Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Repeal NASD Rules 2760 and 2780, Incorporated NYSE Rules 2B and 411, and the Interpretation to Incorporated NYSE Rule 411(a)(ii)(5) as Part of the Process of Developing the Consolidated FINRA Rulebook, 68889-68893 [E9-30784]
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Federal Register / Vol. 74, No. 248 / Tuesday, December 29, 2009 / Notices
directors and in the administration of its
affairs and will enable NSCC to act in
a more expedient manner and therefore,
to better promote the prompt and
accurate clearing and settlement of
securities transactions.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
NSCC does not believe that the
proposed rule change would have any
impact on or impose any burden on
competition.
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(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. NSCC will notify
the Commission of any written
comments received by NSCC.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Section 17A(b)(3)(C) of the Act
requires that the rules of a clearing
agency assure a fair representation of its
shareholders (or members) and
participants in the selection of its
directors and administration of its
affairs. The Commission has previously
found that NSCC’s participants are fairly
represented in the selection of its Board
and in the administration of its affairs.5
This rule change should not have any
adverse effect on NSCC’s participants’
representation in the selection of
NSCC’s Board or in the administration
of NSCC’s affairs. The Commission also
recognizes that it may benefit NSCC to
have non-participants directors on its
Board because such directors may
provide skills or perspectives not
possessed by participant directors.
Therefore, the Commission finds that
NSCC’s proposed rule change to have
non-participant directors serve on its
Board should provide benefits while
continuing to provide for the fair
representation of NSCC’s participants in
the selection of its directors and
administration of its affairs.
Section 17A(b)(3)(F) of the Act
requires that the rules of a clearing
agency are designed to promote the
prompt and accurate clearing and
settlement of securities transactions.
The Commission finds that by providing
its Board with additional authority to
delegate certain of its responsibilities,
such as, for example, responsibilities
related to approving membership
5 See, e.g., Securities Exchange Act Release No.
52922 (December 7, 2005), 70 FR 74070 (December
14, 2005) (File Nos. SR–DTC–2005–16, SR FICC–
2005–19, and SR–NSCC–2005–14).
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68889
applications and other related matters,
NSCC will be able to act in a more
expedient manner and therefore, better
able to promote the prompt and accurate
clearing and settlement of securities
transactions.
NSCC has requested that the
Commission approve this rule change
prior to the thirtieth day after the date
of publication of notice of the filing. The
Commission finds good cause for
approving the proposed rule change
prior to the thirtieth day after
publication of notice because by so
approving NSCC will be able to
implement the rule change in time to
include non-participant directors on its
Board for the 2010 Board term.
Copies of such filing also will be
available for inspection and copying at
the principal office of NSCC and on
NSCC’s Web site at https://
www.dtcc.com/downloads/legal/
rule_filings/2009/nscc/2009–10.pdf. 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–NSCC–2009–10 and should
be submitted on or before January 19,
2010.
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:
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular with the requirements of
Section 17A of the Act and the rules and
regulations thereunder applicable.6
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
NSCC–2009–10) be, and hereby is,
approved on an accelerated basis.
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–NSCC–2009–10 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–NSCC–2009–10. 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
Section, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
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V. Conclusion
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.7
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–30786 Filed 12–28–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61211; File No. SR–FINRA–
2009–087]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Repeal
NASD Rules 2760 and 2780,
Incorporated NYSE Rules 2B and 411,
and the Interpretation to Incorporated
NYSE Rule 411(a)(ii)(5) as Part of the
Process of Developing the
Consolidated FINRA Rulebook
December 18, 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 December
4, 2009, Financial Industry Regulatory
6 In approving the proposed rule changes, the
Commission considered the proposals’ impact on
efficiency, competition and capital formation. 15
U.S.C. 78c(f).
7 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Federal Register / Vol. 74, No. 248 / Tuesday, December 29, 2009 / Notices
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 repeal NASD
Rule 2760 (Offerings ‘‘At the Market’’),
NASD Rule 2780 (Solicitation of
Purchases on an Exchange to Facilitate
a Distribution of Securities),
Incorporated NYSE Rule 2B (No
Affiliation between Exchange and any
Member Organization), Incorporated
NYSE Rule 411 (Erroneous Reports) and
the Interpretation to Incorporated NYSE
Rule 411(a)(ii)(5) as part of the process
of developing a 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.
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
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1. Purpose
As part of the process of developing
a new consolidated rulebook
(‘‘Consolidated FINRA Rulebook’’),3
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).
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FINRA is proposing to repeal NASD
Rule 2760 (Offerings ‘‘At the Market’’),
NASD Rule 2780 (Solicitation of
Purchases on an Exchange to Facilitate
a Distribution of Securities),
Incorporated NYSE Rule 2B (No
Affiliation between Exchange and any
Member Organization), Incorporated
NYSE Rule 411 (Erroneous Reports) and
the Interpretation to Incorporated NYSE
Rule 411(a)(ii)(5).4 The proposed rule
change is described in detail below.
NASD Rule 2760 (Offerings ‘‘At the
Market’’)
NASD Rule 2760 provides that a
member who is participating or who is
otherwise financially interested in the
primary or secondary distribution of any
security which is not admitted to
trading on a national securities
exchange shall make no representation
that such security is being offered to a
customer ‘‘at the market’’ or at a price
related to the market price, unless the
member knows or has reasonable
grounds to believe that a market for
such security exists other than that
made, created, or controlled by the
member, or by any person for whom he
is acting or with whom he is associated
in such distribution, or by any person
controlled by, controlling or under
common control with the member.
When Rule 2760 was adopted,5 its
requirements duplicated those set forth
in the SEC’s early version of SEA Rule
15c1–8 (designated at the time of its
adoption as Rule MC8).6 Today, SEA
Rule 15c1–8 is identical to its
predecessor Rule MC8 except that it also
applies to municipal securities dealers.7
NASD Rule 2760 remains unchanged
since its inception.
FINRA is proposing to delete NASD
Rule 2760 from the FINRA rulebook
because it duplicates SEA Rule 15c1–8.
SEA Rule 15c1–8 explicitly makes it a
manipulative, deceptive, or other
fraudulent device or contrivance under
Section 15(c) of the Exchange Act for a
broker or dealer or municipal securities
4 For convenience, Incorporated NYSE Rules
generally are referred to as NYSE Rules.
5 Rule 2760, formerly designated as Section 16 in
Article III of the Rules of Fair Practice, was 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).
6 See Securities Exchange Act Release No. 1330
(August 4, 1937).
7 See Securities Exchange Act Release No. 12468
(May 20, 1976), 41 FR 22820 (June 7, 1976)
(Regulation of Municipal Securities Professionals
and Transactions in Municipal Securities). FINRA
Rule 0150(b) (Application of Rules to Exempted
Securities Except Municipal Securities) provides
that FINRA’s rules do not apply to transactions in,
and business activities relating to, municipal
securities.
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dealer who is participating or otherwise
financially interested in the primary or
secondary distribution of any security
which is not admitted to trading on a
national securities exchange to make a
representation to a customer that a
security is being offered ‘‘at the market’’
unless certain conditions (identical to
those required by NASD Rule 2760) are
satisfied. FINRA believes the SEA rule
appropriately protects investors without
duplication by NASD Rule 2760.
Therefore, FINRA considers the transfer
of NASD Rule 2760 to the Consolidated
FINRA Rulebook to be unnecessary.
NASD Rule 2780 (Solicitation of
Purchases on an Exchange to Facilitate
a Distribution of Securities)
NASD Rule 2780 became effective in
1939, and its text has not been changed
since its adoption. The rule essentially
incorporated verbatim into the NASD
rulebook SEA Rule 10b–2 (formerly
Rule GB2), which was adopted by the
SEC in 1937 to ‘‘eliminate the practice
of stimulating exchange activity in
securities which are the subject of
distribution.’’ 8
The rule prohibits a member that
participates or is otherwise financially
interested in a primary or secondary
distribution of a security from paying or
offering to pay compensation to another
person for soliciting a purchase of any
security of the issuer on a national
securities exchange or for purchasing
any such security for an account other
than that of the member. The rule
further prohibits a member from (1)
selling or offering to sell or deliver such
security where the member engaged in
the aforementioned prohibited conduct
or (2) causing the purchase or sale of
such security by engaging in the
prohibited conduct. Finally, the rule
does not apply to any salary paid by a
member to a person whose ordinary
duties include the solicitation of orders
on a national securities exchange, as
long as the salary represents ordinary
compensation and is not paid in whole
or in part for the inducement of a
purchase or sale of the security that is
subject to the distribution of which the
member is participating or financially
interested.
The SEC rescinded SEA Rule 10b–2 in
1993 finding, among other things, that it
was duplicative of other provisions of
the federal securities laws that more
effectively address manipulative
practices. More specifically, the SEC
noted that the general antifraud
provisions, including Section 17(a) of
the Securities Act and Sections 9(a),
10(b) and 15(c) of the Exchange Act and
8 See Securities Exchange Act Release No. 1330
(August 4, 1937).
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Federal Register / Vol. 74, No. 248 / Tuesday, December 29, 2009 / Notices
Rule 10b–5 thereunder proscribe
manipulative practices effected on and
off exchanges, and had been found to
apply to the practices covered by SEA
Rule 10b–2.9 The SEC also noted in
particular that SEA Rule 10b–6
addressed the manipulative activity
covered by SEA Rule 10b–2. SEA Rule
10b–6 was the predecessor to current
Regulation M. That regulation, among
other things, prohibits underwriters,
broker-dealers and other distribution
participants, during a restricted period
prior to the completion of their
participation in a distribution of
securities, from directly or indirectly
bidding for, purchasing, or attempting to
induce any person to bid for or purchase
the offered security absent an available
exception. Regulation M is designed to
prohibit activities that could artificially
influence the market for the offered
security, including for example,
supporting an IPO price by creating the
perception of scarcity of IPO stock or
creating the perception of aftermarket
demand. Thus, FINRA believes that the
conduct covered by Regulation M and
NASD Rule 2780 are very similar.
In considering the provisions of
NASD Rule 2780 today, FINRA sees no
significant utility to the rule in light of
the applicable federal securities laws
and FINRA Rules 2010 (Standards of
Commercial Honor and Principles of
Trade) and 2020 (Use of Manipulative,
Deceptive or Other Fraudulent Devices).
Because the manipulative conduct
contemplated by NASD Rule 2780 can
be reached by Regulation M, the federal
securities laws referenced above and
FINRA Rules 2010 and 2020, FINRA
proposes that the provisions of NASD
Rule 2780 not be adopted into the
Consolidated FINRA Rulebook and be
deleted. NYSE Rule 2B (No Affiliation
between Exchange and any Member
Organization)
NYSE Rule 2B was adopted as part of
the merger between the NYSE and
Archipelago Holdings, Inc. The rule
provides that, without prior SEC
approval, the Exchange or any entity
with which it is affiliated shall not,
directly or indirectly, acquire or
maintain an ownership interest in a
member organization. In addition, the
rule states that a member organization
shall not be or become an affiliate 10 of
the Exchange, or an affiliate of any
affiliate of the Exchange; provided,
however, that, if a director of an affiliate
of a member organization serves as a
9 See Securities Exchange Act Release No. 32100
(April 2, 1993), 58 FR 18145 (April 8, 1993).
10 The rule provides that the term ‘‘affiliate’’ shall
have the meaning specified in SEA Rule 12b–2. See
17 CFR 240.12b–2.
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director of NYSE Euronext, this fact
shall not cause such member
organization to be an affiliate of the
Exchange, or an affiliate of an affiliate
of the Exchange. The rule further
provides that nothing in the rule shall
prohibit a member organization from
acquiring or holding an equity interest
in NYSE Euronext that is permitted by
the ownership limitations contained in
the certificate of incorporation of NYSE
Euronext.11 There is no comparable
NASD rule.
The rule was adopted to address
concerns by the SEC regarding the
potential for unfair competition and
conflicts of interest between an
exchange’s self-regulatory obligations
and its commercial interests that could
exist if an exchange were to otherwise
become affiliated with one of its
members, as well as the potential for
unfair competitive advantage that the
affiliated member could have by virtue
of informational or operational
advantages, or the ability to receive
preferential treatment.12
The NYSE has subsequently amended
its version of Rule 2B in response to
concerns by the SEC regarding certain
other of its affiliate relationships.13
FINRA did not make conforming
amendments to its version of Rule 2B
since the NYSE’s changes addressed
specific arrangements between the
NYSE and its affiliates in its capacity as
an exchange.
FINRA is proposing to delete NYSE
Rule 2B from the FINRA rulebook. This
rule specifically addresses relationships
between the Exchange and its affiliates.
The SEC’s concerns regarding potential
conflicts of interest and unfair
competitive advantage in affiliate
relationships between an exchange and
a member are not applicable to FINRA
because it does not operate as an
exchange. As such, FINRA considers the
transfer of NYSE Rule 2B to the
Consolidated FINRA Rulebook to be
unnecessary. NYSE Rule 411 (Erroneous
Reports)
NYSE Rule 411 addresses three
separate issues. First, paragraph (a) of
the rule addresses situations where a
11 See Securities Exchange Act Release No. 55293
(February 14, 2007), 72 FR 8033 (February 22, 2007)
(Approval Order; File No. NYSE–2006–120)
(Amendments to Rule 2B relating to the
combination of NYSE Group, Inc. and Euronext
N.V.).
12 See Securities Exchange Act Release No. 53382
(February 27, 2006), 71 FR 11251 (March 6, 2006)
(Approval Order; File No. SR–NYSE–2005–77).
13 See Securities Exchange Act Release No. 59011
(November 24, 2008), 73 FR 73360 (December 2,
2008) (Approval Order; File No. SR–NYSE–2008–
122). See also e.g., Securities Exchange Act Release
No. 59281 (January 22, 2009), 74 FR 5014 (January
28, 2009) (Approval Order; File No. SR–NYSE–
2008–120).
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68891
member has rendered a report that
differs from the terms of an executed
trade. Second, paragraph (b)(1) sets forth
a member’s obligations when handling
separate odd-lot orders. Third,
paragraph (b)(2) requires members to
record securities transactions in
accounts no later than settlement date.
Each of these provisions is discussed
separately below.
(1) NYSE Rule 411(a): Erroneous
Reports
NYSE Rule 411(a)(i) provides that the
price and size of an ‘‘actual auction
market trade’’ are binding,
notwithstanding that the customer has
received an erroneous report with
respect to the terms of the trade.14
Because some customers may not want
corrected reports offered by a member
that has rendered an erroneous report,
the rule includes two alternative
approaches in cases where the wrong
price and/or size has been reported to
the customer.15 Under the first
alternative, the customer may take the
actual terms of the auction market trade,
and the trade clears and settles in
accordance with the terms of the
auction market trade. Under the second
alternative, the customer may treat the
terms of the erroneous report as though
they were the terms of the actual
auction market trade, provided certain
conditions are met, and the member
may treat the erroneous report as an
erroneous trade, assuming any losses or
paying any profit to the New York Stock
Exchange Foundation.16 NYSE Rule
411(a)(iii) provides that a report is not
binding and must be rescinded if an
order was not actually executed but was
erroneously reported as having been
executed. An order that was executed,
but was erroneously reported as not
having been executed, is binding.
Finally, NYSE Rule 411(a)(iv) includes
a provision addressing erroneous
reports by floor brokers involving ‘‘not
held’’ orders.
(2) NYSE Rule 411(b)(1): ‘‘Bunching’’
Odd-Lot Orders
NYSE Rule 411(b)(1) includes two
separate provisions regarding the
14 See NYSE Information Memo 01–38 (November
6, 2001).
15 NYSE members and member organizations
must always accept a corrected report. See NYSE
Information Memo 02–07 (February 5, 2002).
16 The NYSE has adopted an Interpretation to
paragraph (a)(ii)(5) regarding the calculation of
profits in these circumstances. Although the
interpretation relates to NYSE Rule 411(a)(ii)(5),
this Interpretation appears in the Transitional
Rulebook and in NYSE’s Rulebook under NYSE
Rule 410. FINRA is proposing to delete the
Interpretation and not include it in the
Consolidated FINRA Rulebook.
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Federal Register / Vol. 74, No. 248 / Tuesday, December 29, 2009 / Notices
aggregation of multiple odd-lot orders.
First, the rule prohibits a member from
combining orders given by different
customers to buy or sell odd-lots of the
same stock into a round-lot order
without the prior approval of the
customers. Second, the rule states that
when a customer ‘‘gives, either for his
own account, for various accounts in
which he has an actual monetary
interest, or for accounts over which
such person is exercising investment
discretion, buy or sell odd-lot orders
which aggregate 100 shares or more,’’
the member may not accept the orders
unless they are, as far as possible,
consolidated into round lots, except that
orders marked ‘‘long’’ need not be
consolidated with selling orders marked
‘‘short.’’ An exception from the
consolidation requirement is available
once per trading day by a person
exercising investment discretion over
multiple accounts if the odd-lot orders,
in the aggregate, total fewer than 300
shares.
(3) NYSE Rule 411(b)(2): Recording of
Transactions in Accounts
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NYSE Rule 411(b)(2) requires that
transactions in securities be recorded in
accounts no later than settlement date.
The rule originally was intended to
ensure that interest was properly posted
for each transaction and required that
transactions be recorded and interest be
computed as of settlement date.17 The
NYSE amended the rule into its current
form in 1982 to remove the language
regarding the calculation of interest and
to permit firms to record securities
transactions at any time prior to
settlement date.18
FINRA is proposing not to incorporate
NYSE Rule 411 or the Interpretation to
NYSE Rule 411(a)(ii)(5) into the
Consolidated FINRA Rulebook. The
provisions in the rule related to
erroneous reports are specific to the
NYSE marketplace, and certain of the
provisions relate solely to transactions
by floor brokers. Paragraph (b)(1), which
is related to the ‘‘bunching’’ of odd-lot
orders, is similarly focused on the NYSE
marketplace, which maintains a
separate system for the execution of
odd-lot orders.19 Because FINRA does
not maintain a marketplace, a rule
addressing the aggregation of orders for
17 See Securities Exchange Act Release No. 18644
(April 14, 1982), 47 FR 17701 (April 23, 1982)
(Notice of Filing; File No. SR–NYSE–82–7).
18 See Securities Exchange Act Release No. 18778
(May 28, 1982), 47 FR 24900 (June 8, 1982)
(Approval Order; File No. SR–NYSE–82–7).
19 See NYSE Rule 124 (Odd-Lot Orders). FINRA
did not incorporate NYSE Rule 124 into the
Transitional Rulebook because it is solely
concerned with the NYSE marketplace.
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execution is unnecessary.20 Finally,
FINRA is proposing that NYSE Rule
411(b)(2) not be included in the
Consolidated FINRA Rulebook because
the rule is duplicative of existing SEC
recordkeeping requirements and
longstanding SEC guidance.21
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,22 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 streamline
and improve FINRA’s rulebook by
eliminating rules that are duplicative of
federal rules and regulations and
provisions that are specific to the NYSE
and its marketplace.
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
20 Although FINRA does not have a rule
addressing the bunching of odd-lot orders, FINRA’s
trade reporting rules have separate reporting
requirements for round-lot and odd-lot transactions.
In addition, the aggregation of individual
executions (both round-lot and odd-lot executions)
for trade reporting purposes is prohibited. See, e.g.,
FINRA Rules 6282(f), 6380A(f), 6380B(h).
21 See 17 CFR 240.17a–3(a)(3); see also Securities
Exchange Act Release No. 10756 (April 26, 1974)
(‘‘Transactions involving the purchase and sale of
securities should be posted to the customer’s ledger
accounts * * * no later than settlement date.’’).
22 15 U.S.C. 78o–3(b)(6).
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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 rulecomments@sec.gov. Please include File
Number SR–FINRA–2009–087 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–2009–087. 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,23 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
23 The text of the proposed rule change is
available on the Commission’s Web site at https://
www.sec.gov/.
E:\FR\FM\29DEN1.SGM
29DEN1
Federal Register / Vol. 74, No. 248 / Tuesday, December 29, 2009 / Notices
information that you wish to make
available publicly. All submissions
should refer to File Number SR–FINRA–
2009–087 and should be submitted on
or before January 19, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.24
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–30784 Filed 12–28–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–61226; File No. SR–CTA/
CQ–2009–02]
Consolidated Tape Association; Order
Approving the Thirteenth Charges
Amendment to the Second
Restatement of the Consolidated Tape
Association Plan and Seventh Charges
Amendment to the Restated
Consolidated Quotation Plan
December 22, 2009.
I. Introduction
On October 19, 2009, the
Consolidated Tape Association (‘‘CTA’’)
Plan and Consolidated Quotation
(‘‘CQ’’) Plan participants
(‘‘Participants’’) 1 filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) pursuant to
Section 11A of the Securities Exchange
Act of 1934 (‘‘Act’’),2 and Rule 608
thereunder,3 proposals 4 to amend the
Second Restatement of the CTA Plan
and Restated CQ Plan (collectively, the
‘‘Plans’’).5 The proposals would: (1)
24 17
CFR 200.30–3(a)(12).
participant executed the proposed
amendment. The Participants are: BATS Exchange,
Inc.; Chicago Board Options Exchange, Inc.;
Chicago Stock Exchange, Inc.; Financial Industry
Regulatory Authority, Inc.; International Securities
Exchange, LLC; NASDAQ OMX BX, Inc.; NASDAQ
OMX PHLX, Inc.; The NASDAQ Stock Market LLC;
National Stock Exchange, Inc.; New York Stock
Exchange LLC; NYSE Amex LLC; and NYSE Arca,
Inc.
2 15 U.S.C. 78k–1.
3 17 CFR 242.608.
4 On November 6, 2009, the Consolidated Tape
Association sent a revised transmittal letter
correcting the number of the proposed amendment
(‘‘Transmittal Letter’’).
5 See Securities Exchange Act Release Nos. 10787
(May 10, 1974), 39 FR 17799 (declaring the CTA
Plan effective); 15009 (July 28, 1978), 43 FR 34851
(August 7, 1978) (temporarily authorizing the CQ
Plan); and 16518 (January 22, 1980), 45 FR 6521
(January 28, 1980) (permanently authorizing the CQ
Plan). The most recent restatement of both Plans
was in 1995. The CTA Plan, pursuant to which
markets collect and disseminate last sale price
information for non-NASDAQ listed securities, is a
‘‘transaction reporting plan’’ under Rule 601 under
the Act, 17 CFR 242.601, and a ‘‘national market
system plan’’ under Rule 608 under the Act, 17 CFR
pwalker on DSK8KYBLC1PROD with NOTICES
1 Each
VerDate Nov<24>2008
19:02 Dec 28, 2009
Jkt 220001
delete all program classification charges
from the schedules of Network A and
Network B computer input charges; and
(2) replace the current combined
Network A/Network B high speed line
access charges with separate high speed
line access charges for Network A and
Network B. The proposed amendments
to the Plans were published for
comment in the Federal Register on
November 19, 2009.6 No comment
letters were received in response to the
Notice. This order approves the
proposed amendments to the Plans.
68893
allowed to pay only for Network A last
sale prices, without also having to pay
for Network B last sale prices and vice
versa.
In addition to establishing separate
access fees for Network A and Network
B, the Participants stated that they
intend to set the new access fees at
levels that will offset the revenues that
the Participants anticipate losing as a
result of eliminating the program
classification fees.
III. Discussion
II. Description of the Proposal
The Plans currently divide the
different means of using market data
into eight ‘‘program classifications.’’
The program classification fees payable
by vendors and end-users depend on the
category of use the vendor or end-user
makes of the data and whether the
vendor or end-user is using Network A
market data or Network B market data,
or both. Through the amendments to the
Plans, the Participants proposed to
eliminate program classification charges
and set separate fees for the receipt of
Network A market data and Network B
market data.
The Participants stated that over time,
new technologies and new and
innovative ways to use market data have
made it increasingly difficult to fit the
data uses into the existing program
classifications in a manner that is
consistent and equitable for all.
Therefore, the Participants concluded
that it is more equitable to charge
vendors and end-users for the method of
access to the data and the quantity of
usage, rather than for the specific
purposes (i.e., by program classification)
to which vendors and end-users put
market data. The elimination of program
classification charges means that
vendors will no longer need to provide
detailed explanations of how they use
the data or to update Exhibit A to their
agreements with the Participants each
time they use data in a new way.
Additionally, the Participants
proposed to revise the access fees by
setting separate fees for the receipt of
Network A market data and Network B
market data. Therefore, if a vendor or
end-user wishes to receive Network A
last sale prices (or quotation
information), but not Network B last
sale prices (or quotation information),
the vendor or end-user would be
After careful review, the Commission
finds that the proposed amendments to
the Plans are consistent with the Act
and the rules and regulations
thereunder.7 Specifically, the
Commission finds that the amendments
are consistent with Rule 608(b)(2) 8 of
the Act in that they are necessary for the
protection of investors, the maintenance
of fair and orderly markets, and to
remove impediments to a national
market system. The Commission
believes that eliminating program
classification charges and replacing
them with separate fees for the receipt
of Network A and Network B market
data are fair and reasonable and provide
for an equitable allocation of dues, fees,
and other charges among vendors, data
recipients and other persons using CTA
Network A and Network B facilities.
The Commission agrees that charging
users of data based on their method of
access to the data and the amount of
data they use rather than basing charges
on the way vendors or end users use the
data should simplify the rate schedule,
remove subjectivity from the billing
process, simplify and reduce the costs of
data administration, and give choice to
data vendors and end-users who prefer
to receive data from one network only.
Further, according to the Participants’
estimates, the vast majority of vendors
and end-users would realize net
monthly increases or decreases of less
than $1,000.9 Thus, the proposed
amendment is consistent with, and
would further, one of the principal
objectives for the national market
system set forth in Section
11A(a)(1)(C)(iii) 10 of the Act—
increasing the availability of market
information to broker-dealers and
investors.
242.608. The CQ Plan, pursuant to which markets
collect and disseminate bid/ask quotation
information for listed securities, is also a ‘‘national
market system plan’’ under Rule 608 under the Act,
17 CFR 242.608.
6 See Securities Exchange Act Release No. 60985
(November 10, 2009), 74 FR 59999 (‘‘Notice’’).
7 In approving this amendment, the Commission
has considered the proposed amendment’s impact
on efficiency, competition, and capital formation.
15 U.S.C. 78c(f).
8 17 CFR 242.608(b)(2).
9 See the Transmittal Letter.
10 15 U.S.C. 78k–1(a)(1)(C)(iii).
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
E:\FR\FM\29DEN1.SGM
29DEN1
]]>Agencies
[Federal Register Volume 74, Number 248 (Tuesday, December 29, 2009)]
[Notices]
[Pages 68889-68893]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30784]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61211; File No. SR-FINRA-2009-087]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Repeal
NASD Rules 2760 and 2780, Incorporated NYSE Rules 2B and 411, and the
Interpretation to Incorporated NYSE Rule 411(a)(ii)(5) as Part of the
Process of Developing the Consolidated FINRA Rulebook
December 18, 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 December 4, 2009, Financial Industry Regulatory
[[Page 68890]]
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.
---------------------------------------------------------------------------
\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 repeal NASD Rule 2760 (Offerings ``At the
Market''), NASD Rule 2780 (Solicitation of Purchases on an Exchange to
Facilitate a Distribution of Securities), Incorporated NYSE Rule 2B (No
Affiliation between Exchange and any Member Organization), Incorporated
NYSE Rule 411 (Erroneous Reports) and the Interpretation to
Incorporated NYSE Rule 411(a)(ii)(5) as part of the process of
developing a 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.
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 repeal NASD
Rule 2760 (Offerings ``At the Market''), NASD Rule 2780 (Solicitation
of Purchases on an Exchange to Facilitate a Distribution of
Securities), Incorporated NYSE Rule 2B (No Affiliation between Exchange
and any Member Organization), Incorporated NYSE Rule 411 (Erroneous
Reports) and the Interpretation to Incorporated NYSE Rule
411(a)(ii)(5).\4\ The proposed rule change is described in detail
below. NASD Rule 2760 (Offerings ``At the Market'')
---------------------------------------------------------------------------
\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\ For convenience, Incorporated NYSE Rules generally are
referred to as NYSE Rules.
---------------------------------------------------------------------------
NASD Rule 2760 provides that a member who is participating or who
is otherwise financially interested in the primary or secondary
distribution of any security which is not admitted to trading on a
national securities exchange shall make no representation that such
security is being offered to a customer ``at the market'' or at a price
related to the market price, unless the member knows or has reasonable
grounds to believe that a market for such security exists other than
that made, created, or controlled by the member, or by any person for
whom he is acting or with whom he is associated in such distribution,
or by any person controlled by, controlling or under common control
with the member.
When Rule 2760 was adopted,\5\ its requirements duplicated those
set forth in the SEC's early version of SEA Rule 15c1-8 (designated at
the time of its adoption as Rule MC8).\6\ Today, SEA Rule 15c1-8 is
identical to its predecessor Rule MC8 except that it also applies to
municipal securities dealers.\7\ NASD Rule 2760 remains unchanged since
its inception.
---------------------------------------------------------------------------
\5\ Rule 2760, formerly designated as Section 16 in Article III
of the Rules of Fair Practice, was 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).
\6\ See Securities Exchange Act Release No. 1330 (August 4,
1937).
\7\ See Securities Exchange Act Release No. 12468 (May 20,
1976), 41 FR 22820 (June 7, 1976) (Regulation of Municipal
Securities Professionals and Transactions in Municipal Securities).
FINRA Rule 0150(b) (Application of Rules to Exempted Securities
Except Municipal Securities) provides that FINRA's rules do not
apply to transactions in, and business activities relating to,
municipal securities.
---------------------------------------------------------------------------
FINRA is proposing to delete NASD Rule 2760 from the FINRA rulebook
because it duplicates SEA Rule 15c1-8. SEA Rule 15c1-8 explicitly makes
it a manipulative, deceptive, or other fraudulent device or contrivance
under Section 15(c) of the Exchange Act for a broker or dealer or
municipal securities dealer who is participating or otherwise
financially interested in the primary or secondary distribution of any
security which is not admitted to trading on a national securities
exchange to make a representation to a customer that a security is
being offered ``at the market'' unless certain conditions (identical to
those required by NASD Rule 2760) are satisfied. FINRA believes the SEA
rule appropriately protects investors without duplication by NASD Rule
2760. Therefore, FINRA considers the transfer of NASD Rule 2760 to the
Consolidated FINRA Rulebook to be unnecessary.
NASD Rule 2780 (Solicitation of Purchases on an Exchange to Facilitate
a Distribution of Securities)
NASD Rule 2780 became effective in 1939, and its text has not been
changed since its adoption. The rule essentially incorporated verbatim
into the NASD rulebook SEA Rule 10b-2 (formerly Rule GB2), which was
adopted by the SEC in 1937 to ``eliminate the practice of stimulating
exchange activity in securities which are the subject of
distribution.'' \8\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 1330 (August 4,
1937).
---------------------------------------------------------------------------
The rule prohibits a member that participates or is otherwise
financially interested in a primary or secondary distribution of a
security from paying or offering to pay compensation to another person
for soliciting a purchase of any security of the issuer on a national
securities exchange or for purchasing any such security for an account
other than that of the member. The rule further prohibits a member from
(1) selling or offering to sell or deliver such security where the
member engaged in the aforementioned prohibited conduct or (2) causing
the purchase or sale of such security by engaging in the prohibited
conduct. Finally, the rule does not apply to any salary paid by a
member to a person whose ordinary duties include the solicitation of
orders on a national securities exchange, as long as the salary
represents ordinary compensation and is not paid in whole or in part
for the inducement of a purchase or sale of the security that is
subject to the distribution of which the member is participating or
financially interested.
The SEC rescinded SEA Rule 10b-2 in 1993 finding, among other
things, that it was duplicative of other provisions of the federal
securities laws that more effectively address manipulative practices.
More specifically, the SEC noted that the general antifraud provisions,
including Section 17(a) of the Securities Act and Sections 9(a), 10(b)
and 15(c) of the Exchange Act and
[[Page 68891]]
Rule 10b-5 thereunder proscribe manipulative practices effected on and
off exchanges, and had been found to apply to the practices covered by
SEA Rule 10b-2.\9\ The SEC also noted in particular that SEA Rule 10b-6
addressed the manipulative activity covered by SEA Rule 10b-2. SEA Rule
10b-6 was the predecessor to current Regulation M. That regulation,
among other things, prohibits underwriters, broker-dealers and other
distribution participants, during a restricted period prior to the
completion of their participation in a distribution of securities, from
directly or indirectly bidding for, purchasing, or attempting to induce
any person to bid for or purchase the offered security absent an
available exception. Regulation M is designed to prohibit activities
that could artificially influence the market for the offered security,
including for example, supporting an IPO price by creating the
perception of scarcity of IPO stock or creating the perception of
aftermarket demand. Thus, FINRA believes that the conduct covered by
Regulation M and NASD Rule 2780 are very similar.
In considering the provisions of NASD Rule 2780 today, FINRA sees
no significant utility to the rule in light of the applicable federal
securities laws and FINRA Rules 2010 (Standards of Commercial Honor and
Principles of Trade) and 2020 (Use of Manipulative, Deceptive or Other
Fraudulent Devices). Because the manipulative conduct contemplated by
NASD Rule 2780 can be reached by Regulation M, the federal securities
laws referenced above and FINRA Rules 2010 and 2020, FINRA proposes
that the provisions of NASD Rule 2780 not be adopted into the
Consolidated FINRA Rulebook and be deleted. NYSE Rule 2B (No
Affiliation between Exchange and any Member Organization)
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 32100 (April 2,
1993), 58 FR 18145 (April 8, 1993).
---------------------------------------------------------------------------
NYSE Rule 2B was adopted as part of the merger between the NYSE and
Archipelago Holdings, Inc. The rule provides that, without prior SEC
approval, the Exchange or any entity with which it is affiliated shall
not, directly or indirectly, acquire or maintain an ownership interest
in a member organization. In addition, the rule states that a member
organization shall not be or become an affiliate \10\ of the Exchange,
or an affiliate of any affiliate of the Exchange; provided, however,
that, if a director of an affiliate of a member organization serves as
a director of NYSE Euronext, this fact shall not cause such member
organization to be an affiliate of the Exchange, or an affiliate of an
affiliate of the Exchange. The rule further provides that nothing in
the rule shall prohibit a member organization from acquiring or holding
an equity interest in NYSE Euronext that is permitted by the ownership
limitations contained in the certificate of incorporation of NYSE
Euronext.\11\ There is no comparable NASD rule.
---------------------------------------------------------------------------
\10\ The rule provides that the term ``affiliate'' shall have
the meaning specified in SEA Rule 12b-2. See 17 CFR 240.12b-2.
\11\ See Securities Exchange Act Release No. 55293 (February 14,
2007), 72 FR 8033 (February 22, 2007) (Approval Order; File No.
NYSE-2006-120) (Amendments to Rule 2B relating to the combination of
NYSE Group, Inc. and Euronext N.V.).
---------------------------------------------------------------------------
The rule was adopted to address concerns by the SEC regarding the
potential for unfair competition and conflicts of interest between an
exchange's self-regulatory obligations and its commercial interests
that could exist if an exchange were to otherwise become affiliated
with one of its members, as well as the potential for unfair
competitive advantage that the affiliated member could have by virtue
of informational or operational advantages, or the ability to receive
preferential treatment.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 53382 (February 27,
2006), 71 FR 11251 (March 6, 2006) (Approval Order; File No. SR-
NYSE-2005-77).
---------------------------------------------------------------------------
The NYSE has subsequently amended its version of Rule 2B in
response to concerns by the SEC regarding certain other of its
affiliate relationships.\13\ FINRA did not make conforming amendments
to its version of Rule 2B since the NYSE's changes addressed specific
arrangements between the NYSE and its affiliates in its capacity as an
exchange.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 59011 (November 24,
2008), 73 FR 73360 (December 2, 2008) (Approval Order; File No. SR-
NYSE-2008-122). See also e.g., Securities Exchange Act Release No.
59281 (January 22, 2009), 74 FR 5014 (January 28, 2009) (Approval
Order; File No. SR-NYSE-2008-120).
---------------------------------------------------------------------------
FINRA is proposing to delete NYSE Rule 2B from the FINRA rulebook.
This rule specifically addresses relationships between the Exchange and
its affiliates. The SEC's concerns regarding potential conflicts of
interest and unfair competitive advantage in affiliate relationships
between an exchange and a member are not applicable to FINRA because it
does not operate as an exchange. As such, FINRA considers the transfer
of NYSE Rule 2B to the Consolidated FINRA Rulebook to be unnecessary.
NYSE Rule 411 (Erroneous Reports)
NYSE Rule 411 addresses three separate issues. First, paragraph (a)
of the rule addresses situations where a member has rendered a report
that differs from the terms of an executed trade. Second, paragraph
(b)(1) sets forth a member's obligations when handling separate odd-lot
orders. Third, paragraph (b)(2) requires members to record securities
transactions in accounts no later than settlement date. Each of these
provisions is discussed separately below.
(1) NYSE Rule 411(a): Erroneous Reports
NYSE Rule 411(a)(i) provides that the price and size of an ``actual
auction market trade'' are binding, notwithstanding that the customer
has received an erroneous report with respect to the terms of the
trade.\14\ Because some customers may not want corrected reports
offered by a member that has rendered an erroneous report, the rule
includes two alternative approaches in cases where the wrong price and/
or size has been reported to the customer.\15\ Under the first
alternative, the customer may take the actual terms of the auction
market trade, and the trade clears and settles in accordance with the
terms of the auction market trade. Under the second alternative, the
customer may treat the terms of the erroneous report as though they
were the terms of the actual auction market trade, provided certain
conditions are met, and the member may treat the erroneous report as an
erroneous trade, assuming any losses or paying any profit to the New
York Stock Exchange Foundation.\16\ NYSE Rule 411(a)(iii) provides that
a report is not binding and must be rescinded if an order was not
actually executed but was erroneously reported as having been executed.
An order that was executed, but was erroneously reported as not having
been executed, is binding. Finally, NYSE Rule 411(a)(iv) includes a
provision addressing erroneous reports by floor brokers involving ``not
held'' orders.
---------------------------------------------------------------------------
\14\ See NYSE Information Memo 01-38 (November 6, 2001).
\15\ NYSE members and member organizations must always accept a
corrected report. See NYSE Information Memo 02-07 (February 5,
2002).
\16\ The NYSE has adopted an Interpretation to paragraph
(a)(ii)(5) regarding the calculation of profits in these
circumstances. Although the interpretation relates to NYSE Rule
411(a)(ii)(5), this Interpretation appears in the Transitional
Rulebook and in NYSE's Rulebook under NYSE Rule 410. FINRA is
proposing to delete the Interpretation and not include it in the
Consolidated FINRA Rulebook.
---------------------------------------------------------------------------
(2) NYSE Rule 411(b)(1): ``Bunching'' Odd-Lot Orders
NYSE Rule 411(b)(1) includes two separate provisions regarding the
[[Page 68892]]
aggregation of multiple odd-lot orders. First, the rule prohibits a
member from combining orders given by different customers to buy or
sell odd-lots of the same stock into a round-lot order without the
prior approval of the customers. Second, the rule states that when a
customer ``gives, either for his own account, for various accounts in
which he has an actual monetary interest, or for accounts over which
such person is exercising investment discretion, buy or sell odd-lot
orders which aggregate 100 shares or more,'' the member may not accept
the orders unless they are, as far as possible, consolidated into round
lots, except that orders marked ``long'' need not be consolidated with
selling orders marked ``short.'' An exception from the consolidation
requirement is available once per trading day by a person exercising
investment discretion over multiple accounts if the odd-lot orders, in
the aggregate, total fewer than 300 shares.
(3) NYSE Rule 411(b)(2): Recording of Transactions in Accounts
NYSE Rule 411(b)(2) requires that transactions in securities be
recorded in accounts no later than settlement date. The rule originally
was intended to ensure that interest was properly posted for each
transaction and required that transactions be recorded and interest be
computed as of settlement date.\17\ The NYSE amended the rule into its
current form in 1982 to remove the language regarding the calculation
of interest and to permit firms to record securities transactions at
any time prior to settlement date.\18\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 18644 (April 14,
1982), 47 FR 17701 (April 23, 1982) (Notice of Filing; File No. SR-
NYSE-82-7).
\18\ See Securities Exchange Act Release No. 18778 (May 28,
1982), 47 FR 24900 (June 8, 1982) (Approval Order; File No. SR-NYSE-
82-7).
---------------------------------------------------------------------------
FINRA is proposing not to incorporate NYSE Rule 411 or the
Interpretation to NYSE Rule 411(a)(ii)(5) into the Consolidated FINRA
Rulebook. The provisions in the rule related to erroneous reports are
specific to the NYSE marketplace, and certain of the provisions relate
solely to transactions by floor brokers. Paragraph (b)(1), which is
related to the ``bunching'' of odd-lot orders, is similarly focused on
the NYSE marketplace, which maintains a separate system for the
execution of odd-lot orders.\19\ Because FINRA does not maintain a
marketplace, a rule addressing the aggregation of orders for execution
is unnecessary.\20\ Finally, FINRA is proposing that NYSE Rule
411(b)(2) not be included in the Consolidated FINRA Rulebook because
the rule is duplicative of existing SEC recordkeeping requirements and
longstanding SEC guidance.\21\
---------------------------------------------------------------------------
\19\ See NYSE Rule 124 (Odd-Lot Orders). FINRA did not
incorporate NYSE Rule 124 into the Transitional Rulebook because it
is solely concerned with the NYSE marketplace.
\20\ Although FINRA does not have a rule addressing the bunching
of odd-lot orders, FINRA's trade reporting rules have separate
reporting requirements for round-lot and odd-lot transactions. In
addition, the aggregation of individual executions (both round-lot
and odd-lot executions) for trade reporting purposes is prohibited.
See, e.g., FINRA Rules 6282(f), 6380A(f), 6380B(h).
\21\ See 17 CFR 240.17a-3(a)(3); see also Securities Exchange
Act Release No. 10756 (April 26, 1974) (``Transactions involving the
purchase and sale of securities should be posted to the customer's
ledger accounts * * * no later than settlement date.'').
---------------------------------------------------------------------------
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,\22\ 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
streamline and improve FINRA's rulebook by eliminating rules that are
duplicative of federal rules and regulations and provisions that are
specific to the NYSE and its marketplace.
---------------------------------------------------------------------------
\22\ 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 (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-2009-087 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-2009-087. 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,\23\ 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
[[Page 68893]]
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2009-087 and should be submitted
on or before January 19, 2010.
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\23\ 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.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30784 Filed 12-28-09; 8:45 am]
BILLING CODE 8011-01-P
