Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt NASD Rule 3210 (Short Sale Delivery Requirements) as FINRA Rule 4320 in the Consolidated FINRA Rulebook, 43588-43589 [2010-18168]

Download as PDF 43588 Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices execution in the Complex Matching Engine. Presently, the Exchange charges all participants $.10 per contract except for when orders that originate from the same firm interact with each other in which case the charge is $.05 per contract. The Exchange intends to reduce the charge for all participants to $.05 per contract for executions received in the Complex Matching Engine regardless of whether the orders originate from the same firm or not. These changes are intended to be effective immediately for all transactions beginning July 7, 2010. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,3 in general, and Section 6(b)(4) of the Act,4 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose 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 No written comments were solicited or received with respect to the proposed rule change. jlentini on DSKJ8SOYB1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 5 and subparagraph (f)(2) of Rule 19b–4 6 thereunder, because it establishes a due, fee, or other charge imposed by the NYSE Amex. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 3 15 U.S.C. 78f. U.S.C. 78f(b)(4). 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 19b–4(f)(2). 4 15 VerDate Mar<15>2010 16:04 Jul 23, 2010 Jkt 220001 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.7 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–18165 Filed 7–23–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION 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–NYSEAmex–2010–68 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. [Release No. 34–62533; File No. SR–FINRA– 2010–028] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Adopt NASD Rule 3210 (Short Sale Delivery Requirements) as FINRA Rule 4320 in the Consolidated FINRA Rulebook July 20, 2010. On May 21, 2010, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and All submissions should refer to File Exchange Commission (‘‘SEC’’ or Number SR–NYSEAmex–2010–68. This ‘‘Commission’’), pursuant to Section file number should be included on the 19(b)(1) of the Securities Exchange Act subject line if e-mail is used. To help the of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to Commission process and review your adopt NASD Rule 3210 as FINRA Rule comments more efficiently, please use only one method. The Commission will 4320 in the consolidated FINRA post all comments on the Commission’s rulebook. On June 11, 2010, FINRA filed Amendment No. 1 to the proposed rule Internet Web site (https://www.sec.gov/ change.3 The proposed rule change, as rules/sro.shtml). Copies of the modified by Amendment No. 1, was submission, all subsequent published for comment in the Federal amendments, all written statements Register on June 17, 2010.4 The with respect to the proposed rule Commission received no comments on change that are filed with the the proposal. This order approves the Commission, and all written proposed rule change, as modified by communications relating to the Amendment No. 1. proposed rule change between the Commission and any person, other than I. Description of the Proposed Rule those that may be withheld from the Change public in accordance with the As part of the process of developing provisions of 5 U.S.C. 552, will be a new consolidated rulebook available for Web site viewing and (‘‘Consolidated FINRA Rulebook’’),5 printing in the Commission’s Public 7 15 CFR 200.30–3(a)(12). Reference Room, 100 F Street, NE., 1 15 U.S.C. 78s(b)(1). Washington, DC 20549, on official 2 17 CFR 240.19b–4. business days between the hours of 10 3 Amendment No. 1 was a partial amendment that a.m. and 3 p.m. Copies of the filing also made minor clarifications, provided additional will be available for inspection and detail and made technical edits to the purpose copying at NYSE’s principal office and section of the proposed rule change. 4 See Securities Exchange Act Release No. 62288 on its Internet Web site at https:// (Jun. 11, 2010), 75 FR 34496 (Jun. 17, 2010). www.nyse.com. All comments received 5 FINRA stated that the current FINRA rulebook will be posted without change; the consists of (1) FINRA Rules; (2) NASD Rules; and Commission does not edit personal (3) rules incorporated from NYSE (‘‘Incorporated NYSE Rules’’) (together, the NASD Rules and identifying information from Incorporated NYSE Rules are referred to as the submissions. You should submit only ‘‘Transitional Rulebook’’). While the NASD Rules information that you wish to make generally apply to all FINRA members, the available publicly. All submissions Incorporated NYSE Rules apply only to those members of FINRA that are also members of the should refer to File Number SR– NYSE (‘‘Dual Members’’). FINRA also stated that NYSEAmex–2010–68 and should be FINRA Rules apply to all FINRA members, unless submitted on or before August 16, 2010. such rules have a more limited application by their PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 E:\FR\FM\26JYN1.SGM 26JYN1 Federal Register / Vol. 75, No. 142 / Monday, July 26, 2010 / Notices jlentini on DSKJ8SOYB1PROD with NOTICES FINRA has proposed to adopt NASD Rule 3210 (Short Sale Delivery Requirements), with minor changes, as FINRA Rule 4320 in the Consolidated FINRA Rulebook. On April 4, 2006, the SEC approved NASD Rule 3210, which applies short sale delivery requirements to those equity securities not otherwise covered by the close-out requirements of Regulation SHO. The Regulation SHO close-out requirements apply only to the equity securities of ‘‘reporting’’ issuers (i.e., issuers that are registered pursuant to Section 12 of the Act 6 or that are required to file reports pursuant to Section 15(d) of the Act 7). NASD Rule 3210, among other things, requires participants of registered clearing agencies to take action on failures to deliver that exist for 13 consecutive settlement days in certain non-reporting securities. In addition, if the fail to deliver position is not closed out in the requisite time period, a participant of a registered clearing agency or any broker-dealer for which it clears transactions is prohibited from effecting further short sales in the particular specified security without borrowing, or entering into a bona fide arrangement to borrow, the security until the fail to deliver position is closed out. Pursuant to NASD Rule 3210, FINRA publishes a daily ‘‘Threshold Security List.’’ 8 The rule became effective on July 3, 2006. In adopting NASD Rule 3210, FINRA believed that the rule represented an important step in reducing long-term fails to deliver in this sector of the marketplace. In July 2009, the SEC adopted the substance of temporary Rule 204T 9 under Regulation SHO as a permanent rule, Rule 204 of Regulation SHO.10 This rule is intended to further the goal of reducing fails to deliver and addressing potentially abusive ‘‘naked’’ short selling in all equity securities by requiring that, subject to certain limited exceptions, if a registered clearing terms. For more information about the rulebook consolidation process, see Information Notice, March 12, 2008 (Rulebook Consolidation Process). 6 15 U.S.C. 78l. 7 15 U.S.C. 78o(d). 8 FINRA stated that, for purposes of Rule 3210, a non-reporting threshold security is any equity security that is not a reporting security and, for five consecutive settlement days, has: (1) Aggregate fails to deliver at a registered clearing agency of 10,000 shares or more; and (2) a reported last sale during normal market hours (9:30 a.m. to 4 p.m., Eastern Time (ET)) for the security on that settlement day that would value the aggregate fail to deliver position at $50,000 or more. 9 See Securities Exchange Act Release No. 58785 (Oct. 14, 2008), 73 FR 61678 (Oct. 17, 2008). 10 See Securities Exchange Act Release No. 60388 (July 27, 2009), 74 FR 38266 (July 31, 2009). VerDate Mar<15>2010 16:04 Jul 23, 2010 Jkt 220001 agency participant has a fail to deliver position resulting from a short sale at a registered clearing agency it must immediately purchase or borrow securities to close out a fail to deliver position by no later than the beginning of regular trading hours on the settlement day following settlement date.11 Notwithstanding the SEC’s adoption of this new rule, FINRA believes proposed FINRA Rule 4320 continues to be necessary to provide regulatory coverage for fails to deliver in nonreporting over-the-counter equity securities that pre-exist the SEC’s implementation of temporary Rule 204T in September 2008.12 Therefore, FINRA has proposed to adopt NASD Rule 3210 as FINRA Rule 4320 with minor changes to delete language that provided allowances for ‘‘grandfathered’’ securities during the initial implementation period of NASD Rule 3210 and that, therefore, is no longer relevant. The proposed rule change also clarifies, consistent with Regulation SHO, the borrowing requirements for clearing agency participants, including broker-dealers for which they clear transactions, that sell short non-reporting threshold securities for which a fail to deliver position has not been closed out in the requisite time. Specifically, if a fail to deliver position is not closed out in accordance with Rule 4320(a), the clearing agency participant and any broker-dealer for which it clears, including market makers otherwise entitled to rely on the Rule 203(b)(2)(iii) exception of Regulation SHO, would not be able to short sell the non-reporting threshold security either for itself or for the account of another, unless it has previously arranged to borrow or borrowed the security, until the participant closes out the fail to deliver position by purchasing securities of like kind and quantity and that purchase has cleared and settled at a registered clearing agency. In addition, the proposed rule change makes certain technical amendments to the rule, including changing references to ‘‘NASD’’ to ‘‘FINRA.’’ FINRA has represented that it will announce the implementation date of the proposed rule change in a 11 Rule 204 of Regulation SHO further provides that fails to deliver resulting from long sales or certain bona fide market making activity must be closed out by no later than the beginning of regular trading hours on the third settlement day after settlement date (i.e., T+6). 12 Likewise, the SEC is retaining Rule 203(b)(3) of Regulation SHO in order to cover pre-existing temporary Rule 204T fails in threshold securities as defined in Rule 203(c)(6) of Regulation SHO. PO 00000 Frm 00105 Fmt 4703 Sfmt 9990 43589 Regulatory Notice to be published no later than 90 days following Commission approval. The implementation date will be no more than 180 days following Commission approval. III. Discussion and Commission’s Findings After careful review, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Act, and the rules and regulations thereunder that are applicable to a national securities association.13 In particular, the Commission believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change to adopt NASD Rule 3210 as FINRA Rule 4320 in the Consolidated FINRA Rulebook continues to be necessary to provide regulatory coverage for fails to deliver in non-reporting over-thecounter equity securities and will continue to help reduce long-term fails to deliver in this sector of the marketplace. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,14 that the proposed rule change (File No. SR– FINRA–2010–028), as modified by Amendment No. 1, be and hereby is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–18168 Filed 7–23–10; 8:45 am] BILLING CODE 8010–01–P 13 In approving the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 14 15 U.S.C. 78s(b)(2). 15 17 CFR 200.30–3(a)(12). E:\FR\FM\26JYN1.SGM 26JYN1

Agencies

[Federal Register Volume 75, Number 142 (Monday, July 26, 2010)]
[Notices]
[Pages 43588-43589]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-18168]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62533; File No. SR-FINRA-2010-028]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change, as Modified by 
Amendment No. 1, To Adopt NASD Rule 3210 (Short Sale Delivery 
Requirements) as FINRA Rule 4320 in the Consolidated FINRA Rulebook

July 20, 2010.
    On May 21, 2010, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt NASD Rule 3210 as FINRA Rule 4320 in the 
consolidated FINRA rulebook. On June 11, 2010, FINRA filed Amendment 
No. 1 to the proposed rule change.\3\ The proposed rule change, as 
modified by Amendment No. 1, was published for comment in the Federal 
Register on June 17, 2010.\4\ The Commission received no comments on 
the proposal. This order approves the proposed rule change, as modified 
by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 was a partial amendment that made minor 
clarifications, provided additional detail and made technical edits 
to the purpose section of the proposed rule change.
    \4\ See Securities Exchange Act Release No. 62288 (Jun. 11, 
2010), 75 FR 34496 (Jun. 17, 2010).
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\5\

[[Page 43589]]

FINRA has proposed to adopt NASD Rule 3210 (Short Sale Delivery 
Requirements), with minor changes, as FINRA Rule 4320 in the 
Consolidated FINRA Rulebook.
---------------------------------------------------------------------------

    \5\ FINRA stated that 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''). FINRA 
also stated that 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).
---------------------------------------------------------------------------

    On April 4, 2006, the SEC approved NASD Rule 3210, which applies 
short sale delivery requirements to those equity securities not 
otherwise covered by the close-out requirements of Regulation SHO. The 
Regulation SHO close-out requirements apply only to the equity 
securities of ``reporting'' issuers (i.e., issuers that are registered 
pursuant to Section 12 of the Act \6\ or that are required to file 
reports pursuant to Section 15(d) of the Act \7\).
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78l.
    \7\ 15 U.S.C. 78o(d).
---------------------------------------------------------------------------

    NASD Rule 3210, among other things, requires participants of 
registered clearing agencies to take action on failures to deliver that 
exist for 13 consecutive settlement days in certain non-reporting 
securities. In addition, if the fail to deliver position is not closed 
out in the requisite time period, a participant of a registered 
clearing agency or any broker-dealer for which it clears transactions 
is prohibited from effecting further short sales in the particular 
specified security without borrowing, or entering into a bona fide 
arrangement to borrow, the security until the fail to deliver position 
is closed out. Pursuant to NASD Rule 3210, FINRA publishes a daily 
``Threshold Security List.'' \8\ The rule became effective on July 3, 
2006. In adopting NASD Rule 3210, FINRA believed that the rule 
represented an important step in reducing long-term fails to deliver in 
this sector of the marketplace.
---------------------------------------------------------------------------

    \8\ FINRA stated that, for purposes of Rule 3210, a non-
reporting threshold security is any equity security that is not a 
reporting security and, for five consecutive settlement days, has: 
(1) Aggregate fails to deliver at a registered clearing agency of 
10,000 shares or more; and (2) a reported last sale during normal 
market hours (9:30 a.m. to 4 p.m., Eastern Time (ET)) for the 
security on that settlement day that would value the aggregate fail 
to deliver position at $50,000 or more.
---------------------------------------------------------------------------

    In July 2009, the SEC adopted the substance of temporary Rule 204T 
\9\ under Regulation SHO as a permanent rule, Rule 204 of Regulation 
SHO.\10\ This rule is intended to further the goal of reducing fails to 
deliver and addressing potentially abusive ``naked'' short selling in 
all equity securities by requiring that, subject to certain limited 
exceptions, if a registered clearing agency participant has a fail to 
deliver position resulting from a short sale at a registered clearing 
agency it must immediately purchase or borrow securities to close out a 
fail to deliver position by no later than the beginning of regular 
trading hours on the settlement day following settlement date.\11\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 58785 (Oct. 14, 
2008), 73 FR 61678 (Oct. 17, 2008).
    \10\ See Securities Exchange Act Release No. 60388 (July 27, 
2009), 74 FR 38266 (July 31, 2009).
    \11\ Rule 204 of Regulation SHO further provides that fails to 
deliver resulting from long sales or certain bona fide market making 
activity must be closed out by no later than the beginning of 
regular trading hours on the third settlement day after settlement 
date (i.e., T+6).
---------------------------------------------------------------------------

    Notwithstanding the SEC's adoption of this new rule, FINRA believes 
proposed FINRA Rule 4320 continues to be necessary to provide 
regulatory coverage for fails to deliver in non-reporting over-the-
counter equity securities that pre-exist the SEC's implementation of 
temporary Rule 204T in September 2008.\12\
---------------------------------------------------------------------------

    \12\ Likewise, the SEC is retaining Rule 203(b)(3) of Regulation 
SHO in order to cover pre-existing temporary Rule 204T fails in 
threshold securities as defined in Rule 203(c)(6) of Regulation SHO.
---------------------------------------------------------------------------

    Therefore, FINRA has proposed to adopt NASD Rule 3210 as FINRA Rule 
4320 with minor changes to delete language that provided allowances for 
``grandfathered'' securities during the initial implementation period 
of NASD Rule 3210 and that, therefore, is no longer relevant. The 
proposed rule change also clarifies, consistent with Regulation SHO, 
the borrowing requirements for clearing agency participants, including 
broker-dealers for which they clear transactions, that sell short non-
reporting threshold securities for which a fail to deliver position has 
not been closed out in the requisite time. Specifically, if a fail to 
deliver position is not closed out in accordance with Rule 4320(a), the 
clearing agency participant and any broker-dealer for which it clears, 
including market makers otherwise entitled to rely on the Rule 
203(b)(2)(iii) exception of Regulation SHO, would not be able to short 
sell the non-reporting threshold security either for itself or for the 
account of another, unless it has previously arranged to borrow or 
borrowed the security, until the participant closes out the fail to 
deliver position by purchasing securities of like kind and quantity and 
that purchase has cleared and settled at a registered clearing agency. 
In addition, the proposed rule change makes certain technical 
amendments to the rule, including changing references to ``NASD'' to 
``FINRA.''
    FINRA has represented that it 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. The implementation 
date will be no more than 180 days following Commission approval.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act, and the rules and regulations thereunder that 
are applicable to a national securities association.\13\ In particular, 
the Commission believes that the proposed rule change is consistent 
with the provisions of Section 15A(b)(6) of the Act, in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission believes that the proposed rule change to 
adopt NASD Rule 3210 as FINRA Rule 4320 in the Consolidated FINRA 
Rulebook continues to be necessary to provide regulatory coverage for 
fails to deliver in non-reporting over-the-counter equity securities 
and will continue to help reduce long-term fails to deliver in this 
sector of the marketplace.
---------------------------------------------------------------------------

    \13\ In approving the proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-FINRA-2010-028), as 
modified by Amendment No. 1, be and hereby is approved.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-18168 Filed 7-23-10; 8:45 am]
BILLING CODE 8010-01-P
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