Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Reinstitute Short Exempt Marking for Trade Reporting and OATS, 62439-62441 [2010-25331]

Download as PDF Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Notices [Disaster Declaration #12341 Disaster #ZZ– 00006] The Entire United States and U.S. Territories; Military Reservist Economic Injury Disaster Loan U.S. Small Business Administration. ACTION: Notice. AGENCY: erowe on DSK5CLS3C1PROD with NOTICES 15:29 Oct 07, 2010 Jkt 223001 For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: October 6, 2010. Elizabeth M. Murphy, Secretary. James E. Rivera, Associate Administrator for Disaster Assistance. This is a notice of the Military Reservist Economic Injury Disaster Loan. Program (MREIDL), dated 10/01/ 2010. DATES: Effective Date: 10/01/2010. MREIDL Loan Application Deadline Date: 1 year after the essential employees is discharged or released from active duty. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of Public Law 106–50, the Veterans Entrepreneurship and Small Business Development Act of 1999, and the Military Reservist and Veteran Small Business Reauthorization Act of 2008, this notice establishes the application filing period for the Military Reservist Economic Injury Disaster Loan Program (MREIDL). Effective 10/01/2010, small businesses employing military reservists may apply for economic injury disaster loans if those employees are called—up to active duty during a period of military conflict or have received notice of an expected call-up, and those employees are essential to the success of the small business daily operations. The purpose of the MREIDL program is to provide funds to an eligible small business to meet its ordinary and necessary operating expenses that it could have met, but is unable to meet, because an essential employee was called—up or expects to be called—up to active duty in his or her role as a military reservist. These loans are intended only to provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active duty. For information/applications contact 1–800–659–2955 or visit https:// www.sba.gov. VerDate Mar<15>2010 Applications for the Military Reservist Economic Injury Disaster Loan Program may be filed at the above address. The Interest Rate for eligible small businesses is 4.000. The number assigned is 12341 0. (Catalog of Federal Domestic Assistance Number 59002) SMALL BUSINESS ADMINISTRATION SUMMARY: 62439 [FR Doc. 2010–25594 Filed 10–6–10; 4:15 pm] BILLING CODE 8011–01–P [FR Doc. 2010–25436 Filed 10–7–10; 8:45 am] BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63032; File No. SR–FINRA– 2010–043] Sunshine Act Meetings Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Reinstitute Short Exempt Marking for Trade Reporting and OATS Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold Closed Meetings on Wednesday, October 13, 2010 at 11:30 a.m., and Thursday, October 14, 2010 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meetings. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meetings. Commissioner Aguilar, as duty officer, voted to consider the items listed for the Closed Meetings in closed sessions. The subject matter of the Closed Meeting scheduled for Wednesday, October 13, 2010 will be: Institution of injunctive actions; Institution of administrative proceedings; and Other matters relating to enforcement proceedings. The subject matter of the Closed Meeting scheduled for Thursday, October 14, 2010 will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; An adjudicatory matter; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. PO 00000 Frm 00077 Fmt 4703 Sfmt 4703 October 4, 2010. I. Introduction On August 6, 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 amend FINRA’s trade reporting and Order Audit Trail System (‘‘OATS’’) rules, including changes relating to recent amendments to SEC Regulation SHO. The proposed rule change was published for comment in the Federal Register on August 26, 2010.3 The Commission received two comment letters on the proposal,4 and a letter from FINRA responding to the comments.5 This order approves the proposed rule change. II. Description of the Proposed Rule Change On February 26, 2010, the SEC adopted amendments to SEC Regulation SHO.6 These amendments, among other 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 62748 (Aug. 20, 2010), 75 FR 52574 (Aug. 26, 2010). 4 See Letter from Mike Wiesenberg, dated September 8, 2010 (‘‘Wiesenberg Letter’’); Letter from Manisha Kimmel, Executive Director, Financial Information Forum, to Elizabeth M. Murphy, Secretary, Commission, dated September 17, 2010 (‘‘FIF Letter’’). 5 See Letter from Brant K. Brown, Associate General Counsel, FINRA to Elizabeth M. Murphy, Secretary, Commission, dated September 28, 2010 (‘‘FINRA Response Letter’’). 6 See Securities Exchange Act Release No. 61595 (February 26, 2010), 75 FR 11232 (March 10, 2010). 2 17 E:\FR\FM\08OCN1.SGM 08OCN1 62440 Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Notices erowe on DSK5CLS3C1PROD with NOTICES things, implement a short sale circuit breaker for NMS stocks 7 triggered by a 10% or more decrease in the price of the security from such security’s closing price as determined by the listing market for that security at the end of regular trading hours on the prior trading day. Once the circuit breaker is triggered, Regulation SHO, as amended, is designed to generally prohibit the execution or display of short sale orders of a covered security at a price that is less than or equal to the current national best bid for the remainder of the day and the following day (‘‘short sale price test restriction’’). In addition to the short sale price test restriction, the amendments to Regulation SHO reinstitute a short sale exempt marking category by providing that a brokerdealer may mark certain qualifying sell orders ‘‘short exempt.’’ 8 Paragraphs (c) and (d) of Rule 201 of SEC Regulation SHO set forth the provisions pursuant to which an order may be marked ‘‘short exempt’’ once the circuit breaker has been triggered pursuant to paragraph (b)(3). These provisions include: • Broker-dealer policies and procedures provision; • Seller’s delay in delivery; • Odd lot transactions; • Domestic arbitrage; • International arbitrage; • Over-allotments and lay-off sales; • Riskless principal transactions; and • Transactions on a volume-weighted average price basis (or ‘‘VWAP’’).9 In light of the reinstitution of the ‘‘short exempt’’ marking category, FINRA has proposed to amend its trade reporting rules applicable to over-thecounter trades in NMS stocks to reintroduce the short sale exempt category.10 Specifically, FINRA has proposed that, for short sales in all NMS stocks as defined in Rule 600(b)(47) of SEC Regulation NMS, members must indicate on trade reports submitted to FINRA if a transaction is ‘‘short sale exempt’’ (i.e., if it is a short sale transaction in a ‘‘covered security’’ that may be marked ‘‘short exempt’’ pursuant to SEC Regulation SHO).11 Similarly, FINRA has proposed to amend its OATS rules to provide that, when an order is received or originated, members must record the designation of an order as a short sale exempt order if the order may be marked ‘‘short exempt’’ pursuant to SEC Regulation SHO.12 FINRA also has proposed to require that members include the price on all route reports and a short exempt identifier, if applicable.13 FINRA has proposed certain additional amendments to its trade reporting rules, including those applicable to OTC Equity Securities, as defined in Rule 6420 (i.e., non-NMS stocks) to clarify certain existing reporting requirements.14 First, FINRA has proposed to clarify that the short sale indicator (and short sale exempt indicator, for NMS stocks) is required on reports of a ‘‘cross,’’ as well as reports of a ‘‘sell.’’ Second, FINRA has proposed to codify the existing requirement that the information listed in the rule must be provided for each trade that is reported to FINRA. Today, trade report information can be provided in a single report, if the reporting member submits trade information for both sides of the trade, or it can be provided in a combination of reports, if the reporting member and contra side each submit their own trade information (as described more fully below), which will be codified in the rule upon implementation of the proposed 7 NMS stock means any NMS security other than an option. Rule 600(b)(46) of SEC Regulation NMS defines ‘‘NMS security’’ as any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options. See 17 CFR 242.600(b)(46). 8 The Commission amended Rule 200(g) of Regulation SHO to add a ‘‘short exempt’’ marking requirement. The amendments to SEC Regulation SHO became effective on May 10, 2010 with a compliance date of November 10, 2010. See supra note 6. 9 SEC staff has confirmed that members may use the existing ‘‘.W’’ modifier in connection with the VWAP exception of Rule 201(d)(7) of Regulation SHO. The use of the .W modifier would be in addition to the requirement to report the trade as short exempt. 10 See FINRA Rules 6182 (Trade Reporting of Short Sales), 6282 (Alternative Display Facility), 6380A (FINRA/Nasdaq TRF), 6380B (FINRA/NYSE TRF), 7230A (FINRA/Nasdaq TRF), and 7230B (FINRA/NYSE TRF). 11 FINRA previously required trade reports to indicate if a transaction was marked ‘‘short exempt’’; however, these requirements were eliminated following the repeal of SEC Rule 10a–1. See Securities Exchange Act Release No. 56279 (August 17, 2007), 72 FR 48713 (August 24, 2007) (Notice of Filing and Immediate Effectiveness of File No. SR–NASD–2007–047). 12 See FINRA Rule 7440(b)(9). 13 Whenever a member transmits an order to another member, ECN, non-member or national securities exchange for handling or execution, the routing member is responsible for recording and reporting a route report to OATS. Under the proposal, route reports would be required to include the price at which the order was routed, which may be different from the price received from the customer, and whether the routed order is short exempt. The short exempt identifier is important for purposes of route reports because certain short sale orders will be eligible to be marked exempt solely as a result of the timing and price of the routed order (See Rule 201(c) of SEC Regulation SHO). 14 See FINRA Rules 6282, 6380A, 6380B, 6622, 7230A, 7230B and 7330. VerDate Mar<15>2010 15:29 Oct 07, 2010 Jkt 223001 PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 changes. For each trade reported to FINRA, members must indicate, among other things, whether the seller (either the reporting member or contra side, irrespective of whether the contra side is a member) is selling short or, upon implementation of the proposed changes, short exempt. Unless the contra side will have an opportunity to provide its own trade information (i.e., unless the contra side is a member using the trade comparison functionality of the facility),15 the reporting member is responsible for providing complete and accurate information for both sides of the trade, including information from the contra side perspective such as sell short and, upon implementation of the proposed changes, sell short exempt, as applicable. Thus, the reporting member is responsible for satisfying any applicable contra side information requirements where: (1) The trade is with a customer or non-member, (2) the trade is with a member and is ‘‘locked in’’ pursuant to a give up agreement, or (3) the trade is reported as ‘‘tape only’’ (i.e., for public dissemination purposes without clearing) or ‘‘non-tape, nonclearing.’’ This reporting requirement is in effect today; however, the proposed rule change would make it an express requirement in the rule. If the contra side is a member and will have an opportunity to provide its own trade information, then the reporting member is responsible only for providing information from the reporting side perspective (and the contra side will provide information from the contra side perspective). FINRA has stated that the implementation date will be November 10, 2010. III. Comment Letters The Commission received two comment letters in response to the proposed rule change.16 The Commission also received FINRA’s response to comments.17 The comment letters, as well as FINRA’s response, are discussed below. The FIF Letter raises a number of concerns regarding the proposal. 15 The trade comparison functionality allows the contra party to accept or decline the trade information submitted by the reporting party and may only be used by a contra party that is a member. FINRA notes that the Alternative Display Facility, FINRA/Nasdaq TRF and ORF offer trade comparison functionality; the FINRA/NYSE TRF does not offer such functionality. Accordingly, reporting members are responsible for accurately and completely providing all information required under the rule for the contra side when reporting to the FINRA/NYSE TRF. 16 See Wiesenberg Letter and FIF Letter. 17 See FINRA Response Letter. See also supra note 5. E:\FR\FM\08OCN1.SGM 08OCN1 Federal Register / Vol. 75, No. 195 / Friday, October 8, 2010 / Notices erowe on DSK5CLS3C1PROD with NOTICES Specifically, the FIF Letter raises concerns regarding the November 10, 2010 implementation date for the proposed rule changes given other regulatory initiatives with similar implementation timeframes. In response to these concerns, FINRA points out that the proposed amendments are to facilitate its surveillance efforts concerning firms’ compliance with amendments to Regulation SHO, which becomes effective November 10, 2010. FINRA believes that it is necessary that the implementation date of the proposed amendments coincide with the implementation date of the amendments to Regulation SHO. The FIF Letter also raises concerns with the amount of time allowed for testing prior to implementation of the proposed amendments. In response, FINRA has represented that it has moved up the testing timetable to allow firms to begin testing on October 11th, rather than on October 20th as initially proposed. The FIF Letter expresses concerns regarding the complexity of the proposed changes and cites the creation of certain route reports for post trade agency allocation as an example of such complexity. FINRA explains that the requirement to provide the price of a routed order on route reports does not change any of the reporting requirements for orders handled on an agency average price or post trade allocation basis. FINRA also states that it has published a new FAQ on its OATS Web site on this issue. Lastly, the FIF Letter indicates that there may be confusion regarding the proposed November 10th implementation date of the proposed rule change and the November 8th date when the changes will be available in the OATS production environment.18 FINRA clarifies that although the OATS field format changes will be placed in the production environment on November 8th, they will not be required to be populated until the proposed November 10th implementation date of the proposed rule change. FINRA also states that it has published a new FAQ on its OATS Web site to this effect. The Wiesenberg Letter raises an issue, not with respect to one of the proposed amendments in the proposed rule change, rather with respect to one of the 18 The FIF Letter also raises concerns regarding the ISO Indicator on route reports. FINRA notes that firms are already required to indicate on route reports whether an order is routed as an Intermarket Sweep Order. FINRA also points out that the ISO indicator is not one of the proposed amendments in the proposed rule change and therefore should not affect the Commission’s consideration of the proposal. VerDate Mar<15>2010 15:29 Oct 07, 2010 Jkt 223001 proposed requirements in FINRA’s OATS Reporting Technical Specifications 19 related to the proposed rule change, the addition of the Routed Order Type Indicator. The commenter believes that the proposed requirement ‘‘can be determined from [other OATS] information supplied’’ by the reporting member, ‘‘serve[s] no purpose’’ and ‘‘provides no useful additional information.’’ 20 The commenter also generally questions whether such requirement is consistent with the Act and urges FINRA to reconsider the proposed requirement in FINRA’s OATS Reporting Technical Specifications and re-file the proposed rule change 21 or, in the alternative, that the Commission reject the proposal. FINRA disagrees with the commenter and responds that the Routed Order Type Indicator ‘‘helps FINRA to validate whether a price must be included on a Route Report, particularly since the order type of a route may not be the same as the order type of the parent order received from the firm.’’ 22 IV. Discussion and Commission’s Findings After careful review of the proposed rule change, the comment letters received and the FINRA Response Letter, the Commission believes that the proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder that are applicable to a national securities association.23 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, and, in general, to protect investors and the public interest. With regard to the comments received, the Commission believes that FINRA has adequately responded to the commenters’ concerns. Additionally, the Commission agrees with FINRA and believes that the proposed rule change 19 FINRA’s OATS Reporting Technical Specifications outline detailed reporting requirements concerning the OATS rules, including, among other things, providing firms with record and file formats and transmission requirements. 20 See Wiesenberg Letter. 21 The commenter’s suggestion that FINRA re-file the proposed rule change would not address the addition of the Routed Order Type Indicator, as such requirement is contained in FINRA’s OATS Reporting Technical Specifications, not the proposed rule change. 22 See FINRA Response Letter. 23 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). PO 00000 Frm 00079 Fmt 4703 Sfmt 4703 62441 to amend FINRA’s trade reporting and OATS rules, including changes relating to recent amendments to SEC Regulation SHO, will enhance FINRA’s surveillance for member compliance, including with SEC Regulation SHO. For the reasons discussed above, the Commission finds that the proposal is consistent with the Act. V. Conclusion It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,24 that the proposed rule change (File No. SR– FINRA–2010–043) be and hereby is approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.25 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–25331 Filed 10–7–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63034; File No. SR–Phlx– 2010–124] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX PHLX LLC To Send Certain Information Over the Specialized Quote Feed October 4, 2010. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that on September 22, 2010, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II, 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to establish a new non-fee liable administrative data feed. The text of the proposed rule change is available at the Exchange, the Commission’s Web site at https:// 24 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 25 17 E:\FR\FM\08OCN1.SGM 08OCN1

Agencies

[Federal Register Volume 75, Number 195 (Friday, October 8, 2010)]
[Notices]
[Pages 62439-62441]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25331]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63032; File No. SR-FINRA-2010-043]


 Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving a Proposed Rule Change To Reinstitute 
Short Exempt Marking for Trade Reporting and OATS

October 4, 2010.

I. Introduction

    On August 6, 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 amend FINRA's trade reporting 
and Order Audit Trail System (``OATS'') rules, including changes 
relating to recent amendments to SEC Regulation SHO. The proposed rule 
change was published for comment in the Federal Register on August 26, 
2010.\3\ The Commission received two comment letters on the 
proposal,\4\ and a letter from FINRA responding to the comments.\5\ 
This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 62748 (Aug. 20, 
2010), 75 FR 52574 (Aug. 26, 2010).
    \4\ See Letter from Mike Wiesenberg, dated September 8, 2010 
(``Wiesenberg Letter''); Letter from Manisha Kimmel, Executive 
Director, Financial Information Forum, to Elizabeth M. Murphy, 
Secretary, Commission, dated September 17, 2010 (``FIF Letter'').
    \5\ See Letter from Brant K. Brown, Associate General Counsel, 
FINRA to Elizabeth M. Murphy, Secretary, Commission, dated September 
28, 2010 (``FINRA Response Letter'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    On February 26, 2010, the SEC adopted amendments to SEC Regulation 
SHO.\6\ These amendments, among other

[[Page 62440]]

things, implement a short sale circuit breaker for NMS stocks \7\ 
triggered by a 10% or more decrease in the price of the security from 
such security's closing price as determined by the listing market for 
that security at the end of regular trading hours on the prior trading 
day. Once the circuit breaker is triggered, Regulation SHO, as amended, 
is designed to generally prohibit the execution or display of short 
sale orders of a covered security at a price that is less than or equal 
to the current national best bid for the remainder of the day and the 
following day (``short sale price test restriction''). In addition to 
the short sale price test restriction, the amendments to Regulation SHO 
reinstitute a short sale exempt marking category by providing that a 
broker-dealer may mark certain qualifying sell orders ``short exempt.'' 
\8\
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 61595 (February 26, 
2010), 75 FR 11232 (March 10, 2010).
    \7\ NMS stock means any NMS security other than an option. Rule 
600(b)(46) of SEC Regulation NMS defines ``NMS security'' as any 
security or class of securities for which transaction reports are 
collected, processed, and made available pursuant to an effective 
transaction reporting plan, or an effective national market system 
plan for reporting transactions in listed options. See 17 CFR 
242.600(b)(46).
    \8\ The Commission amended Rule 200(g) of Regulation SHO to add 
a ``short exempt'' marking requirement. The amendments to SEC 
Regulation SHO became effective on May 10, 2010 with a compliance 
date of November 10, 2010. See supra note 6.
---------------------------------------------------------------------------

    Paragraphs (c) and (d) of Rule 201 of SEC Regulation SHO set forth 
the provisions pursuant to which an order may be marked ``short 
exempt'' once the circuit breaker has been triggered pursuant to 
paragraph (b)(3). These provisions include:
     Broker-dealer policies and procedures provision;
     Seller's delay in delivery;
     Odd lot transactions;
     Domestic arbitrage;
     International arbitrage;
     Over-allotments and lay-off sales;
     Riskless principal transactions; and
     Transactions on a volume-weighted average price basis (or 
``VWAP'').\9\
---------------------------------------------------------------------------

    \9\ SEC staff has confirmed that members may use the existing 
``.W'' modifier in connection with the VWAP exception of Rule 
201(d)(7) of Regulation SHO. The use of the .W modifier would be in 
addition to the requirement to report the trade as short exempt.
---------------------------------------------------------------------------

    In light of the reinstitution of the ``short exempt'' marking 
category, FINRA has proposed to amend its trade reporting rules 
applicable to over-the-counter trades in NMS stocks to reintroduce the 
short sale exempt category.\10\ Specifically, FINRA has proposed that, 
for short sales in all NMS stocks as defined in Rule 600(b)(47) of SEC 
Regulation NMS, members must indicate on trade reports submitted to 
FINRA if a transaction is ``short sale exempt'' (i.e., if it is a short 
sale transaction in a ``covered security'' that may be marked ``short 
exempt'' pursuant to SEC Regulation SHO).\11\
---------------------------------------------------------------------------

    \10\ See FINRA Rules 6182 (Trade Reporting of Short Sales), 6282 
(Alternative Display Facility), 6380A (FINRA/Nasdaq TRF), 6380B 
(FINRA/NYSE TRF), 7230A (FINRA/Nasdaq TRF), and 7230B (FINRA/NYSE 
TRF).
    \11\ FINRA previously required trade reports to indicate if a 
transaction was marked ``short exempt''; however, these requirements 
were eliminated following the repeal of SEC Rule 10a-1. See 
Securities Exchange Act Release No. 56279 (August 17, 2007), 72 FR 
48713 (August 24, 2007) (Notice of Filing and Immediate 
Effectiveness of File No. SR-NASD-2007-047).
---------------------------------------------------------------------------

    Similarly, FINRA has proposed to amend its OATS rules to provide 
that, when an order is received or originated, members must record the 
designation of an order as a short sale exempt order if the order may 
be marked ``short exempt'' pursuant to SEC Regulation SHO.\12\ FINRA 
also has proposed to require that members include the price on all 
route reports and a short exempt identifier, if applicable.\13\
---------------------------------------------------------------------------

    \12\ See FINRA Rule 7440(b)(9).
    \13\ Whenever a member transmits an order to another member, 
ECN, non-member or national securities exchange for handling or 
execution, the routing member is responsible for recording and 
reporting a route report to OATS. Under the proposal, route reports 
would be required to include the price at which the order was 
routed, which may be different from the price received from the 
customer, and whether the routed order is short exempt. The short 
exempt identifier is important for purposes of route reports because 
certain short sale orders will be eligible to be marked exempt 
solely as a result of the timing and price of the routed order (See 
Rule 201(c) of SEC Regulation SHO).
---------------------------------------------------------------------------

    FINRA has proposed certain additional amendments to its trade 
reporting rules, including those applicable to OTC Equity Securities, 
as defined in Rule 6420 (i.e., non-NMS stocks) to clarify certain 
existing reporting requirements.\14\ First, FINRA has proposed to 
clarify that the short sale indicator (and short sale exempt indicator, 
for NMS stocks) is required on reports of a ``cross,'' as well as 
reports of a ``sell.''
---------------------------------------------------------------------------

    \14\ See FINRA Rules 6282, 6380A, 6380B, 6622, 7230A, 7230B and 
7330.
---------------------------------------------------------------------------

    Second, FINRA has proposed to codify the existing requirement that 
the information listed in the rule must be provided for each trade that 
is reported to FINRA. Today, trade report information can be provided 
in a single report, if the reporting member submits trade information 
for both sides of the trade, or it can be provided in a combination of 
reports, if the reporting member and contra side each submit their own 
trade information (as described more fully below), which will be 
codified in the rule upon implementation of the proposed changes. For 
each trade reported to FINRA, members must indicate, among other 
things, whether the seller (either the reporting member or contra side, 
irrespective of whether the contra side is a member) is selling short 
or, upon implementation of the proposed changes, short exempt.
    Unless the contra side will have an opportunity to provide its own 
trade information (i.e., unless the contra side is a member using the 
trade comparison functionality of the facility),\15\ the reporting 
member is responsible for providing complete and accurate information 
for both sides of the trade, including information from the contra side 
perspective such as sell short and, upon implementation of the proposed 
changes, sell short exempt, as applicable. Thus, the reporting member 
is responsible for satisfying any applicable contra side information 
requirements where: (1) The trade is with a customer or non-member, (2) 
the trade is with a member and is ``locked in'' pursuant to a give up 
agreement, or (3) the trade is reported as ``tape only'' (i.e., for 
public dissemination purposes without clearing) or ``non-tape, non-
clearing.'' This reporting requirement is in effect today; however, the 
proposed rule change would make it an express requirement in the rule. 
If the contra side is a member and will have an opportunity to provide 
its own trade information, then the reporting member is responsible 
only for providing information from the reporting side perspective (and 
the contra side will provide information from the contra side 
perspective).
---------------------------------------------------------------------------

    \15\ The trade comparison functionality allows the contra party 
to accept or decline the trade information submitted by the 
reporting party and may only be used by a contra party that is a 
member. FINRA notes that the Alternative Display Facility, FINRA/
Nasdaq TRF and ORF offer trade comparison functionality; the FINRA/
NYSE TRF does not offer such functionality. Accordingly, reporting 
members are responsible for accurately and completely providing all 
information required under the rule for the contra side when 
reporting to the FINRA/NYSE TRF.
---------------------------------------------------------------------------

    FINRA has stated that the implementation date will be November 10, 
2010.

III. Comment Letters

    The Commission received two comment letters in response to the 
proposed rule change.\16\ The Commission also received FINRA's response 
to comments.\17\ The comment letters, as well as FINRA's response, are 
discussed below.
---------------------------------------------------------------------------

    \16\ See Wiesenberg Letter and FIF Letter.
    \17\ See FINRA Response Letter. See also supra note 5.
---------------------------------------------------------------------------

    The FIF Letter raises a number of concerns regarding the proposal.

[[Page 62441]]

Specifically, the FIF Letter raises concerns regarding the November 10, 
2010 implementation date for the proposed rule changes given other 
regulatory initiatives with similar implementation timeframes. In 
response to these concerns, FINRA points out that the proposed 
amendments are to facilitate its surveillance efforts concerning firms' 
compliance with amendments to Regulation SHO, which becomes effective 
November 10, 2010. FINRA believes that it is necessary that the 
implementation date of the proposed amendments coincide with the 
implementation date of the amendments to Regulation SHO.
    The FIF Letter also raises concerns with the amount of time allowed 
for testing prior to implementation of the proposed amendments. In 
response, FINRA has represented that it has moved up the testing 
timetable to allow firms to begin testing on October 11th, rather than 
on October 20th as initially proposed.
    The FIF Letter expresses concerns regarding the complexity of the 
proposed changes and cites the creation of certain route reports for 
post trade agency allocation as an example of such complexity. FINRA 
explains that the requirement to provide the price of a routed order on 
route reports does not change any of the reporting requirements for 
orders handled on an agency average price or post trade allocation 
basis. FINRA also states that it has published a new FAQ on its OATS 
Web site on this issue.
    Lastly, the FIF Letter indicates that there may be confusion 
regarding the proposed November 10th implementation date of the 
proposed rule change and the November 8th date when the changes will be 
available in the OATS production environment.\18\ FINRA clarifies that 
although the OATS field format changes will be placed in the production 
environment on November 8th, they will not be required to be populated 
until the proposed November 10th implementation date of the proposed 
rule change. FINRA also states that it has published a new FAQ on its 
OATS Web site to this effect.
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    \18\ The FIF Letter also raises concerns regarding the ISO 
Indicator on route reports. FINRA notes that firms are already 
required to indicate on route reports whether an order is routed as 
an Intermarket Sweep Order. FINRA also points out that the ISO 
indicator is not one of the proposed amendments in the proposed rule 
change and therefore should not affect the Commission's 
consideration of the proposal.
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    The Wiesenberg Letter raises an issue, not with respect to one of 
the proposed amendments in the proposed rule change, rather with 
respect to one of the proposed requirements in FINRA's OATS Reporting 
Technical Specifications \19\ related to the proposed rule change, the 
addition of the Routed Order Type Indicator. The commenter believes 
that the proposed requirement ``can be determined from [other OATS] 
information supplied'' by the reporting member, ``serve[s] no purpose'' 
and ``provides no useful additional information.'' \20\ The commenter 
also generally questions whether such requirement is consistent with 
the Act and urges FINRA to reconsider the proposed requirement in 
FINRA's OATS Reporting Technical Specifications and re-file the 
proposed rule change \21\ or, in the alternative, that the Commission 
reject the proposal. FINRA disagrees with the commenter and responds 
that the Routed Order Type Indicator ``helps FINRA to validate whether 
a price must be included on a Route Report, particularly since the 
order type of a route may not be the same as the order type of the 
parent order received from the firm.'' \22\
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    \19\ FINRA's OATS Reporting Technical Specifications outline 
detailed reporting requirements concerning the OATS rules, 
including, among other things, providing firms with record and file 
formats and transmission requirements.
    \20\ See Wiesenberg Letter.
    \21\ The commenter's suggestion that FINRA re-file the proposed 
rule change would not address the addition of the Routed Order Type 
Indicator, as such requirement is contained in FINRA's OATS 
Reporting Technical Specifications, not the proposed rule change.
    \22\ See FINRA Response Letter.
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IV. Discussion and Commission's Findings

    After careful review of the proposed rule change, the comment 
letters received and the FINRA Response Letter, the Commission believes 
that the proposed rule change is consistent with the requirements of 
the Act, and the rules and regulations thereunder that are applicable 
to a national securities association.\23\ 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, and, in general, to protect 
investors and the public interest.
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    \23\ 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).
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    With regard to the comments received, the Commission believes that 
FINRA has adequately responded to the commenters' concerns. 
Additionally, the Commission agrees with FINRA and believes that the 
proposed rule change to amend FINRA's trade reporting and OATS rules, 
including changes relating to recent amendments to SEC Regulation SHO, 
will enhance FINRA's surveillance for member compliance, including with 
SEC Regulation SHO.
    For the reasons discussed above, the Commission finds that the 
proposal is consistent with the Act.

V. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (File No. SR-FINRA-2010-043) be 
and hereby is approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25331 Filed 10-7-10; 8:45 am]
BILLING CODE 8011-01-P
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