Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA Trade Reporting Rules Relating to OTC Transactions in Equity Securities That Are Part of a Distribution and Transfers of Equity Securities To Create or Redeem Instruments Such as ADRs and ETFs, 48937-48939 [2011-20171]
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Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Notices
Non-Substantive Amendments to Rule
Text
The early 2011 expansion of the
Program prohibited the listing of $2.50
strike price intervals for classes that
participate in the Program. This
prohibition applies to non-LEAP and
LEAPS. The Exchange proposes to
maintain this prohibition and codify it
in Rule 5.5.01(a)(1) (Program
Description).
For ease of reference, the Exchange is
proposing to add the headings ‘‘Program
Description,’’ ‘‘Initial and Additional
Series’’ and ‘‘LEAPS’’ to Rule 5.5.01.
The Exchange is proposing to more
accurately reflect the nature of the
Program and is proposing to make
stylistic changes throughout Rule 5.5.01
by adding the phrase ‘‘price interval.’’
Lastly, the Exchange is making
technical changes to Rule 5.5.01, e.g.,
replacing the word ‘‘security’’ with the
word ‘‘stock.’’
The Exchange represents that it has
the necessary systems capacity to
support the increase in new options
series that will result from the proposed
streamlining changes to the Program.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with Section
6(b) 15 of the Act, in general, and
furthers the objectives of Section
6(b)(5) 16 in particular in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanisms of a free and
open market in a manner consistent
with the protection of investors and the
public interest. In particular, the
proposed rule change seeks to reduce
investor confusion and to simplify the
provisions of the $1 Strike Price Interval
Program.
sroberts on DSK5SPTVN1PROD with NOTICES
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE does not believe that the
proposed rule change will impose any
burden on competition not necessary or
appropriate in furtherance of the
purposes of the Act.
15 15
U.S.C. 78f(b).
16 15 U.S.C. 78f(b)(5).
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19:06 Aug 08, 2011
Jkt 223001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 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 or disapprove
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–CBOE–2011–040 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–CBOE–2011–040. 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
PO 00000
Frm 00149
Fmt 4703
Sfmt 4703
48937
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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of CBOE.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make publicly available. All
submissions should refer to File
Number SR–CBOE–2011–040 and
should be submitted on or before
August 30, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–20172 Filed 8–8–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65025; File No. SR–FINRA–
2011–027]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving a
Proposed Rule Change To Amend
FINRA Trade Reporting Rules Relating
to OTC Transactions in Equity
Securities That Are Part of a
Distribution and Transfers of Equity
Securities To Create or Redeem
Instruments Such as ADRs and ETFs
August 3, 2011.
I. Introduction
On June 9, 2011, the Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘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
Rules 6282, 6380A, 6380B and 6622
relating to trade reporting of over-thecounter (‘‘OTC’’) transactions in equity
securities. The proposed rule change
was published for comment in the
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\09AUN1.SGM
09AUN1
48938
Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Notices
Federal Register on June 27, 2011.3 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
II. Description of the Proposal and
Discussion
A. Background
FINRA proposed to amend FINRA
Rules 6282, 6380A, 6380B and 6622
(‘‘trade reporting rules’’) relating to
trade reporting of OTC transactions in
equity securities. Under FINRA trade
reporting rules, members are required to
report OTC transactions in equity
securities to FINRA unless they fall
within an express exception. As a
general matter, when members report
OTC trades, FINRA facilitates the public
dissemination of the trade information
and/or assesses regulatory transaction
fees under Section 3 of Schedule A to
the FINRA By-Laws (‘‘Section 3’’) and
the Trading Activity Fee (‘‘TAF’’).
Certain transactions and transfers of
securities are not required to be reported
to FINRA (e.g., trades executed and
reported through an exchange, transfers
made pursuant to an asset purchase
agreement that has been approved by a
bankruptcy court), while other
transactions must be reported to FINRA
only for the purpose of assessing the
regulatory transaction fee (e.g., away
from the market sales and transfers in
connection with certain corporate
control transactions).4 Members must
have policies and procedures and
internal controls in place to enable them
to determine whether a transaction
qualifies for an exception under the
rules.
sroberts on DSK5SPTVN1PROD with NOTICES
B. Amended Rules
FINRA proposed to amend its trade
reporting rules to: (1) Clarify the
existing exception for transactions that
are part of a distribution of securities
and impose certain notice requirements
on members relying on the exception for
transactions that are part of an
‘‘unregistered secondary distribution’’;
and (2) expressly exclude from the trade
reporting requirements, transfers of
equity securities for the purpose of
creating or redeeming instruments such
as American Depositary Receipts
(‘‘ADRs’’) and exchange-traded funds
(‘‘ETFs’’).
1. Transactions That Are Part of
Securities Distribution
FINRA rules contain an exception
from the trade reporting requirements
3 See Securities Exchange Act Release No. 64706
(June 20, 2011), 76 FR 37382 (‘‘Notice’’).
4 See, e.g., Rules 6282(i), 6380A(e), 6380B(e) and
6622(e).
VerDate Mar<15>2010
19:06 Aug 08, 2011
Jkt 223001
for transactions that are effected in
connection with a distribution of
securities, specifically:
Transactions that are part of a primary
distribution by an issuer or of a registered
secondary distribution (other than ‘‘shelf
distributions’’) or of an unregistered
secondary distribution.5
Thus, transactions that are part of a
distribution (other than a secondary
shelf distribution) are not reported to
FINRA or publicly disseminated, and
they are not assessed regulatory
transaction fees under Section 3 or the
TAF.6
FINRA proposed to amend its trade
reporting rules to incorporate by
reference the definition of
‘‘distribution’’ set forth in SEC
Regulation M for purposes of this
exception.7 A ‘‘distribution’’ is defined
under Rule 100 of Regulation M as ‘‘an
offering of securities, whether or not
subject to registration under the
Securities Act, that is distinguished
from ordinary trading transactions by
the magnitude of the offering and the
presence of special selling efforts and
selling methods.’’ 8
In addition, FINRA proposed to adopt
Supplementary Material in its trade
reporting rules that applies specifically
to the trade reporting exception for
transactions that are part of an
‘‘unregistered secondary distribution’’
which would require members to
provide notice to FINRA that they are
relying on this exception. Members also
would be required to provide FINRA the
security name and symbol, execution
date, execution time, number of shares,
trade price and parties to the trade, for
each transaction that is part of the
unregistered secondary distribution and
not trade reported. Under the proposed
rule, members must provide the notice
and information no later than three
business days following trade date. If
the trade executions occur over multiple
days, then the member would be
required to provide initial notice and
information available at that time to
FINRA no later than three business days
following the first trade date and final
notice and information no later than
three business days following the last
trade date.
5 See Rules 6282(i)(1)(A), 6380A(e)(1)(A),
6380B(e)(1)(A) and 6622(e)(1)(A).
6 FINRA explained that this exception was
adopted to align the FINRA trade reporting
requirements with the Consolidated Tape
Association and the Nasdaq Unlisted Trading
Privileges plans, which expressly identify
transactions that are not required to be reported to
the tape. See, e.g., Notice to Members 75–42 (June
1975).
7 17 CFR 242.100–105.
8 17 CFR 242.100.
PO 00000
Frm 00150
Fmt 4703
Sfmt 4703
The proposed Supplementary
Material also would require that the
member retain records sufficient to
document its basis for relying on this
trade reporting exception, including but
not limited to, the basis for determining
that the transactions are part of an
unregistered secondary distribution, as
defined under Rule 100 of Regulation
M. FINRA explained that members
would be required to demonstrate that
they have satisfied the ‘‘magnitude of
the offering’’ and ‘‘special selling
efforts’’ criteria under Regulation M,
and stated that the mere assertion that
the order was large-sized or a block or
that execution of the order was
‘‘worked’’ by a member would usually
not by itself be sufficient. FINRA also
explained that members must be able to
demonstrate that they have complied
with the applicable notification
requirements in FINRA Rule 5190.9 The
Commission notes that the proposed
rule change imposes a notice
requirement; it does not impose a trade
reporting requirement. As is the case
today, under the proposal, transactions
that are part of a primary distribution by
an issuer or of a registered secondary
distribution (other than ‘‘shelf
distributions’’), or of an unregistered
secondary distribution, would not be
trade reported nor would they be
disseminated to the public. In addition,
these transactions would not be
assessed regulatory transaction fees
under Section 3 or the TAF.
The Commission believes that this
requirement, as well as the modification
to provide a definition of ‘‘distribution’’
for use in connection with the
exception, should ensure that members
apply the trade reporting exception
correctly and should help ensure that
members report all transactions that are
required to be reported. The
Commission specifically notes that large
block trades must be reported to FINRA
for tape dissemination purposes and are
assessed regulatory transaction fees
under Section 3 and the TAF. The trade
reporting exception does not apply to
block trades, unless they otherwise meet
the definition of distribution under
Regulation M.
2. Transfers of Equity Securities To
Create or Redeem Instruments Such as
ADRs and ETFs
FINRA also proposed to amend its
trade reporting rules to expressly
9 Rule 5190 imposes certain notice requirements
on members participating in distributions of listed
and unlisted securities and is designed to ensure
that FINRA receives pertinent distribution-related
information from its members in a timely fashion
in connection with its Regulation M compliance
program.
E:\FR\FM\09AUN1.SGM
09AUN1
Federal Register / Vol. 76, No. 153 / Tuesday, August 9, 2011 / Notices
exclude from the trade reporting
requirements any transfer of equity
securities for the sole purpose of
creating or redeeming an instrument
that evidences ownership of or
otherwise tracks the underlying
securities transferred. FINRA explained
that such transfers are not considered
transactions for purposes of the trade
reporting rules and thus are not
reportable events.10 FINRA represented
that the proposed rule change codifies
current guidance and practice in this
area. The Commission believes that this
codification of current practice will help
reduce confusion with regard to what is
required to be reported under FINRA’s
trade reporting requirements and thus
reduce reporting errors.
FINRA stated that the proposed rule
change will be effective 90 days
following the date of Commission
approval.
sroberts on DSK5SPTVN1PROD with NOTICES
III. Commission’s Findings
After carefully considering the
proposed rule change, the Commission
finds that it is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities association. In
particular, the Commission finds that
the proposal is consistent with Section
15A(b)(6) of the Act,11 which requires,
among other things, that FINRA rules 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.12
The Commission believes that the
proposal is reasonably designed to
clarify the interpretation and
application of the current exception
from the trade reporting requirements
for transactions that are part of a
distribution. The Commission believes
that the proposal will: (1) Enhance
market transparency by helping to
ensure that transactions that are not part
of an ‘‘unregistered secondary
distribution,’’ such as large block trades,
10 FINRA explained, however, that purchases and
sales of the securities that are to be transferred for
the purpose of creating or redeeming instruments
such as ADRs and ETFs and subsequent purchases
and sales of the instruments in the secondary
market are OTC transactions and must be reported
to FINRA in accordance with the trade reporting
rules. FINRA also noted that purchases and sales of
the underlying securities in order to track the
performance of an instrument such as an ADR or
ETF, without actually creating the instrument, are
trade reportable and that such transactions are
subject to regulatory transaction fees under Section
3 and the TAF.
11 15 U.S.C. 78o–3(b)(6).
12 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
VerDate Mar<15>2010
19:06 Aug 08, 2011
Jkt 223001
are properly reported; and (2) clarify
members’ obligations with respect to the
reporting of transfers of equity securities
to create or redeem instruments such as
ADRs and ETFs under FINRA trade
reporting rules.
In addition, FINRA will receive
information regarding transactions that
are part of an unregistered secondary
distribution which will enhance
FINRA’s ability to monitor compliance
with the securities laws and rules.
IV. Conclusion
It Is Therefore Ordered, pursuant to
Section 19(b)(2) of the Act,13 that the
proposed rule change (SR–FINRA–
2011–027), be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–20171 Filed 8–8–11; 8:45 am]
48939
dated 07/20/2011, is hereby amended to
include the following areas as adversely
affected by the disaster.
Primary Counties: Anderson.
All other information in the original
declaration remains unchanged.
(Catalog of Federal Domestic Assistance
Numbers 59002 and 59008)
James E. Rivera,
Associate Administrator for Disaster
Assistance.
[FR Doc. 2011–20079 Filed 8–8–11; 8:45 am]
BILLING CODE 8025–01–P
DEPARTMENT OF STATE
[Public Notice 7544]
Announcement of Meeting of the
International Telecommunication
Advisory Committee
BILLING CODE 8011–01–P
This notice announces a
meeting of the International
Telecommunication Advisory
Subcommittees (ITAC) on August 22,
2011, 10 a.m.–noon EDT, at the
Department of State, 2201 C Street, NW.,
Washington, DC 20520, to seek advice
from the telecommunications industry
on: (a) The consultation of International
Telecommunication Union,
Telecommunication Standardization
Sector Study Group 15, on whether draft
Recommendation G.tp-oam (Operations,
Administration and Maintenance
mechanism for MPLS–TP in Packet
Transport Network (PTN)) should be
approved as a policy-level document;
and (b) what policy position the United
States should take at the December 2011
Study Group 15 meeting on this issue.
This meeting is open to the public as
seating capacity allows. The public will
have an opportunity to provide
comments at this meeting. People
desiring further information on this
meeting or wishing to request
reasonable accommodation may contact
the Secretariat at minardje@state.gov.
SUMMARY:
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #12704 and #12705]
Tennessee Disaster Number TN–00058
U.S. Small Business
Administration.
ACTION: Amendment 1.
AGENCY:
This is an amendment of the
Presidential declaration of a major
disaster for Public Assistance Only for
the State of Tennessee (FEMA–4005–
DR), dated 07/20/2011.
Incident: Severe Storms, Straight-line
Winds, Tornadoes, and Flooding.
Incident Period: 06/18/2011 through
06/24/2011.
Effective Date: 08/01/2011.
Physical Loan Application Deadline
Date: 09/19/2011.
Economic Injury (EIDL) Loan
Application Deadline Date: 04/20/2012.
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, SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: The notice
of the President’s major disaster
declaration for Private Non-Profit
organizations in the State of Tennessee,
SUMMARY:
13 15
14 17
PO 00000
Dated: August 3, 2011.
Marian R. Gordon,
International Communications & Information
Policy, U.S. Department of State .
[FR Doc. 2011–20179 Filed 8–8–11; 8:45 am]
BILLING CODE 4710–07–P
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00151
Fmt 4703
Sfmt 9990
E:\FR\FM\09AUN1.SGM
09AUN1
]]>Agencies
[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Notices]
[Pages 48937-48939]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20171]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65025; File No. SR-FINRA-2011-027]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving a Proposed Rule Change To Amend FINRA
Trade Reporting Rules Relating to OTC Transactions in Equity Securities
That Are Part of a Distribution and Transfers of Equity Securities To
Create or Redeem Instruments Such as ADRs and ETFs
August 3, 2011.
I. Introduction
On June 9, 2011, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``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 Rules 6282, 6380A, 6380B and 6622
relating to trade reporting of over-the-counter (``OTC'') transactions
in equity securities. The proposed rule change was published for
comment in the
[[Page 48938]]
Federal Register on June 27, 2011.\3\ The Commission received no
comments on the proposal. 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. 64706 (June 20,
2011), 76 FR 37382 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposal and Discussion
A. Background
FINRA proposed to amend FINRA Rules 6282, 6380A, 6380B and 6622
(``trade reporting rules'') relating to trade reporting of OTC
transactions in equity securities. Under FINRA trade reporting rules,
members are required to report OTC transactions in equity securities to
FINRA unless they fall within an express exception. As a general
matter, when members report OTC trades, FINRA facilitates the public
dissemination of the trade information and/or assesses regulatory
transaction fees under Section 3 of Schedule A to the FINRA By-Laws
(``Section 3'') and the Trading Activity Fee (``TAF''). Certain
transactions and transfers of securities are not required to be
reported to FINRA (e.g., trades executed and reported through an
exchange, transfers made pursuant to an asset purchase agreement that
has been approved by a bankruptcy court), while other transactions must
be reported to FINRA only for the purpose of assessing the regulatory
transaction fee (e.g., away from the market sales and transfers in
connection with certain corporate control transactions).\4\ Members
must have policies and procedures and internal controls in place to
enable them to determine whether a transaction qualifies for an
exception under the rules.
---------------------------------------------------------------------------
\4\ See, e.g., Rules 6282(i), 6380A(e), 6380B(e) and 6622(e).
---------------------------------------------------------------------------
B. Amended Rules
FINRA proposed to amend its trade reporting rules to: (1) Clarify
the existing exception for transactions that are part of a distribution
of securities and impose certain notice requirements on members relying
on the exception for transactions that are part of an ``unregistered
secondary distribution''; and (2) expressly exclude from the trade
reporting requirements, transfers of equity securities for the purpose
of creating or redeeming instruments such as American Depositary
Receipts (``ADRs'') and exchange-traded funds (``ETFs'').
1. Transactions That Are Part of Securities Distribution
FINRA rules contain an exception from the trade reporting
requirements for transactions that are effected in connection with a
distribution of securities, specifically:
Transactions that are part of a primary distribution by an
issuer or of a registered secondary distribution (other than ``shelf
distributions'') or of an unregistered secondary distribution.\5\
\5\ See Rules 6282(i)(1)(A), 6380A(e)(1)(A), 6380B(e)(1)(A) and
6622(e)(1)(A).
---------------------------------------------------------------------------
Thus, transactions that are part of a distribution (other than a
secondary shelf distribution) are not reported to FINRA or publicly
disseminated, and they are not assessed regulatory transaction fees
under Section 3 or the TAF.\6\
---------------------------------------------------------------------------
\6\ FINRA explained that this exception was adopted to align the
FINRA trade reporting requirements with the Consolidated Tape
Association and the Nasdaq Unlisted Trading Privileges plans, which
expressly identify transactions that are not required to be reported
to the tape. See, e.g., Notice to Members 75-42 (June 1975).
---------------------------------------------------------------------------
FINRA proposed to amend its trade reporting rules to incorporate by
reference the definition of ``distribution'' set forth in SEC
Regulation M for purposes of this exception.\7\ A ``distribution'' is
defined under Rule 100 of Regulation M as ``an offering of securities,
whether or not subject to registration under the Securities Act, that
is distinguished from ordinary trading transactions by the magnitude of
the offering and the presence of special selling efforts and selling
methods.'' \8\
---------------------------------------------------------------------------
\7\ 17 CFR 242.100-105.
\8\ 17 CFR 242.100.
---------------------------------------------------------------------------
In addition, FINRA proposed to adopt Supplementary Material in its
trade reporting rules that applies specifically to the trade reporting
exception for transactions that are part of an ``unregistered secondary
distribution'' which would require members to provide notice to FINRA
that they are relying on this exception. Members also would be required
to provide FINRA the security name and symbol, execution date,
execution time, number of shares, trade price and parties to the trade,
for each transaction that is part of the unregistered secondary
distribution and not trade reported. Under the proposed rule, members
must provide the notice and information no later than three business
days following trade date. If the trade executions occur over multiple
days, then the member would be required to provide initial notice and
information available at that time to FINRA no later than three
business days following the first trade date and final notice and
information no later than three business days following the last trade
date.
The proposed Supplementary Material also would require that the
member retain records sufficient to document its basis for relying on
this trade reporting exception, including but not limited to, the basis
for determining that the transactions are part of an unregistered
secondary distribution, as defined under Rule 100 of Regulation M.
FINRA explained that members would be required to demonstrate that they
have satisfied the ``magnitude of the offering'' and ``special selling
efforts'' criteria under Regulation M, and stated that the mere
assertion that the order was large-sized or a block or that execution
of the order was ``worked'' by a member would usually not by itself be
sufficient. FINRA also explained that members must be able to
demonstrate that they have complied with the applicable notification
requirements in FINRA Rule 5190.\9\ The Commission notes that the
proposed rule change imposes a notice requirement; it does not impose a
trade reporting requirement. As is the case today, under the proposal,
transactions that are part of a primary distribution by an issuer or of
a registered secondary distribution (other than ``shelf
distributions''), or of an unregistered secondary distribution, would
not be trade reported nor would they be disseminated to the public. In
addition, these transactions would not be assessed regulatory
transaction fees under Section 3 or the TAF.
---------------------------------------------------------------------------
\9\ Rule 5190 imposes certain notice requirements on members
participating in distributions of listed and unlisted securities and
is designed to ensure that FINRA receives pertinent distribution-
related information from its members in a timely fashion in
connection with its Regulation M compliance program.
---------------------------------------------------------------------------
The Commission believes that this requirement, as well as the
modification to provide a definition of ``distribution'' for use in
connection with the exception, should ensure that members apply the
trade reporting exception correctly and should help ensure that members
report all transactions that are required to be reported. The
Commission specifically notes that large block trades must be reported
to FINRA for tape dissemination purposes and are assessed regulatory
transaction fees under Section 3 and the TAF. The trade reporting
exception does not apply to block trades, unless they otherwise meet
the definition of distribution under Regulation M.
2. Transfers of Equity Securities To Create or Redeem Instruments Such
as ADRs and ETFs
FINRA also proposed to amend its trade reporting rules to expressly
[[Page 48939]]
exclude from the trade reporting requirements any transfer of equity
securities for the sole purpose of creating or redeeming an instrument
that evidences ownership of or otherwise tracks the underlying
securities transferred. FINRA explained that such transfers are not
considered transactions for purposes of the trade reporting rules and
thus are not reportable events.\10\ FINRA represented that the proposed
rule change codifies current guidance and practice in this area. The
Commission believes that this codification of current practice will
help reduce confusion with regard to what is required to be reported
under FINRA's trade reporting requirements and thus reduce reporting
errors.
---------------------------------------------------------------------------
\10\ FINRA explained, however, that purchases and sales of the
securities that are to be transferred for the purpose of creating or
redeeming instruments such as ADRs and ETFs and subsequent purchases
and sales of the instruments in the secondary market are OTC
transactions and must be reported to FINRA in accordance with the
trade reporting rules. FINRA also noted that purchases and sales of
the underlying securities in order to track the performance of an
instrument such as an ADR or ETF, without actually creating the
instrument, are trade reportable and that such transactions are
subject to regulatory transaction fees under Section 3 and the TAF.
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FINRA stated that the proposed rule change will be effective 90
days following the date of Commission approval.
III. Commission's Findings
After carefully considering the proposed rule change, the
Commission finds that it is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities association. In particular, the Commission finds that the
proposal is consistent with Section 15A(b)(6) of the Act,\11\ which
requires, among other things, that FINRA rules 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.\12\
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\11\ 15 U.S.C. 78o-3(b)(6).
\12\ In approving this proposal, 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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The Commission believes that the proposal is reasonably designed to
clarify the interpretation and application of the current exception
from the trade reporting requirements for transactions that are part of
a distribution. The Commission believes that the proposal will: (1)
Enhance market transparency by helping to ensure that transactions that
are not part of an ``unregistered secondary distribution,'' such as
large block trades, are properly reported; and (2) clarify members'
obligations with respect to the reporting of transfers of equity
securities to create or redeem instruments such as ADRs and ETFs under
FINRA trade reporting rules.
In addition, FINRA will receive information regarding transactions
that are part of an unregistered secondary distribution which will
enhance FINRA's ability to monitor compliance with the securities laws
and rules.
IV. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-FINRA-2011-027), be, and it
hereby is, approved.
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\13\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20171 Filed 8-8-11; 8:45 am]
BILLING CODE 8011-01-P
