,220
burden hours.
In addition to the burden hours, the
Commission estimates that the cost of
contracting for outside services
associated with complying with Rule
30e–2 is $20,000 per respondent (80
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hours times $250 per hour for
independent auditor services), for a total
of $16,400,000 ($20,000 per respondent
times 820 respondents).
These estimates are made solely for
the purposes of the Paperwork
Reduction Act, and are not derived from
a comprehensive or even a
representative survey or study of the
costs of Commission rules and forms.
The collection of information under
Rule 30e–2 is mandatory. The
information provided under Rule 30e–2
is not kept confidential. The
Commission may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid OMB
control number.
Written comments are invited on: (a)
Whether the proposed collections of
information are necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collections of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collections
of information on respondents,
including through the use of automated
collection techniques or other forms of
information technology. Consideration
will be given to comments and
suggestions submitted in writing within
60 days of this publication.
Please direct your written comments
to Charles Boucher, Director/CIO,
Securities and Exchange Commission,
C/O Shirley Martinson, 6432 General
Green Way, Alexandria, VA 22312; or
send an e-mail to:
PRA_Mailbox@sec.gov.
Dated: July 21, 2009.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–17769 Filed 7–23–09; 8:45 am]
BILLING CODE 8010–01–P
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60330; File No. SR–FINRA–
2009–044]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Adopt
FINRA Rules 2262 (Disclosure of
Control Relationship With Issuer), 2269
(Disclosure of Participation or Interest
in Primary or Secondary Distribution)
and 5260 (Prohibition on Transactions,
Publication of Quotations, or
Publication of Indications of Interest
During Trading Halts) in the
Consolidated FINRA Rulebook
July 17, 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 June 29,
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. 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 adopt without
material change NASD Rules 2240
(Disclosure of Control Relationship with
Issuer), 2250 (Disclosure of Participation
or Interest in Primary or Secondary
Distribution) and 3340 (Prohibition on
Transactions, Publication of Quotations,
or Publication of Indications of Interest
During Trading Halts) as FINRA rules in
the Consolidated FINRA Rulebook and
to delete NYSE Rules 312(f)(1) through
312(f)(3) and 321.24. The proposed rule
change would renumber NASD Rules
2240, 2250 and 3340 as FINRA Rules
2262, 2269 and 5260, respectively, in
the Consolidated FINRA Rulebook.
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.
1 15
2 17
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E:\FR\FM\24JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 74, No. 141 / Friday, July 24, 2009 / 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,
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
As part of the process of developing
a new consolidated rulebook
(‘‘Consolidated FINRA Rulebook’’),3
FINRA is proposing to adopt without
material change NASD Rules 2240
(Disclosure of Control Relationship with
Issuer), 2250 (Disclosure of Participation
or Interest in Primary or Secondary
Distribution) and 3340 (Prohibition on
Transactions, Publication of Quotations,
or Publication of Indications of Interest
During Trading Halts) as FINRA rules in
the Consolidated FINRA Rulebook and
to delete NYSE Rules 312(f)(1) through
312(f)(3) and 321.24. The proposed rule
change would renumber NASD Rules
2240, 2250 and 3340 as FINRA Rules
2262, 2269 and 5260, respectively, in
the Consolidated FINRA Rulebook.
(A) Proposed FINRA Rules 2262 and
2269
(1) Background
srobinson on DSKHWCL6B1PROD with NOTICES
Both NASD and NYSE Rules 4 address
disclosures or notifications that member
firms must provide to customers in
connection with certain securities
transactions.
NASD Rules 2240 and 2250 set forth
requirements that apply to transactions
3 The current FINRA rulebook consists of: (1)
FINRA Rules; (2) NASD Rules; and (3) rules
incorporated from NYSE (‘‘Incorporated NYSE
Rules’’) (together, the NASD Rules and Incorporated
NYSE Rules are referred to as the ‘‘Transitional
Rulebook’’). While the NASD Rules generally apply
to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that
are also members of the NYSE (‘‘Dual Members’’).
The FINRA Rules apply to all FINRA member firms,
unless such rules have a more limited application
by their terms. For more information about the
rulebook consolidation process, see FINRA
Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
4 For convenience, the Incorporated NYSE Rules
are referred to as the ‘‘NYSE Rules.’’
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18:55 Jul 23, 2009
Jkt 217001
with or for a customer in any market.5
In short:
• Disclosure of control relationship:
NASD Rule 2240 provides that a
member controlled by, controlling, or
under common control with the issuer
of any security must, before entering
into any contract with or for a customer
for the purchase or sale of such security,
disclose to the customer the existence of
such control; if such disclosure is not
made in writing, it must be
supplemented by written disclosure at
or before the completion of the
transaction; 6
• Disclosure of participation or
interest in distribution: Rule 2250
provides that if a member is acting as a
broker for a customer, or is acting for
both the customer and some other
person, or is acting as a dealer and
receives or has promise of receiving a
fee from a customer for advising the
customer with respect to securities, then
the member must, at or before the
completion of any transaction for or
with the customer in any security in the
primary or secondary distribution of
which the member is participating or is
otherwise financially interested, give
the customer written notification of the
existence of such participation or
interest.7
NYSE Rules 312(f)(2) and 321.24
address disclosures or notifications to
customers in somewhat different
fashion than NASD Rules 2240 and
2250:
• NYSE Rule 312(f)(2) is similar to
NASD Rule 2240, except that Rule
312(f)(2)’s requirement to disclose the
control relationship between the issuer
5 NASD Rules 2240 and 2250 (formerly
designated, respectively, as Sections 13 and 14 of
the Rules of Fair Practice) were adopted in 1939 as
part of FINRA’s original rulebook. See Certificate of
Incorporation and By-Laws, Rules of Fair Practice
and Code of Procedure for Handling Trade Practice
Complaints of National Association of Securities
Dealers, Inc. (August 8, 1939). The requirements of
NASD Rules 2240 and 2250 duplicate almost wordfor-word SEA Rules 15c1–5 (Disclosure of Control)
and 15c1–6 (Disclosure of Interest in Distributions),
respectively. See Securities Exchange Act Release
No. 1330 (August 4, 1937) (‘‘Release No. 1330’’).
6 SEA Rule 15c1–5 defines ‘‘manipulative,
deceptive, or other fraudulent device or
contrivance,’’ as used in Section 15(c)(1) of the
Exchange Act, to include failure to provide the
required disclosure. Section 15(c)(1) provides, in
part, that no broker or dealer ‘‘shall make use of the
mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce
or attempt to induce the purchase or sale of, any
security * * * otherwise than on a national
securities exchange of which it is a member * * *
by means of any manipulative, deceptive, or other
fraudulent device or contrivance.’’ See also Release
No. 1330.
7 Under SEA Rule 15c1–6, like Rule 15c1–5,
failure to provide the required notification is a
fraudulent act. Rule 15c1–6, like Rule 15c1–5, is
limited by the scope of Section 15(c)(1) of the
Exchange Act. See supra note 6.
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Sfmt 4703
and the member is triggered in the
context of making a recommendation to
a customer. Specifically, Rule 312(f)(2)
requires that any member organization
that makes any recommendation of any
equity or non-investment grade debt
security issued by any person controlled
by or under common control with such
member organization (other than a
Material Associated Person 8) must
promptly disclose to the customer the
existence and nature of such control at
the time of recommendation and, if the
disclosure is not made in writing, must
provide it in writing prior to the
completion of the transaction; 9
• NYSE Rule 321.24, like NASD Rule
2250, requires disclosure of interest in
securities, except that the provisions of
Rule 321.24 apply in contexts involving
securities underwritten, distributed or
sold by a subsidiary of the member.
Specifically, Rule 321.24 requires that,
in connection with any transactions
which the member or member
organization may have had with its
customers, or any recommendation
which the member or member
organization may make to its customers,
involving securities underwritten,
distributed or sold by the subsidiary,
full disclosure must be made by the
member or member organization to its
customers of the interest of the
subsidiary in the securities at that time.
(2) Proposal
FINRA proposes to transfer NASD
Rules 2240 and 2250 unchanged into
the Consolidated FINRA Rulebook.
Though the substantive requirements of
both rules are duplicated, almost wordfor-word, in SEA Rules 15c1–5 and
15c1–6, the two NASD rules provide
broad protection to customers because
their scope extends to transactions with
or for a customer in any market, not just
over-the-counter transactions.
8 The indicia for determining status as a Material
Associated Person are set forth in SEA Rule 17h–
1T(a)(2). See NYSE Rule 312(f)(1).
9 Note that NYSE Rules 312(f)(1), (f)(2) and (f)(3)
were, prior to revisions adopted in 2006, combined
together as former Rule 312(f). NYSE Rule 312(f)(1)
prohibits member organizations, after completion of
a distribution, from effecting any transaction
(except on an unsolicited basis) for the account of
any customer in the equity or non-investment grade
debt of the member organization itself, any parent
entity, or any Material Associated Person. Rule
312(f)(3), among other things, requires a member
corporation with publicly held securities
outstanding to obtain the NYSE’s approval to
acquire such securities for its own account or the
account of any corporation controlling, controlled
by or under common control with the member
corporation. The rule provides that the NYSE will
approve such acquisition unless it determines that
such action will impair the financial responsibility
or operational capability of the member
corporation. For further discussion of NYSE Rule
312(f), see NYSE Information Memo 06–65
(September 11, 2006).
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Federal Register / Vol. 74, No. 141 / Friday, July 24, 2009 / Notices
FINRA proposes to repeal NYSE Rules
312(f)(1) through (f)(3) and 321.24
because the purposes they serve are
addressed by proposed FINRA Rules
2262 and 2269, other existing or
proposed FINRA rules, and SEC rules.
With respect to NYSE Rule 312(f)(1),
FINRA notes that making a
recommendation or effecting a
transaction such as set forth in the rule
raises concerns that are within the
purview of current anti-manipulation
rules (e.g., FINRA Rule 2020 and SEA
Rule 10b–5). Further, FINRA notes that
customers would be protected by the
disclosure that the proposed rules
require with respect to the conflicts of
interest that the NYSE rule addresses.
Moreover, members must comply with
FINRA’s suitability rule when
recommending securities transactions to
their customers. With respect to NYSE
Rule 312(f)(2), FINRA notes that the
proposed FINRA rules would operate to
protect customers without regard to
whether a member recommends a
security to a customer. With respect to
NYSE Rule 312(f)(3), FINRA believes
that the customer protections provided
by the proposed rules and the antimanipulation rules, in combination,
would render the NYSE rule redundant.
Further, FINRA maintains a set of rules
specifically addressing financial
responsibility requirements for members
and is separately proposing to adopt
consolidated financial responsibility
rules.10 Lastly, with respect to NYSE
Rule 321.24, FINRA notes that the
disclosure required by the proposed
FINRA rules is not limited to situations
involving securities underwritten,
distributed or sold by a member’s
subsidiary.
srobinson on DSKHWCL6B1PROD with NOTICES
(B) Proposed FINRA Rule 5260
(1) Background
NASD Rule 3340 prohibits members
from, directly or indirectly, effecting
transactions or publishing quotations or
indications of interest (‘‘IOIs’’) in (1) any
security with respect to which a trading
halt is in effect; or (2) any security
future when there is a regulatory trading
halt in effect with respect to the
underlying security.
The trading and quoting conduct
prohibited by Rule 3340 is triggered
only when a trading halt is in effect. The
rule also provides that, in the event that
FINRA halts over-the-counter trading
and quoting in NMS stocks because the
Alternative Display Facility (‘‘ADF’’) or
a Trade Reporting Facility (‘‘TRF’’) is
10 See, e.g., Securities Exchange Act Release No.
59273 (January 22, 2009), 74 FR 4992 (January 28,
2009) (Notice of Filing File No. SR–FINRA–2008–
067).
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18:55 Jul 23, 2009
Jkt 217001
unable to transmit real-time information
to the applicable Securities Information
Processor, members are not prohibited
from trading through other markets for
which trading is not halted.
NASD Rule 3340 was originally
approved by the SEC in 1988.11 The rule
was subsequently amended in 2001,
2002, 2003 and 2006. The 2001
amendments expressly prohibited
members from publishing quotations
and IOIs during a trading halt (the rule
in its form prior to the 2001
amendments prohibited members from
effecting a transaction but did not
expressly address quotations and
IOIs).12 The 2002 and 2006 amendments
to Rule 3340 provided that, if the ADF
or a TRF were unable to transmit realtime information to the applicable
Securities Information Processor,
members would not be prohibited from
trading through other markets for which
trading is not halted.13 The 2003
amendments to the rule added a
provision to prohibit member firms,
including Alternate Trading Systems
(‘‘ATSs’’), from trading or publishing
quotes or IOIs in any security future
when a regulatory trading halt is in
effect with respect to the underlying
security. Specifically, Rule 3340 was
amended to apply to a future for a single
security when a regulatory trading halt
is in effect for the underlying security or
a future on a narrow-based securities
index when a regulatory trading halt is
in effect for one or more underlying
securities that constitute 50% or more of
the market capitalization of the index.14
In 2002, FINRA published a set of
frequently asked questions in response
to members’ requests for guidance on
the application of NASD Rule 3340 to
particular scenarios.15
(2) Proposal
FINRA believes that Rule 3340 is well
understood by its members and has
proven effective. Accordingly, FINRA
proposes that the rule be transferred
without material change into the
11 NASD Rule 3340 was originally adopted as
Section 42 of Article III of the Rules of Fair Practice.
12 See Securities Exchange Act Release No. 44390
(June 5, 2001), 66 FR 31262 (June 11, 2001) (Order
Approving File No. SR–NASD–2000–33).
13 See Securities Exchange Act Release No.46249
(July 24, 2002), 67 FR 49822 (July 31, 2002) (Order
Approving File No. SR–NASD–2002–97) (approving
the 2002 amendments to NASD Rule 3340);
Securities Exchange Act Release No. 54084 (June
30, 2006), 71 FR 38935 (July 10, 2006) (Order
Approving File No. SR–NASD–2005–087)
(approving the 2006 amendments to NASD Rule
3340).
14 See Securities Exchange Act Release No. 47259
(January 27, 2003), 68 FR 5319 (February 3, 2003)
(Order Approving File No. SR–NASD–2001–047).
15 See NASD Notice to Members 02–82 (December
2002) (Frequently Asked Questions Relating to
Trading Halts).
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36789
Consolidated FINRA Rulebook as
FINRA Rule 5260.16
FINRA will announce the
implementation date of the proposed
rule change in a Regulatory Notice to be
published no later than 90 days
following Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,17 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 would further the
purposes of the Act because, as part of
the Consolidated FINRA Rulebook, the
proposed rule change will protect
investors and the public interest by
addressing disclosures or notifications
in connection with certain securities
transactions and by addressing certain
trading and quoting conduct when a
trading halt is in effect.
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
16 On December 30, 2008, FINRA filed with the
SEC a proposed rule change to amend NASD Rule
3340 to create a limited exception to permit
members to route unsolicited customer orders for
execution outside the United States while a trading
halt is in effect in the United States. See SR–
FINRA–2008–069. Assuming Commission approval
of this proposed rule change prior to Commission
approval of SR–FINRA–2008–069, FINRA will
amend SR–FINRA–2008–069, as necessary, to
reflect such approval. Similarly, in the event the
Commission approves SR–FINRA–2008–069 prior
to approval of this proposed rule change, FINRA
will amend this proposed rule change, as necessary,
to reflect such approval.
17 15 U.S.C. 78o–3(b)(6).
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Federal Register / Vol. 74, No. 141 / Friday, July 24, 2009 / Notices
(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:
srobinson on DSKHWCL6B1PROD with NOTICES
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–2009–044 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–2009–044. 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
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18:55 Jul 23, 2009
Jkt 217001
Number SR–FINRA–2009–044 and
should be submitted on or before
August 14, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–17633 Filed 7–23–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60335; File No. SR–
NASDAQ–2009–066]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Modify the
Processing of Orders on the NASDAQ
Options Market
July 17, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 7,
2009, The NASDAQ Stock Market LLC
(‘‘Exchange’’ or ‘‘Nasdaq’’) filed with the
Securities and Exchange Commission
the proposed rule change as described
in Items I and II below, which items
have been prepared by Nasdaq. 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
The Exchange proposes to amend
Chapter VI, Section 10 of the NASDAQ
Options Market (‘‘NOM’’ or
‘‘Exchange’’) to allow marketable orders
to be exposed to market participants for
a brief period of time before routing to
an away market center for execution at
the National Best Bid/Offer (‘‘NBBO’’) or
cancelling the order. 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.
The text of the proposed rule change
is below. Proposed new language is
underlined; proposed deletions are in
brackets.3
*
*
*
*
*
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Changes are marked to the rules of The
NASDAQ Stock Market LLC found at https://
nasdaqomx.cchwallstreet.com.
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Chapter VI Trading Systems
Sec. 1 Definitions
The following definitions apply to
Chapter VI for the trading of options
listed on NOM.
(a)–(d) No change.
(e) The term ‘‘Order Type’’ shall mean
the unique processing prescribed for
designated orders that are eligible for
entry into the System, and shall include:
(1)–(7) No Change.
(8) ‘‘Additional Exposure Orders’’ are
orders that are priced at the National
Best Offer, for buys, and the National
Best Bid, for sells. The order is exposed
on the System Book Feed for a time
determined by the Exchange, not to
exceed one second. At the end of the
exposure period, if still unexecuted, the
order will be routed to the market(s) at
the NBBO, cancelled back to the
entering party, or posted on the book
pursuant to Section 7 of Chapter VI.
Any update to the NBBO that
improves the exposed order price will
cause an immediate end to the exposure
period. Any unexecuted portion of the
order will be routed to the market(s) at
the NBBO, cancelled back to the
entering party or posted on the book
pursuant to Section 7 of Chapter VI.
Any update to the NBBO that unlocks
the exposed order price will cause an
immediate end to the exposure period.
Any unexecuted portion of the order
will be executed against contra interest
on the book, routed to the market(s) at
the NBBO, cancelled back to the
entering party or posted on the book
pursuant to Section 7 of Chapter VI.
*
*
*
*
*
Sec. 6 Acceptance of Quotes and
Orders
All bids or offers made and accepted
on NOM in accordance with the NOM
Rules shall constitute binding contracts,
subject to applicable requirements of the
Rules of the Exchange and the Rules of
the Clearing Corporation.
(a) General—A System order is an
order that is entered into the System for
display and/or execution as appropriate.
Such orders are executable against
marketable contra-side orders in the
System.
(1) All System Orders shall indicate
limit price and whether they are a call
or put and buy or sell. Systems Orders
can be designated as Immediate or
Cancel (‘‘IOC’’), Good-till-Cancelled
(‘‘GTC’’), Day (‘‘DAY’’), WAIT or Expire
Time (‘‘EXPR’’).
(2) A System order may also be
designated as a Reserve Order, a Limit
Order, a Minimum Quantity Order, a
Discretionary Order, a Market Order, a
Price Improving Order, [or] an Exchange
E:\FR\FM\24JYN1.SGM
24JYN1
]]>Agencies
[Federal Register Volume 74, Number 141 (Friday, July 24, 2009)]
[Notices]
[Pages 36787-36790]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-17633]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60330; File No. SR-FINRA-2009-044]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rules 2262 (Disclosure of Control Relationship With Issuer), 2269
(Disclosure of Participation or Interest in Primary or Secondary
Distribution) and 5260 (Prohibition on Transactions, Publication of
Quotations, or Publication of Indications of Interest During Trading
Halts) in the Consolidated FINRA Rulebook
July 17, 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 June 29, 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt without material change NASD Rules 2240
(Disclosure of Control Relationship with Issuer), 2250 (Disclosure of
Participation or Interest in Primary or Secondary Distribution) and
3340 (Prohibition on Transactions, Publication of Quotations, or
Publication of Indications of Interest During Trading Halts) as FINRA
rules in the Consolidated FINRA Rulebook and to delete NYSE Rules
312(f)(1) through 312(f)(3) and 321.24. The proposed rule change would
renumber NASD Rules 2240, 2250 and 3340 as FINRA Rules 2262, 2269 and
5260, respectively, in the Consolidated FINRA Rulebook.
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.
[[Page 36788]]
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
As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt
without material change NASD Rules 2240 (Disclosure of Control
Relationship with Issuer), 2250 (Disclosure of Participation or
Interest in Primary or Secondary Distribution) and 3340 (Prohibition on
Transactions, Publication of Quotations, or Publication of Indications
of Interest During Trading Halts) as FINRA rules in the Consolidated
FINRA Rulebook and to delete NYSE Rules 312(f)(1) through 312(f)(3) and
321.24. The proposed rule change would renumber NASD Rules 2240, 2250
and 3340 as FINRA Rules 2262, 2269 and 5260, respectively, in the
Consolidated FINRA Rulebook.
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\3\ The current FINRA rulebook consists of: (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules
are referred to as the ``Transitional Rulebook''). While the NASD
Rules generally apply to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that are also members of
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA
member firms, unless such rules have a more limited application by
their terms. For more information about the rulebook consolidation
process, see FINRA Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
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(A) Proposed FINRA Rules 2262 and 2269
(1) Background
Both NASD and NYSE Rules \4\ address disclosures or notifications
that member firms must provide to customers in connection with certain
securities transactions.
---------------------------------------------------------------------------
\4\ For convenience, the Incorporated NYSE Rules are referred to
as the ``NYSE Rules.''
---------------------------------------------------------------------------
NASD Rules 2240 and 2250 set forth requirements that apply to
transactions with or for a customer in any market.\5\ In short:
---------------------------------------------------------------------------
\5\ NASD Rules 2240 and 2250 (formerly designated, respectively,
as Sections 13 and 14 of the Rules of Fair Practice) were adopted in
1939 as part of FINRA's original rulebook. See Certificate of
Incorporation and By-Laws, Rules of Fair Practice and Code of
Procedure for Handling Trade Practice Complaints of National
Association of Securities Dealers, Inc. (August 8, 1939). The
requirements of NASD Rules 2240 and 2250 duplicate almost word-for-
word SEA Rules 15c1-5 (Disclosure of Control) and 15c1-6 (Disclosure
of Interest in Distributions), respectively. See Securities Exchange
Act Release No. 1330 (August 4, 1937) (``Release No. 1330'').
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Disclosure of control relationship: NASD Rule 2240
provides that a member controlled by, controlling, or under common
control with the issuer of any security must, before entering into any
contract with or for a customer for the purchase or sale of such
security, disclose to the customer the existence of such control; if
such disclosure is not made in writing, it must be supplemented by
written disclosure at or before the completion of the transaction; \6\
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\6\ SEA Rule 15c1-5 defines ``manipulative, deceptive, or other
fraudulent device or contrivance,'' as used in Section 15(c)(1) of
the Exchange Act, to include failure to provide the required
disclosure. Section 15(c)(1) provides, in part, that no broker or
dealer ``shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or to induce or
attempt to induce the purchase or sale of, any security * * *
otherwise than on a national securities exchange of which it is a
member * * * by means of any manipulative, deceptive, or other
fraudulent device or contrivance.'' See also Release No. 1330.
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Disclosure of participation or interest in distribution:
Rule 2250 provides that if a member is acting as a broker for a
customer, or is acting for both the customer and some other person, or
is acting as a dealer and receives or has promise of receiving a fee
from a customer for advising the customer with respect to securities,
then the member must, at or before the completion of any transaction
for or with the customer in any security in the primary or secondary
distribution of which the member is participating or is otherwise
financially interested, give the customer written notification of the
existence of such participation or interest.\7\
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\7\ Under SEA Rule 15c1-6, like Rule 15c1-5, failure to provide
the required notification is a fraudulent act. Rule 15c1-6, like
Rule 15c1-5, is limited by the scope of Section 15(c)(1) of the
Exchange Act. See supra note 6.
---------------------------------------------------------------------------
NYSE Rules 312(f)(2) and 321.24 address disclosures or
notifications to customers in somewhat different fashion than NASD
Rules 2240 and 2250:
NYSE Rule 312(f)(2) is similar to NASD Rule 2240, except
that Rule 312(f)(2)'s requirement to disclose the control relationship
between the issuer and the member is triggered in the context of making
a recommendation to a customer. Specifically, Rule 312(f)(2) requires
that any member organization that makes any recommendation of any
equity or non-investment grade debt security issued by any person
controlled by or under common control with such member organization
(other than a Material Associated Person \8\) must promptly disclose to
the customer the existence and nature of such control at the time of
recommendation and, if the disclosure is not made in writing, must
provide it in writing prior to the completion of the transaction; \9\
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\8\ The indicia for determining status as a Material Associated
Person are set forth in SEA Rule 17h-1T(a)(2). See NYSE Rule
312(f)(1).
\9\ Note that NYSE Rules 312(f)(1), (f)(2) and (f)(3) were,
prior to revisions adopted in 2006, combined together as former Rule
312(f). NYSE Rule 312(f)(1) prohibits member organizations, after
completion of a distribution, from effecting any transaction (except
on an unsolicited basis) for the account of any customer in the
equity or non-investment grade debt of the member organization
itself, any parent entity, or any Material Associated Person. Rule
312(f)(3), among other things, requires a member corporation with
publicly held securities outstanding to obtain the NYSE's approval
to acquire such securities for its own account or the account of any
corporation controlling, controlled by or under common control with
the member corporation. The rule provides that the NYSE will approve
such acquisition unless it determines that such action will impair
the financial responsibility or operational capability of the member
corporation. For further discussion of NYSE Rule 312(f), see NYSE
Information Memo 06-65 (September 11, 2006).
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NYSE Rule 321.24, like NASD Rule 2250, requires disclosure
of interest in securities, except that the provisions of Rule 321.24
apply in contexts involving securities underwritten, distributed or
sold by a subsidiary of the member. Specifically, Rule 321.24 requires
that, in connection with any transactions which the member or member
organization may have had with its customers, or any recommendation
which the member or member organization may make to its customers,
involving securities underwritten, distributed or sold by the
subsidiary, full disclosure must be made by the member or member
organization to its customers of the interest of the subsidiary in the
securities at that time.
(2) Proposal
FINRA proposes to transfer NASD Rules 2240 and 2250 unchanged into
the Consolidated FINRA Rulebook. Though the substantive requirements of
both rules are duplicated, almost word-for-word, in SEA Rules 15c1-5
and 15c1-6, the two NASD rules provide broad protection to customers
because their scope extends to transactions with or for a customer in
any market, not just over-the-counter transactions.
[[Page 36789]]
FINRA proposes to repeal NYSE Rules 312(f)(1) through (f)(3) and
321.24 because the purposes they serve are addressed by proposed FINRA
Rules 2262 and 2269, other existing or proposed FINRA rules, and SEC
rules. With respect to NYSE Rule 312(f)(1), FINRA notes that making a
recommendation or effecting a transaction such as set forth in the rule
raises concerns that are within the purview of current anti-
manipulation rules (e.g., FINRA Rule 2020 and SEA Rule 10b-5). Further,
FINRA notes that customers would be protected by the disclosure that
the proposed rules require with respect to the conflicts of interest
that the NYSE rule addresses. Moreover, members must comply with
FINRA's suitability rule when recommending securities transactions to
their customers. With respect to NYSE Rule 312(f)(2), FINRA notes that
the proposed FINRA rules would operate to protect customers without
regard to whether a member recommends a security to a customer. With
respect to NYSE Rule 312(f)(3), FINRA believes that the customer
protections provided by the proposed rules and the anti-manipulation
rules, in combination, would render the NYSE rule redundant. Further,
FINRA maintains a set of rules specifically addressing financial
responsibility requirements for members and is separately proposing to
adopt consolidated financial responsibility rules.\10\ Lastly, with
respect to NYSE Rule 321.24, FINRA notes that the disclosure required
by the proposed FINRA rules is not limited to situations involving
securities underwritten, distributed or sold by a member's subsidiary.
---------------------------------------------------------------------------
\10\ See, e.g., Securities Exchange Act Release No. 59273
(January 22, 2009), 74 FR 4992 (January 28, 2009) (Notice of Filing
File No. SR-FINRA-2008-067).
---------------------------------------------------------------------------
(B) Proposed FINRA Rule 5260
(1) Background
NASD Rule 3340 prohibits members from, directly or indirectly,
effecting transactions or publishing quotations or indications of
interest (``IOIs'') in (1) any security with respect to which a trading
halt is in effect; or (2) any security future when there is a
regulatory trading halt in effect with respect to the underlying
security.
The trading and quoting conduct prohibited by Rule 3340 is
triggered only when a trading halt is in effect. The rule also provides
that, in the event that FINRA halts over-the-counter trading and
quoting in NMS stocks because the Alternative Display Facility
(``ADF'') or a Trade Reporting Facility (``TRF'') is unable to transmit
real-time information to the applicable Securities Information
Processor, members are not prohibited from trading through other
markets for which trading is not halted.
NASD Rule 3340 was originally approved by the SEC in 1988.\11\ The
rule was subsequently amended in 2001, 2002, 2003 and 2006. The 2001
amendments expressly prohibited members from publishing quotations and
IOIs during a trading halt (the rule in its form prior to the 2001
amendments prohibited members from effecting a transaction but did not
expressly address quotations and IOIs).\12\ The 2002 and 2006
amendments to Rule 3340 provided that, if the ADF or a TRF were unable
to transmit real-time information to the applicable Securities
Information Processor, members would not be prohibited from trading
through other markets for which trading is not halted.\13\ The 2003
amendments to the rule added a provision to prohibit member firms,
including Alternate Trading Systems (``ATSs''), from trading or
publishing quotes or IOIs in any security future when a regulatory
trading halt is in effect with respect to the underlying security.
Specifically, Rule 3340 was amended to apply to a future for a single
security when a regulatory trading halt is in effect for the underlying
security or a future on a narrow-based securities index when a
regulatory trading halt is in effect for one or more underlying
securities that constitute 50% or more of the market capitalization of
the index.\14\
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\11\ NASD Rule 3340 was originally adopted as Section 42 of
Article III of the Rules of Fair Practice.
\12\ See Securities Exchange Act Release No. 44390 (June 5,
2001), 66 FR 31262 (June 11, 2001) (Order Approving File No. SR-
NASD-2000-33).
\13\ See Securities Exchange Act Release No.46249 (July 24,
2002), 67 FR 49822 (July 31, 2002) (Order Approving File No. SR-
NASD-2002-97) (approving the 2002 amendments to NASD Rule 3340);
Securities Exchange Act Release No. 54084 (June 30, 2006), 71 FR
38935 (July 10, 2006) (Order Approving File No. SR-NASD-2005-087)
(approving the 2006 amendments to NASD Rule 3340).
\14\ See Securities Exchange Act Release No. 47259 (January 27,
2003), 68 FR 5319 (February 3, 2003) (Order Approving File No. SR-
NASD-2001-047).
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In 2002, FINRA published a set of frequently asked questions in
response to members' requests for guidance on the application of NASD
Rule 3340 to particular scenarios.\15\
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\15\ See NASD Notice to Members 02-82 (December 2002)
(Frequently Asked Questions Relating to Trading Halts).
---------------------------------------------------------------------------
(2) Proposal
FINRA believes that Rule 3340 is well understood by its members and
has proven effective. Accordingly, FINRA proposes that the rule be
transferred without material change into the Consolidated FINRA
Rulebook as FINRA Rule 5260.\16\
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\16\ On December 30, 2008, FINRA filed with the SEC a proposed
rule change to amend NASD Rule 3340 to create a limited exception to
permit members to route unsolicited customer orders for execution
outside the United States while a trading halt is in effect in the
United States. See SR-FINRA-2008-069. Assuming Commission approval
of this proposed rule change prior to Commission approval of SR-
FINRA-2008-069, FINRA will amend SR-FINRA-2008-069, as necessary, to
reflect such approval. Similarly, in the event the Commission
approves SR-FINRA-2008-069 prior to approval of this proposed rule
change, FINRA will amend this proposed rule change, as necessary, to
reflect such approval.
---------------------------------------------------------------------------
FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 90 days
following Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\17\ 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 would
further the purposes of the Act because, as part of the Consolidated
FINRA Rulebook, the proposed rule change will protect investors and the
public interest by addressing disclosures or notifications in
connection with certain securities transactions and by addressing
certain trading and quoting conduct when a trading halt is in effect.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
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
[[Page 36790]]
(ii) as to which the self-regulatory organization consents, the
Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2009-044 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-2009-044. 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-2009-044 and should be
submitted on or before August 14, 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. E9-17633 Filed 7-23-09; 8:45 am]
BILLING CODE 8010-01-P
