Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rules 2060 (Use of Information Obtained in Fiduciary Capacity) and 5290 (Order Entry and Execution Practices) in the Consolidated FINRA Rulebook, 55598-55600 [E9-25872]
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55598
Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Notices
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
CBSX proposes to make fee
modifications in order to better attract
business to the Exchange. Specifically,
CBSX proposes to change to $0.0010 per
share (from $0.0025 per share) its fee for
the stock component of a stock-option
cross trade, and to adjust the maximum
rate to $15 per trade (from $50 per
trade). These changes are to take effect
as of October 19, 2009.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934
(‘‘Act’’),5 in general, and furthers the
objectives of Section 6(b)(4) 6 of the Act
in particular, in that it is designed to
provide for the equitable allocation of
reasonable dues, fees, and other charges
among CBOE members and other
persons using its facilities.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
erowe on DSK5CLS3C1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The proposed rule change is
designated by the Exchange as
establishing or changing a due, fee, or
other charge, thereby qualifying for
effectiveness on filing pursuant to
Section 19(b)(3)(A)(ii) of the Act 7 and
subparagraph (f)(2) of Rule 19b–4
thereunder.8
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
5 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4).
7 15 U.S.C. 78s(b)(3)(A)(ii).
8 17 CFR 240.19b–4(f)(2).
6 15
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15:34 Oct 27, 2009
Jkt 220001
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 rulecomments@sec.gov. Please include File
Number SR–CBOE–2009–077 in 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.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–25831 Filed 10–27–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60850; File No. SR–FINRA–
2009–067]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Adopt
FINRA Rules 2060 (Use of Information
Obtained in Fiduciary Capacity) and
5290 (Order Entry and Execution
Practices) in the Consolidated FINRA
Rulebook
October 21, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
All submissions should refer to File
notice is hereby given that on October
Number SR–CBOE–2009–077. This file
number should be included on the
6, 2009, Financial Industry Regulatory
subject line if e-mail is used. To help the Authority, Inc. (‘‘FINRA’’) (f/k/a
Commission process and review your
National Association of Securities
comments more efficiently, please use
Dealers, Inc. (‘‘NASD’’)) filed with the
only one method. The Commission will Securities and Exchange Commission
post all comments on the Commission’s (‘‘SEC’’ or ‘‘Commission’’) the proposed
Internet Web site (https://www.sec.gov/
rule change as described in Items I, II,
rules/sro.shtml). Copies of the
and III below, which Items have been
submission, all subsequent
prepared by FINRA. The Commission is
amendments, all written statements
publishing this notice to solicit
with respect to the proposed rule
comments on the proposed rule change
change that are filed with the
from interested persons.
Commission, and all written
I. Self-Regulatory Organization’s
communications relating to the
Statement of the Terms of Substance of
proposed rule change between the
Commission and any person, other than the Proposed Rule Change
those that may be withheld from the
FINRA is proposing to adopt NASD
public in accordance with the
Rules 3120 (Use of Information
provisions of 5 U.S.C. 552, will be
Obtained in Fiduciary Capacity) and
available for inspection and copying in
3380 (Order Entry and Execution
the Commission’s Public Reference
Practices) as FINRA rules in the
Room, 100 F Street, NE., Washington,
consolidated FINRA rulebook without
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. material change. The proposed rule
change would renumber NASD Rule
Copies of such filing also will be
3120 as FINRA Rule 2060 and NASD
available for inspection and copying at
the principal office of the Exchange. All Rule 3380 as FINRA Rule 5290 in the
consolidated FINRA rulebook.
comments received will be posted
without change; the Commission does
The text of the proposed rule change
not edit personal identifying
is available on FINRA’s Web site at
information from submissions. You
https://www.finra.org, at the principal
should submit only information that
office of FINRA and at the
you wish to make available publicly. All Commission’s Public Reference Room.
submissions should refer to File
Number SR–CBOE–2009–077 and
9 17 CFR 200.30–3(a)(12).
should be submitted on or before
1 15 U.S.C. 78s(b)(1).
November 18, 2009.
2 17 CFR 240.19b–4.
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Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 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 NASD
Rules 3120 and 3380 in the
Consolidated FINRA Rulebook without
material change as FINRA Rules 2060
and 5290 respectively.
erowe on DSK5CLS3C1PROD with NOTICES
Proposed FINRA Rule 2060
FINRA is proposing to adopt NASD
Rule 3120 as FINRA Rule 2060 in the
Consolidated FINRA Rulebook. NASD
Rule 3120 provides that a member who
receives information as to the
ownership of securities while acting in
the capacity of paying agent, transfer
agent, trustee or otherwise shall under
no circumstances make use of the
information for soliciting purchases,
sales or exchanges except at the request
and on behalf of the issuer. Rule 3120,
formerly designated as Article III,
Section 9 of the Rules of Fair Practice,
was adopted as part of FINRA’s original
rulebook.4 The text of the rule has not
been amended since its inception.
FINRA believes that the rule serves an
important purpose by prohibiting a
member, while acting in the capacity of
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 members,
unless such rules have a more limited application
by their terms. For more information about the
rulebook consolidation process, see Information
Notice, March 12, 2008 (Rulebook Consolidation
Process).
4 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).
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15:34 Oct 27, 2009
Jkt 220001
paying agent, transfer agent, trustee or
otherwise, from using certain
information it obtains about the
ownership of securities to solicit
purchases, sales or exchanges except at
the request and on behalf of the issuer.5
Proposed FINRA Rule 5290
FINRA is proposing to adopt NASD
Rule 3380 as FINRA Rule 5290 in the
Consolidated FINRA Rulebook. NASD
Rule 3380 prohibits members and
associated persons from splitting any
order into multiple smaller orders for
execution or any execution into
multiple smaller executions for
transaction reporting for the primary
purpose of maximizing a monetary or
in-kind payment to the member or
associated persons as a result of the
execution of such orders or the
transaction reporting of such
executions.6 For purposes of the rule,
‘‘monetary or in-kind amount’’ is
defined to include, but not be limited to,
any credits, commissions, gratuities,
payments for or rebates of fees, or any
other payments of value to the member
or associated person. The SEC approved
NASD Rule 3380 in February 2006 after
notice and comment with no subsequent
amendments.7
FINRA is proposing to replace ‘‘may’’
with ‘‘shall’’ in the rule text, but
believes no substantive changes to this
rule are appropriate or necessary.8
FINRA continues to believe that NASD
Rule 3380 is necessary and appropriate
5 With respect to the exception allowing use of
information at the request and on behalf of the
issuer, the descriptive analysis of the identical
precursor provision drafted by the Investment
Bankers Code Committee in 1934 explains that the
exception is provided
[B]ecause if the issuer desires either to refund or
propose an exchange to the security holder, he
certainly has the right to demand from his transfer
agent or trustee the list of security holders and the
issuer thus being in a position to address them
directly, the investment banker should be able to
address them on his behalf.
See Code of Fair Competition for Investment
Bankers with a Descriptive Analysis of its Fair
Practice Provisions and a History of its Preparation
(1934).
6 This is commonly also referred to as ‘‘trade
shredding,’’ which is the unlawful practice of
splitting customer orders for securities into
multiple smaller orders (e.g., a 1,000 share order is
split into ten 100 share orders) for the primary
purpose of maximizing payments or rebates to the
member.
7 See Securities Exchange Act Release No. 53371
(February 24, 2006), 71 FR 11008 (March 3, 2006)
(Order Approving File No. SR–NASD–2005–144).
8 See Exhibit 5 (‘‘No member or associated person
[may] shall engage in conduct that has the intent
or effect of splitting any order into multiple smaller
orders for execution or any execution into multiple
smaller executions for transaction reporting for the
primary purpose of maximizing a monetary or inkind amount to be received by the member or
associated person as a result of the execution of
such orders or the transaction reporting of such
executions’’).
PO 00000
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55599
to deter the distortive practice of trade
shredding.9
As noted above, 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,10 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 continues to
believe that, in certain circumstances, a
rule prohibiting members from using
information about ownership of
securities to solicit purchases, sales or
exchanges except at the request and on
behalf of the issuer serves to protect
investors and the public interest. In
addition, FINRA continues to believe
that a rule regarding order entry and
execution practices will continue to
further the goal of preventing
manipulative acts and practices by
prohibiting the potentially distortive
practice of trade shredding.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
9 FINRA also notes that the rule is consistent with
the rules of other securities self-regulatory
organizations regarding trade shredding. See, e.g.,
NYSE Rule 123G (Order Entry Practices) approved
pursuant to Securities Exchange Act Release No.
52683 (October 26, 2005), 70 FR 66480 (November
2, 2005) (Order Approving File No. SR–NYSE–
2005–62).
10 15 U.S.C. 78o–3(b)(6).
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55600
Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / Notices
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
2009–067 and should be submitted on
or before November 18, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9–25872 Filed 10–27–09; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Define
Asset-Backed Securities, MortgageBacked Securities, and Other Similar
Securities as TRACE-Eligible
Securities and Require the Reporting
of Transactions in Such Securities to
TRACE
• 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–2009–067 on the
subject line.
erowe on DSK5CLS3C1PROD with NOTICES
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–2009–067. 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 the 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–
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15:34 Oct 27, 2009
Jkt 220001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–60860; File No. SR–FINRA–
2009–065]
October 21, 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 October
1, 2009, the Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
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 amend the
FINRA Rule 6700 Series (except for Rule
6740) and FINRA Rule 7730 to designate
asset-backed securities, mortgagebacked securities and other similar
securities (collectively defined
hereinafter as ‘‘Asset-Backed
Securities’’) as Trade Reporting and
Compliance Engine (‘‘TRACE’’) TRACEEligible Securities, and establish
reporting, fee and other requirements
relating to such securities as follows:
(1) In Rule 6710, to amend the defined
term: (A) ‘‘TRACE-Eligible Security’’ to
include Asset-Backed Securities; and
make certain technical changes in Rule
6710(a); (B) ‘‘Reportable TRACE
Transaction’’ to include specific
requirements regarding certain Asset11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
Backed Securities in Rule 6710(c); (C)
‘‘Agency Debt Security’’ to incorporate
proposed defined terms in Rule 6710(l);
and (D) ‘‘TRACE System Hours’’ to
transfer the defined term from Rule
6730(a) to Rule 6710(bb);
(2) In Rule 6710, to add the defined
terms, ‘‘Sponsor,’’ ‘‘Issuing Entity,’’
‘‘TBA,’’ ‘‘Agency Pass-Through
Mortgage-Backed Security,’’ ‘‘Factor,’’
‘‘Specified Pool Transaction,’’
‘‘Stipulation Transaction,’’ ‘‘Dollar
Roll,’’ and ‘‘Remaining Principal
Balance,’’ as, respectively, new
paragraphs (s) through (aa);
(3) In Rule 6730, to provide for
reporting of Asset-Backed Securities
transactions;
(4) In Rule 6750, to provide that
information on a transaction in a
TRACE-Eligible Security that is an
Asset-Backed Security will not be
disseminated;
(5) In Rule 6760, to require a member
that is a Sponsor or an Issuing Entity of
an Asset-Backed Security to provide
notice as required under the Rule, and
to modify the notification requirements
to accept a mortgage pool number in
certain circumstances;
(6) In Rule 7730, to establish
transaction reporting fees for AssetBacked Securities that are TRACEEligible Securities at the same rates in
effect for corporate bonds; for certain
Asset-Backed Securities, to identify size
(volume) for determining a trade
reporting fee, and to provide that for
purposes of Rule 7730(b), a transaction
in an Agency Pass-Through MortgageBacked Security is not a List or Fixed
Offering Price Transaction or a
Takedown Transaction; and
(7) In the Rule 6700 Series, except for
Rule 6740, and Rule 7730 to incorporate
certain technical, administrative and
clarifying changes.
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.
E:\FR\FM\28OCN1.SGM
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]]>Agencies
[Federal Register Volume 74, Number 207 (Wednesday, October 28, 2009)]
[Notices]
[Pages 55598-55600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25872]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60850; File No. SR-FINRA-2009-067]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rules 2060 (Use of Information Obtained in Fiduciary Capacity)
and 5290 (Order Entry and Execution Practices) in the Consolidated
FINRA Rulebook
October 21, 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 October 6, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt NASD Rules 3120 (Use of Information
Obtained in Fiduciary Capacity) and 3380 (Order Entry and Execution
Practices) as FINRA rules in the consolidated FINRA rulebook without
material change. The proposed rule change would renumber NASD Rule 3120
as FINRA Rule 2060 and NASD Rule 3380 as FINRA Rule 5290 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 55599]]
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 NASD
Rules 3120 and 3380 in the Consolidated FINRA Rulebook without material
change as FINRA Rules 2060 and 5290 respectively.
---------------------------------------------------------------------------
\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
members, unless such rules have a more limited application by their
terms. For more information about the rulebook consolidation
process, see Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
---------------------------------------------------------------------------
Proposed FINRA Rule 2060
FINRA is proposing to adopt NASD Rule 3120 as FINRA Rule 2060 in
the Consolidated FINRA Rulebook. NASD Rule 3120 provides that a member
who receives information as to the ownership of securities while acting
in the capacity of paying agent, transfer agent, trustee or otherwise
shall under no circumstances make use of the information for soliciting
purchases, sales or exchanges except at the request and on behalf of
the issuer. Rule 3120, formerly designated as Article III, Section 9 of
the Rules of Fair Practice, was adopted as part of FINRA's original
rulebook.\4\ The text of the rule has not been amended since its
inception.
---------------------------------------------------------------------------
\4\ 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).
---------------------------------------------------------------------------
FINRA believes that the rule serves an important purpose by
prohibiting a member, while acting in the capacity of paying agent,
transfer agent, trustee or otherwise, from using certain information it
obtains about the ownership of securities to solicit purchases, sales
or exchanges except at the request and on behalf of the issuer.\5\
---------------------------------------------------------------------------
\5\ With respect to the exception allowing use of information at
the request and on behalf of the issuer, the descriptive analysis of
the identical precursor provision drafted by the Investment Bankers
Code Committee in 1934 explains that the exception is provided
[B]ecause if the issuer desires either to refund or propose an
exchange to the security holder, he certainly has the right to
demand from his transfer agent or trustee the list of security
holders and the issuer thus being in a position to address them
directly, the investment banker should be able to address them on
his behalf.
See Code of Fair Competition for Investment Bankers with a
Descriptive Analysis of its Fair Practice Provisions and a History
of its Preparation (1934).
---------------------------------------------------------------------------
Proposed FINRA Rule 5290
FINRA is proposing to adopt NASD Rule 3380 as FINRA Rule 5290 in
the Consolidated FINRA Rulebook. NASD Rule 3380 prohibits members and
associated persons from splitting any order into multiple smaller
orders for execution or any execution into multiple smaller executions
for transaction reporting for the primary purpose of maximizing a
monetary or in-kind payment to the member or associated persons as a
result of the execution of such orders or the transaction reporting of
such executions.\6\ For purposes of the rule, ``monetary or in-kind
amount'' is defined to include, but not be limited to, any credits,
commissions, gratuities, payments for or rebates of fees, or any other
payments of value to the member or associated person. The SEC approved
NASD Rule 3380 in February 2006 after notice and comment with no
subsequent amendments.\7\
---------------------------------------------------------------------------
\6\ This is commonly also referred to as ``trade shredding,''
which is the unlawful practice of splitting customer orders for
securities into multiple smaller orders (e.g., a 1,000 share order
is split into ten 100 share orders) for the primary purpose of
maximizing payments or rebates to the member.
\7\ See Securities Exchange Act Release No. 53371 (February 24,
2006), 71 FR 11008 (March 3, 2006) (Order Approving File No. SR-
NASD-2005-144).
---------------------------------------------------------------------------
FINRA is proposing to replace ``may'' with ``shall'' in the rule
text, but believes no substantive changes to this rule are appropriate
or necessary.\8\ FINRA continues to believe that NASD Rule 3380 is
necessary and appropriate to deter the distortive practice of trade
shredding.\9\
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\8\ See Exhibit 5 (``No member or associated person [may] shall
engage in conduct that has the intent or effect of splitting any
order into multiple smaller orders for execution or any execution
into multiple smaller executions for transaction reporting for the
primary purpose of maximizing a monetary or in-kind amount to be
received by the member or associated person as a result of the
execution of such orders or the transaction reporting of such
executions'').
\9\ FINRA also notes that the rule is consistent with the rules
of other securities self-regulatory organizations regarding trade
shredding. See, e.g., NYSE Rule 123G (Order Entry Practices)
approved pursuant to Securities Exchange Act Release No. 52683
(October 26, 2005), 70 FR 66480 (November 2, 2005) (Order Approving
File No. SR-NYSE-2005-62).
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As noted above, 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,\10\ 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 continues to believe that, in certain
circumstances, a rule prohibiting members from using information about
ownership of securities to solicit purchases, sales or exchanges except
at the request and on behalf of the issuer serves to protect investors
and the public interest. In addition, FINRA continues to believe that a
rule regarding order entry and execution practices will continue to
further the goal of preventing manipulative acts and practices by
prohibiting the potentially distortive practice of trade shredding.
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\10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory
[[Page 55600]]
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-2009-067 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-2009-067. 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 the 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-2009-067 and should be
submitted on or before November 18, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-25872 Filed 10-27-09; 8:45 am]
BILLING CODE 8011-01-P
