Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, To Require Members To Report OTC Transactions in Equity Securities Within 30 Seconds of Execution, 59272-59275 [E9-27463]

Download as PDF 59272 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices The NRC Commission Meeting Schedule can be found on the Internet at: https://www.nrc.gov/about-nrc/policymaking/schedule.html. * * * * * The NRC provides reasonable accommodation to individuals with disabilities where appropriate. If you need a reasonable accommodation to participate in these public meetings, or need this meeting notice or the transcript or other information from the public meetings in another format (e.g. braille, large print), please notify the NRC’s Disability Program Coordinator, Rohn Brown, at 301–492–2279, TDD: 301–415–2100, or by e-mail at rohn.brown@nrc.gov. Determinations on requests for reasonable accommodation will be made on a case-by-case basis. * * * * * This notice is distributed electronically to subscribers. If you no longer wish to receive it, or would like to be added to the distribution, please contact the Office of the Secretary, Washington, DC 20555 (301–415–1969), or send an e-mail to darlene.wright@nrc.gov. Dated: November 12, 2009. Rochelle C. Bavol, Office of the Secretary. [FR Doc. E9–27646 Filed 11–13–09; 4:15 pm] BILLING CODE 7590–01–P SMALL BUSINESS ADMINISTRATION [License No. 09/79–0454] mstockstill on DSKH9S0YB1PROD with NOTICES Emergence Capital Partners SBIC, L.P.; Notice Seeking Exemption Under Section 312 of the Small Business Investment Act, Conflicts of Interest Notice is hereby given that Emergence Capital Partners SBIC, L.P., 160 Bovet Road, Suite 300, San Mateo, CA 94402, a Federal Licensee under the Small Business Investment Act of 1958, as amended (‘‘the Act’’), in connection with the financing of a small concern, has sought an exemption under Section 312 of the Act and Section 107.730, Financings which Constitute Conflicts of Interest of the Small Business Administration (‘‘SBA’’) Rules and Regulations (13 CFR 107.730). Emergence Capital Partners SBIC, L.P. proposes to provide equity financing to Genius.com, Inc., 1400 Fashion Island Blvd., Suite 500, San Mateo, CA 94404. The financing is contemplated for working capital and general operating purposes. The financing is brought within the purview of § 107.730(a)(1) of the Regulations because Emergence Capital VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 Partners, L.P. and Emergence Capital Associates, L.P., Associates of Emergence Capital Partners SBIC, L.P., own more than ten percent of Genius.com, Inc., and therefore Genius.com, Inc. is considered an Associate of Emergence Capital Partners SBIC, L.P. as detailed in § 107.50 of the Regulations. Notice is hereby given that any interested person may submit written comments on the transaction to the Associate Administrator for Investment, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. Dated: October 15, 2009. Sean J. Greene, Associate Administrator for Investment. [FR Doc. E9–27455 Filed 11–16–09; 8:45 am] Dated: October 27, 2009. Sean J. Greene, Associate Administrator for Investment. [FR Doc. E9–27457 Filed 11–16–09; 8:45 am] BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–60960; File No. SR–FINRA– 2009–061] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, To Require Members To Report OTC Transactions in Equity Securities Within 30 Seconds of Execution BILLING CODE 8025–01–P November 6, 2009. SMALL BUSINESS ADMINISTRATION [License No. 02/72–0635] Trumpet SBIC Partners, L.P.; Notice Seeking Exemption Under Section 312 of the Small Business Investment Act, Conflicts of Interest Notice is hereby given that Trumpet SBIC Partners, L.P., 110 East 59th Street, Suite 2100, New York, NY, 10022, a Federal Licensee under the Small Business Investment Act of 1958, as amended (‘‘the Act’’), in connection with the financing of a small concern, has sought an exemption under Section 312 of the Act and Section 107.730, Financings which Constitute Conflicts of Interest of the Small Business Administration (‘‘SBA’’) Rules and Regulations (13 CFR 107.730). Trumpet SBIC Partners, L.P. proposes to provide debt financing to SOI Holdings, Inc., 5260 Parkway Plaza Boulevard, Suite 2100, Charlotte, NC 28217. The financing is contemplated to refinance outstanding debt. The financing is brought within the purview of § 107.730(a)(1) of the Regulations because Trumpet Investors, LP, an Associate of Trumpet SBIC Partners, L.P., owns more than ten percent of SOI Holdings, Inc. Therefore, this transaction is considered a financing of an Associate requiring an exemption. Notice is hereby given that any interested person may submit written comments on the transaction within fifteen days of the date of this publication to Associate Administrator for Investment, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on September 16, 2009, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) a proposed rule change SR–FINRA– 2009–061 as described in Items I, II, and III below, which Items have been prepared by FINRA. On October 30, 2009, FINRA filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 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 (1) Require that members report over-the-counter (‘‘OTC’’) equity transactions 3 to FINRA within 30 seconds of execution; (2) require that members report secondary market transactions in non-exchangelisted direct participation program (‘‘DPP’’) securities to FINRA within 30 seconds of execution; and (3) make certain conforming changes to the rules 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Specifically, OTC equity transactions are: (1) transactions in NMS stocks, as defined in SEC Rule 600(b) of Regulation NMS, effected otherwise than on an exchange, which are reported through the Alternative Display Facility (‘‘ADF’’) or a Trade Reporting Facility (‘‘TRF’’); and (2) transactions in ‘‘OTC Equity Securities,’’ as defined in FINRA Rule 6420 (e.g., OTC Bulletin Board and Pink Sheets securities), which are reported through the OTC Reporting Facility (‘‘ORF’’). The ADF, TRFs and ORF are collectively referred to herein as the ‘‘FINRA Facilities.’’ 2 17 E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices relating to the OTC Reporting Facility (‘‘ORF’’). 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 mstockstill on DSKH9S0YB1PROD with NOTICES 1. Purpose 30–Second Reporting Requirement Under FINRA trade reporting rules, members generally must report OTC equity transactions that are executed during the hours that the FINRA Facilities are open within 90 seconds of execution.4 Last sale information for such trades is publicly disseminated on a real-time basis. There are certain limited exceptions to this general requirement, including for trades in non-exchange-listed DPP securities, as discussed below.5 The 90-second reporting requirement has been in effect since 1982, when OTC trading was more manual in nature. As trading has become increasingly automated, however, the vast majority of trades are now reported in a much shorter period of time. For example, during the period of February 23 through February 27, 2009, overall member compliance with the current 90-second reporting requirement was 99.95% (for all trades submitted to a FINRA Facility for public dissemination), and 99.90% of trades were reported in 30 seconds or less. FINRA is proposing to amend the trade reporting rules to require that members report OTC equity transactions to FINRA within 30 seconds of execution. Specifically, the trade 4 See, e.g., FINRA Rules 6282(a), 6380A(a), 6380B(a) and 6622(a). 5 Additionally, FINRA notes that transactions in PORTAL securities, as defined in FINRA Rule 6631, are not subject to the 90-second reporting requirement, but must be reported to the ORF by the end of the day. See FINRA Rule 6633. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 reporting rules would be amended to replace the references to 90 seconds with 30 seconds.6 Trades not reported within 30 seconds, unless expressly subject to a different reporting requirement or excluded from the trade reporting rules altogether, would be late. Although members would have 30 seconds to report, FINRA reiterates that—as is the case today—members must report trades as soon as practicable and cannot withhold trade reports, e.g., by programming their systems to delay reporting until the last permissible second. Because of the automated nature of trade reporting today, FINRA believes that in the vast majority of circumstances members should have no difficulty complying with the proposed 30-second reporting requirement. However, to better understand the potential limitations some members may face, FINRA is requesting that the SEC solicit comments specifically on whether there are any categories of trades (e.g., trades that are manual in nature) or any firm structures (e.g., smaller firms that may not have automated systems for trade reporting) that may justify a longer reporting time frame under FINRA rules.7 FINRA believes that the proposed rule change will promote consistent and timely reporting by all members and enhance market transparency and price discovery by ensuring that trades are disseminated closer in time to execution. Timely reporting has become even more critical with the implementation of Regulation NMS. A delay in the reporting and dissemination of a transaction could potentially appear to other market participants as a violation of the Regulation NMS Order Protection Rule; if a trade is not reported and disseminated until a full 90 seconds after execution, the best displayed 6 See FINRA Rules 6282(a); 6380A(a) and (g); 6380B(a) and (f); 6622(a) and (f); 7130(b); 7230A(b); 7230B(b); and 7330(b). FINRA also is proposing to amend FINRA Rules 6181 and 6623 to replace the reference to 90 seconds with a more general reference to ‘‘the required time period’’ to clarify that these provisions also apply to trades that are subject to a different reporting requirement (e.g., certain trades executed outside normal market hours). 7 FINRA notes that smaller firms that route their orders to another member firm for handling or execution do not have the trade reporting obligation under the ‘‘executing party’’ trade reporting structure that became effective on August 3, 2009. For transactions between members, the ‘‘executing party’’ (which is defined as the member that receives an order for handling or execution or is presented an order against its quote, does not subsequently re-route the order, and executes the transaction) has the obligation to report the trade to FINRA. See Regulatory Notice 09–08 (January 2009). PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 59273 market could have changed between the time of execution and ultimate dissemination of the trade. Additionally, the proposed rule change will ensure that members do not withhold important market information from investors and other market participants for competitive or other improper reasons.8 Reporting Requirements Applicable to Trades in Non-Exchange-Listed DPP Securities Pursuant to FINRA Rule 6643(a)(1), members are required to report trades in non-exchange-listed DPP securities to the ORF by 1:30 p.m. Eastern Time on the next business day (T+1) after the date of execution; members that have the operational capability to report transactions within 90 seconds of execution may do so at their option. Transaction information for such trades is not disseminated on a real-time tradeby-trade basis, but is included in endof-day summary information disseminated twice daily. By contrast, under FINRA rules, OTC trades in exchange-listed DPP securities are reported to a TRF or the ADF and are subject to the 90-second reporting requirement (just like any other OTC trade in an NMS stock).9 The inconsistency in the reporting and dissemination of DPPs can create confusion for market participants, especially when an exchange-listed DPP is delisted and dissemination of trading in the security goes from real-time to only twice daily. FINRA is proposing to amend the trade reporting rules to require that transactions in non-exchange-listed DPP securities be reported within 30 seconds of execution to conform to the reporting requirements applicable to other OTC transactions, including those in exchange-listed DPP securities. Specifically, the proposed rule change would delete the FINRA Rule 6640 Series (Reporting Transactions in Direct Participation Program Securities) in its entirety, and secondary market transactions in non-exchange-listed DPPs would be reported to FINRA as any other OTC Equity Security pursuant to the FINRA Rule 6620 and 7300 Series. In addition, the proposed rule change would amend (1) FINRA Rule 6610 to clarify that secondary market transactions in non-exchange-listed 8 FINRA reiterates the importance of timely reporting and reminds members that a pattern and practice of late reporting may be considered inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010. 9 See FINRA Rules 6282(a), 6380A(a) and 6380B(a). E:\FR\FM\17NON1.SGM 17NON1 59274 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices DPPs are included in the OTC Equity Security transactions that must be reported to the ORF; (2) FINRA Rule 6420 to add ‘‘direct participation program’’ as a defined term (the proposed definition is identical to the definition in current FINRA Rule 6642); (3) FINRA Rule 6622 to include as Supplementary Material the definitions of ‘‘date of execution’’ and ‘‘time of execution’’ for DPP transactions (the proposed definitions are identical to the definitions in current FINRA Rule 6642); and (4) FINRA Rules 6530, 6550, 7310, 7330 and 7410 to delete or replace references to DPPs and the FINRA Rule 6640 Series, as applicable. FINRA notes that transactions in nonexchange-listed DPPs currently are not subject to regulatory transaction fees under Section 3 of Schedule A to the FINRA By-Laws (‘‘Section 3’’) because they are not subject to prompt last sale reporting under FINRA rules.10 As a result of the proposed rule change, transactions in non-exchange-listed DPPs would become subject to Section 3 regulatory transaction fees. FINRA believes the proposed rule change would enhance market transparency and promote consistency in trade reporting and dissemination. mstockstill on DSKH9S0YB1PROD with NOTICES Proposed Conforming Amendments The proposal to reduce the reporting time to 30 seconds requires amendments to a number of subparagraphs within paragraph (a) of FINRA Rule 6622 relating to the ORF. In this filing, FINRA is proposing certain additional changes to these subparagraphs to conform, to the extent practicable, to the rules relating to the ADF and TRFs. Specifically, FINRA is proposing to reorganize FINRA Rule 6622(a) (When and How Transactions are Reported) to conform to the current format and structure of the rules relating to the ADF and TRFs.11 The requirements in paragraphs (a)(1) and (a)(2), which apply separately to OTC Market Makers and Non-Market Makers, respectively, would be combined in paragraph (a)(1) and apply to all ‘‘OTC Reporting Facility Participants,’’ as defined in proposed paragraph (n) of FINRA Rule 6420. Additionally, consistent with the ADF and TRF rules, FINRA is proposing to amend FINRA Rule 6622(a) to delete 10 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. 11 See FINRA Rules 6282(a), 6380A(a) and 6380B(a). VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 the labels (e.g., ‘‘.W’’) for the trade report modifiers that members are required to use when reporting trades to the ORF. FINRA Rule 6622(a) would identify the types of transactions that must have a unique modifier associated with them and such modifiers would be labeled in the ORF technical specifications rather than in the rules. Proposed paragraph (a)(5) of FINRA Rule 6622 would enumerate the transactions for which members must use a special trade report modifier and would clarify that members must include such modifiers on all trade reports, including reports of ‘‘as/of’’ trades.12 In addition, proposed paragraph (a)(5) would expressly provide that in the event that the rules require multiple modifiers on any given trade report, members are to report in accordance with guidance published by FINRA regarding priorities among modifiers.13 Members that report in accordance with such guidance will not be in violation of the trade reporting rules for failing to use a particular modifier. FINRA notes that most of the trade report modifiers referred to in proposed paragraph (a)(5) already are required under current FINRA Rule 6622(a). However, proposed subparagraphs (B) through (D) would require members to use special trade report modifiers for Seller’s Option, Cash and Next Day trades,14 and proposed subparagraph (E) would require members to use a special trade report modifier for trades that occur at a price based on an average weighting or another special pricing formula.15 Although not required under current FINRA Rule 6622(a), members can use these modifiers when reporting to the ORF today. In addition, a separate modifier would be used for Stop Stock Transactions, as defined in FINRA Rule 6420, pursuant to proposed subparagraph (F).16 Such transactions would be disseminated to the public with the weighted average price modifier, which is consistent with the current dissemination policy with respect to Stop Stock Transactions that are submitted to the ADF and TRFs. Members currently are required to report Stop Stock Transactions with the 12 See, e.g., FINRA Rules 6282(a)(4), 6380A(a)(5) and 6380B(a)(5). 13 See, e.g., FINRA Rules 6380A(a)(5) and 6380B(a)(5). 14 See, e.g., FINRA Rules 6282(a)(4)(B)–(D), 6380A(a)(5)(B)–(D) and 6380B(a)(5)(B)–(D). 15 See, e.g., FINRA Rules 6282(a)(4)(E), 6380A(a)(5)(E) and 6380B(a)(5)(E). 16 See, e.g., FINRA Rules 6282(a)(4)(F), 6380A(a)(5)(F) and 6380B(a)(5)(F). PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 .W trade report modifier, in accordance with FINRA Rule 6622(a)(8). Current paragraphs (a)(3), (a)(4), (a)(5), (a)(7) and (a)(9) of FINRA Rule 6622 would be renumbered as paragraphs (a)(2), (a)(3), (a)(4), (a)(6) and (a)(7), respectively, without substantive change. In addition to the proposed amendments to FINRA Rule 6622, FINRA is proposing to amend FINRA Rule 6420 to add ‘‘normal market hours’’ and ‘‘OTC Reporting Facility Participant’’ as defined terms.17 By conforming the trade reporting requirements to the extent practicable, the proposed rule change will promote more consistent trade reporting by members and a more complete and accurate audit trail. FINRA notes that most of the proposed conforming changes to FINRA Rule 6622(a) are technical in nature; however, some members may need to make systems changes to comply with some of the requirements that are not included expressly in the current rule. FINRA will announce the effective date of the proposed rule change in a Regulatory Notice. To allow members sufficient time to make the necessary systems changes, FINRA is proposing that the implementation date will be between six and nine months following the date of 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,18 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 enhance market transparency and price discovery and promote more consistent trade reporting by members. 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. 17 See, e.g., FINRA Rules 6320A and 6320B. The proposed definition of ‘‘normal market hours’’ is identical to the TRF rules, and the proposed definition of ‘‘OTC Reporting Facility Participant’’ is substantially similar to the definition of ‘‘Trade Reporting Facility Participant’’ in the TRF rules. 18 15 U.S.C. 78o–3(b)(6). E:\FR\FM\17NON1.SGM 17NON1 Federal Register / Vol. 74, No. 220 / Tuesday, November 17, 2009 / Notices 59275 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 publicly available. All submissions should refer to File Number SR–FINRA–2009–061 and should be submitted on or before December 8, 2009. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.20 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–27463 Filed 11–16–09; 8:45 am] 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–2009–061 on the subject line. SECURITIES AND EXCHANGE COMMISSION In its filing with the Commission, the Exchange 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. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 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. mstockstill on DSKH9S0YB1PROD with NOTICES 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 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. 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–2009–061. 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,19 all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written 19 The text of the proposed rule change is available on the Commission’s Web site at https:// www.sec.gov/. VerDate Nov<24>2008 20:50 Nov 16, 2009 Jkt 220001 BILLING CODE 8011–01–P [Release No. 34–60951; File No. SR–Phlx– 2009–95] Self-Regulatory Organizations; NASDAQ OMX PHLX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Program Concerning Non Firm Quote Conditions November 6, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 2 thereunder, notice is hereby given that on October 29, 2009, NASDAQ OMX PHLX, Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 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 the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00163 Fmt 4703 Sfmt 4703 The Exchange proposes to extend, until September 30, 2010, a pilot program under which the Exchange disseminates option quotations with a price of $0.00 or $200,000, and a size of one contract, when the Exchange’s disseminated size on one side of the market is exhausted (the ‘‘pilot’’). The current pilot is scheduled to expire November 30, 2009. The text of the proposed rule change is available on the Exchange’s Web site at https://www.nasdaqtrader.com/ micro.aspx?id=PHLXRulefilings, at the principal office of the Exchange, 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 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to extend the pilot through September 30, 2010. In June 2009, the Exchange added several significant enhancements to its automated options trading platform (known as PHLX XL II), and adopted rules to reflect those enhancements.3 As part of the system enhancements, the Exchange proposed to disseminate a quote condition of ‘‘non-firm’’ on a single bid quotation or offer quotation when the size associated with such bid or offer was exhausted on the Exchange and there were no new quotations submitted on the exhausted side of the market in the affected series. The nonexhausted side of the Exchange’s disseminated quotation would remain firm up to its disseminated size. Currently, however, while the Options 3 See Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR– Phlx–2009–32). E:\FR\FM\17NON1.SGM 17NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 220 (Tuesday, November 17, 2009)]
[Notices]
[Pages 59272-59275]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27463]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60960; File No. SR-FINRA-2009-061]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change, and 
Amendment No. 1 Thereto, To Require Members To Report OTC Transactions 
in Equity Securities Within 30 Seconds of Execution

November 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 September 16, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') a proposed rule change SR-FINRA-2009-061 as 
described in Items I, II, and III below, which Items have been prepared 
by FINRA. On October 30, 2009, FINRA filed Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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 amend FINRA trade reporting rules to (1) 
Require that members report over-the-counter (``OTC'') equity 
transactions \3\ to FINRA within 30 seconds of execution; (2) require 
that members report secondary market transactions in non-exchange-
listed direct participation program (``DPP'') securities to FINRA 
within 30 seconds of execution; and (3) make certain conforming changes 
to the rules

[[Page 59273]]

relating to the OTC Reporting Facility (``ORF'').
---------------------------------------------------------------------------

    \3\ Specifically, OTC equity transactions are: (1) transactions 
in NMS stocks, as defined in SEC Rule 600(b) of Regulation NMS, 
effected otherwise than on an exchange, which are reported through 
the Alternative Display Facility (``ADF'') or a Trade Reporting 
Facility (``TRF''); and (2) transactions in ``OTC Equity 
Securities,'' as defined in FINRA Rule 6420 (e.g., OTC Bulletin 
Board and Pink Sheets securities), which are reported through the 
OTC Reporting Facility (``ORF''). The ADF, TRFs and ORF are 
collectively referred to herein as the ``FINRA Facilities.''
---------------------------------------------------------------------------

    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
30-Second Reporting Requirement
    Under FINRA trade reporting rules, members generally must report 
OTC equity transactions that are executed during the hours that the 
FINRA Facilities are open within 90 seconds of execution.\4\ Last sale 
information for such trades is publicly disseminated on a real-time 
basis. There are certain limited exceptions to this general 
requirement, including for trades in non-exchange-listed DPP 
securities, as discussed below.\5\ The 90-second reporting requirement 
has been in effect since 1982, when OTC trading was more manual in 
nature. As trading has become increasingly automated, however, the vast 
majority of trades are now reported in a much shorter period of time. 
For example, during the period of February 23 through February 27, 
2009, overall member compliance with the current 90-second reporting 
requirement was 99.95% (for all trades submitted to a FINRA Facility 
for public dissemination), and 99.90% of trades were reported in 30 
seconds or less.
---------------------------------------------------------------------------

    \4\ See, e.g., FINRA Rules 6282(a), 6380A(a), 6380B(a) and 
6622(a).
    \5\ Additionally, FINRA notes that transactions in PORTAL 
securities, as defined in FINRA Rule 6631, are not subject to the 
90-second reporting requirement, but must be reported to the ORF by 
the end of the day. See FINRA Rule 6633.
---------------------------------------------------------------------------

    FINRA is proposing to amend the trade reporting rules to require 
that members report OTC equity transactions to FINRA within 30 seconds 
of execution. Specifically, the trade reporting rules would be amended 
to replace the references to 90 seconds with 30 seconds.\6\ Trades not 
reported within 30 seconds, unless expressly subject to a different 
reporting requirement or excluded from the trade reporting rules 
altogether, would be late. Although members would have 30 seconds to 
report, FINRA reiterates that--as is the case today--members must 
report trades as soon as practicable and cannot withhold trade reports, 
e.g., by programming their systems to delay reporting until the last 
permissible second.
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    \6\ See FINRA Rules 6282(a); 6380A(a) and (g); 6380B(a) and (f); 
6622(a) and (f); 7130(b); 7230A(b); 7230B(b); and 7330(b).
    FINRA also is proposing to amend FINRA Rules 6181 and 6623 to 
replace the reference to 90 seconds with a more general reference to 
``the required time period'' to clarify that these provisions also 
apply to trades that are subject to a different reporting 
requirement (e.g., certain trades executed outside normal market 
hours).
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    Because of the automated nature of trade reporting today, FINRA 
believes that in the vast majority of circumstances members should have 
no difficulty complying with the proposed 30-second reporting 
requirement. However, to better understand the potential limitations 
some members may face, FINRA is requesting that the SEC solicit 
comments specifically on whether there are any categories of trades 
(e.g., trades that are manual in nature) or any firm structures (e.g., 
smaller firms that may not have automated systems for trade reporting) 
that may justify a longer reporting time frame under FINRA rules.\7\
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    \7\ FINRA notes that smaller firms that route their orders to 
another member firm for handling or execution do not have the trade 
reporting obligation under the ``executing party'' trade reporting 
structure that became effective on August 3, 2009. For transactions 
between members, the ``executing party'' (which is defined as the 
member that receives an order for handling or execution or is 
presented an order against its quote, does not subsequently re-route 
the order, and executes the transaction) has the obligation to 
report the trade to FINRA. See Regulatory Notice 09-08 (January 
2009).
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    FINRA believes that the proposed rule change will promote 
consistent and timely reporting by all members and enhance market 
transparency and price discovery by ensuring that trades are 
disseminated closer in time to execution. Timely reporting has become 
even more critical with the implementation of Regulation NMS. A delay 
in the reporting and dissemination of a transaction could potentially 
appear to other market participants as a violation of the Regulation 
NMS Order Protection Rule; if a trade is not reported and disseminated 
until a full 90 seconds after execution, the best displayed market 
could have changed between the time of execution and ultimate 
dissemination of the trade. Additionally, the proposed rule change will 
ensure that members do not withhold important market information from 
investors and other market participants for competitive or other 
improper reasons.\8\
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    \8\ FINRA reiterates the importance of timely reporting and 
reminds members that a pattern and practice of late reporting may be 
considered inconsistent with high standards of commercial honor and 
just and equitable principles of trade in violation of FINRA Rule 
2010.
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Reporting Requirements Applicable to Trades in Non-Exchange-Listed DPP 
Securities
    Pursuant to FINRA Rule 6643(a)(1), members are required to report 
trades in non-exchange-listed DPP securities to the ORF by 1:30 p.m. 
Eastern Time on the next business day (T+1) after the date of 
execution; members that have the operational capability to report 
transactions within 90 seconds of execution may do so at their option. 
Transaction information for such trades is not disseminated on a real-
time trade-by-trade basis, but is included in end-of-day summary 
information disseminated twice daily. By contrast, under FINRA rules, 
OTC trades in exchange-listed DPP securities are reported to a TRF or 
the ADF and are subject to the 90-second reporting requirement (just 
like any other OTC trade in an NMS stock).\9\ The inconsistency in the 
reporting and dissemination of DPPs can create confusion for market 
participants, especially when an exchange-listed DPP is delisted and 
dissemination of trading in the security goes from real-time to only 
twice daily.
---------------------------------------------------------------------------

    \9\ See FINRA Rules 6282(a), 6380A(a) and 6380B(a).
---------------------------------------------------------------------------

    FINRA is proposing to amend the trade reporting rules to require 
that transactions in non-exchange-listed DPP securities be reported 
within 30 seconds of execution to conform to the reporting requirements 
applicable to other OTC transactions, including those in exchange-
listed DPP securities. Specifically, the proposed rule change would 
delete the FINRA Rule 6640 Series (Reporting Transactions in Direct 
Participation Program Securities) in its entirety, and secondary market 
transactions in non-exchange-listed DPPs would be reported to FINRA as 
any other OTC Equity Security pursuant to the FINRA Rule 6620 and 7300 
Series. In addition, the proposed rule change would amend (1) FINRA 
Rule 6610 to clarify that secondary market transactions in non-
exchange-listed

[[Page 59274]]

DPPs are included in the OTC Equity Security transactions that must be 
reported to the ORF; (2) FINRA Rule 6420 to add ``direct participation 
program'' as a defined term (the proposed definition is identical to 
the definition in current FINRA Rule 6642); (3) FINRA Rule 6622 to 
include as Supplementary Material the definitions of ``date of 
execution'' and ``time of execution'' for DPP transactions (the 
proposed definitions are identical to the definitions in current FINRA 
Rule 6642); and (4) FINRA Rules 6530, 6550, 7310, 7330 and 7410 to 
delete or replace references to DPPs and the FINRA Rule 6640 Series, as 
applicable.
    FINRA notes that transactions in non-exchange-listed DPPs currently 
are not subject to regulatory transaction fees under Section 3 of 
Schedule A to the FINRA By-Laws (``Section 3'') because they are not 
subject to prompt last sale reporting under FINRA rules.\10\ As a 
result of the proposed rule change, transactions in non-exchange-listed 
DPPs would become subject to Section 3 regulatory transaction fees.
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    \10\ 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.
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    FINRA believes the proposed rule change would enhance market 
transparency and promote consistency in trade reporting and 
dissemination.
Proposed Conforming Amendments
    The proposal to reduce the reporting time to 30 seconds requires 
amendments to a number of subparagraphs within paragraph (a) of FINRA 
Rule 6622 relating to the ORF. In this filing, FINRA is proposing 
certain additional changes to these subparagraphs to conform, to the 
extent practicable, to the rules relating to the ADF and TRFs.
    Specifically, FINRA is proposing to reorganize FINRA Rule 6622(a) 
(When and How Transactions are Reported) to conform to the current 
format and structure of the rules relating to the ADF and TRFs.\11\ The 
requirements in paragraphs (a)(1) and (a)(2), which apply separately to 
OTC Market Makers and Non-Market Makers, respectively, would be 
combined in paragraph (a)(1) and apply to all ``OTC Reporting Facility 
Participants,'' as defined in proposed paragraph (n) of FINRA Rule 
6420. Additionally, consistent with the ADF and TRF rules, FINRA is 
proposing to amend FINRA Rule 6622(a) to delete the labels (e.g., 
``.W'') for the trade report modifiers that members are required to use 
when reporting trades to the ORF. FINRA Rule 6622(a) would identify the 
types of transactions that must have a unique modifier associated with 
them and such modifiers would be labeled in the ORF technical 
specifications rather than in the rules.
---------------------------------------------------------------------------

    \11\ See FINRA Rules 6282(a), 6380A(a) and 6380B(a).
---------------------------------------------------------------------------

    Proposed paragraph (a)(5) of FINRA Rule 6622 would enumerate the 
transactions for which members must use a special trade report modifier 
and would clarify that members must include such modifiers on all trade 
reports, including reports of ``as/of'' trades.\12\ In addition, 
proposed paragraph (a)(5) would expressly provide that in the event 
that the rules require multiple modifiers on any given trade report, 
members are to report in accordance with guidance published by FINRA 
regarding priorities among modifiers.\13\ Members that report in 
accordance with such guidance will not be in violation of the trade 
reporting rules for failing to use a particular modifier.
---------------------------------------------------------------------------

    \12\ See, e.g., FINRA Rules 6282(a)(4), 6380A(a)(5) and 
6380B(a)(5).
    \13\ See, e.g., FINRA Rules 6380A(a)(5) and 6380B(a)(5).
---------------------------------------------------------------------------

    FINRA notes that most of the trade report modifiers referred to in 
proposed paragraph (a)(5) already are required under current FINRA Rule 
6622(a). However, proposed subparagraphs (B) through (D) would require 
members to use special trade report modifiers for Seller's Option, Cash 
and Next Day trades,\14\ and proposed subparagraph (E) would require 
members to use a special trade report modifier for trades that occur at 
a price based on an average weighting or another special pricing 
formula.\15\ Although not required under current FINRA Rule 6622(a), 
members can use these modifiers when reporting to the ORF today. In 
addition, a separate modifier would be used for Stop Stock 
Transactions, as defined in FINRA Rule 6420, pursuant to proposed 
subparagraph (F).\16\ Such transactions would be disseminated to the 
public with the weighted average price modifier, which is consistent 
with the current dissemination policy with respect to Stop Stock 
Transactions that are submitted to the ADF and TRFs. Members currently 
are required to report Stop Stock Transactions with the .W trade report 
modifier, in accordance with FINRA Rule 6622(a)(8).
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    \14\ See, e.g., FINRA Rules 6282(a)(4)(B)-(D), 6380A(a)(5)(B)-
(D) and 6380B(a)(5)(B)-(D).
    \15\ See, e.g., FINRA Rules 6282(a)(4)(E), 6380A(a)(5)(E) and 
6380B(a)(5)(E).
    \16\ See, e.g., FINRA Rules 6282(a)(4)(F), 6380A(a)(5)(F) and 
6380B(a)(5)(F).
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    Current paragraphs (a)(3), (a)(4), (a)(5), (a)(7) and (a)(9) of 
FINRA Rule 6622 would be renumbered as paragraphs (a)(2), (a)(3), 
(a)(4), (a)(6) and (a)(7), respectively, without substantive change.
    In addition to the proposed amendments to FINRA Rule 6622, FINRA is 
proposing to amend FINRA Rule 6420 to add ``normal market hours'' and 
``OTC Reporting Facility Participant'' as defined terms.\17\
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    \17\ See, e.g., FINRA Rules 6320A and 6320B. The proposed 
definition of ``normal market hours'' is identical to the TRF rules, 
and the proposed definition of ``OTC Reporting Facility 
Participant'' is substantially similar to the definition of ``Trade 
Reporting Facility Participant'' in the TRF rules.
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    By conforming the trade reporting requirements to the extent 
practicable, the proposed rule change will promote more consistent 
trade reporting by members and a more complete and accurate audit 
trail. FINRA notes that most of the proposed conforming changes to 
FINRA Rule 6622(a) are technical in nature; however, some members may 
need to make systems changes to comply with some of the requirements 
that are not included expressly in the current rule.
    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice. To allow members sufficient time to make the 
necessary systems changes, FINRA is proposing that the implementation 
date will be between six and nine months following the date of 
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,\18\ 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 
enhance market transparency and price discovery and promote more 
consistent trade reporting by members.
---------------------------------------------------------------------------

    \18\ 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.

[[Page 59275]]

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 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-2009-061 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-2009-061. 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,\19\ 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 publicly available. All submissions should refer to File Number 
SR-FINRA-2009-061 and should be submitted on or before December 8, 
2009.
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    \19\ The text of the proposed rule change is available on the 
Commission's Web site at https://www.sec.gov/.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27463 Filed 11-16-09; 8:45 am]
BILLING CODE 8011-01-P

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