Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 1 to Proposed Rule Change To Amend FINRA Rule 6433 (Minimum Quotation Size Requirements for OTC Equity Securities), 23770-23772 [2012-9593]
Download as PDF
23770
Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
should refer to File Number SR–CME–
2012–11 and should be submitted on or
before May 11, 2012.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
Section 19(b) of the Act 4 directs the
Commission to approve a proposed rule
change of a self-regulatory organization
if it finds that such proposed rule
change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
such organization. The Commission
finds that the proposed rule change is
consistent with the requirements of the
Act, in particular with the requirements
of Section 17A of the Act,5 and the rules
and regulations thereunder applicable to
CME. Specifically, the Commission
finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of
the Act, which requires, among other
things, that the rules of a clearing
agency be designed to assure the
safeguarding of securities and funds
which are in the possession or control
of the clearing agency or for which it is
responsible and to protect investors and
the public interest because it should
allow CME to enhance its margin
evaluation and collection related to
clearing FX products.6
In its filing CME requested that the
Commission approve this proposed rule
change prior to the thirtieth day after
the date of publication of the notice of
the filing. CME has articulated three
reasons for so granting approval. One,
the products covered by this filing and
CME’s operations as a derivatives
clearing organization for such products
are regulated by the CFTC under the
CEA. Two, the proposed rule change
relates solely to FX products and
therefore relate solely to CME’s swaps
clearing activities and do not
significantly relate to CME’s functions
as a clearing agency for security-based
swaps. Three, not approving this request
on an accelerated basis will have a
significant impact on the swap clearing
business of CME as a designated
clearing organization.
The Commission finds good cause for
granting approval of the proposed rule
change prior to the thirtieth day after
publication of the notice of its filing
because: (i) The proposed rule change
does not significantly affect any
securities clearing operations of the
clearing agency (whether in existence or
contemplated by its rules) or any related
rights or obligations of the clearing
agency or persons using such service;
(ii) the clearing agency has indicated
that not providing accelerated approval
would have a significant impact on its
FX clearing business as a designated
clearing organization; and (iii) the
activity relating to the non-security
clearing operations of the clearing
agency for which the clearing agency is
seeking approval is subject to regulation
by another federal regulator.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–CME–2012–
11) is approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9527 Filed 4–19–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66819; File No. SR–FINRA–
2011–058]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Amendment No. 1 to Proposed Rule
Change To Amend FINRA Rule 6433
(Minimum Quotation Size
Requirements for OTC Equity
Securities)
April 17, 2012.
I. Introduction
On October 6, 2011, 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 Rule 6433 (Minimum
Quotation Size Requirements for OTC
Equity Securities). The proposed rule
change was published for comment in
the Federal Register on October 20,
2011.3 The Commission received seven
comment letters on the proposed rule
change—two from individual investors,
three from an inter-dealer quotation
7 17
4 15
U.S.C. 78s(b).
5 15 U.S.C. 78q–1. In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
6 15 U.S.C. 78q–1(b)(3)(F).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 65568
(October 14, 2011), 76 FR 65307 (October 20, 2011)
(Notice of Filing of File No. SR–FINRA–2011–058)
(‘‘Original Proposal’’).
1 15
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system and two from a member firm.4
FINRA responded to comments on
December 23, 2011.5 The Commission
published an order instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act,6 to determine
whether to approve or disapprove the
proposed rule change, in the Federal
Register on January 24, 2012.7 The
comment period closed on February 14,
2012, and FINRA’s rebuttal period
closed on February 28, 2012. The
Commission received one comment
letter in response to the Proceedings
Order.8 On April 17, 2012, FINRA filed
Amendment No. 1 to the proposed rule
change. The text of Amendment No. 1
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
As stated in the Original Proposal,
FINRA is amending FINRA Rule 6433
(Minimum Quotation Size Requirements
for OTC Equity Securities) (the ‘‘Rule’’)
to, among other things, (1) Simplify the
tier structure, (2) parallel the approach
taken by the national securities
exchanges for securities priced at or
above $1.00, (3) expand the scope of the
Rule to apply to all quotations or orders
displayed on an inter-dealer quotation
system, (4) incorporate the requirements
of FINRA Rule 6434 (Minimum Pricing
Increments for OTC Equity Securities) 9
4 Letters to Elizabeth M. Murphy, Secretary,
Commission, from Suzanne H. Shatto, Seattle,
Washington, dated October 20, 2011; Naphtali M.
Hamlet, Seattle, Washington, dated October 21,
2011; Daniel Zinn, General Counsel, OTC Markets
Group, Inc., dated November 10, 2011; Michael T.
Corrao, Managing Director, Knight Capital Group,
Inc., dated November 16, 2011 (‘‘Knight #1’’); R.
Cromwell Coulson, President and CEO, OTC
Markets, dated November 18, 2011; Daniel Zinn,
General Counsel, OTC Markets Group, Inc., dated
December 29, 2011; Michael T. Corrao, Managing
Director, Knight Capital Group, Inc., dated January
13, 2012 (‘‘Knight #2’’).
Comment letters are available at www.sec.gov.
5 On December 23, 2011, FINRA responded to
comment letters received by the SEC as of that date.
See letter to Elizabeth M. Murphy, Secretary,
Commission, from Stephanie M. Dumont, Senior
Vice President and Director of Capital Markets
Policy, FINRA (‘‘FINRA Response Letter’’).
6 15 U.S.C. 78s(b)(2)(B).
7 See Securities Exchange Act Release No. 66168
(January 17, 2012), 77 FR 3515 (January 24, 2012)
(Order Instituting Proceedings to Determine
Whether to Disapprove File No. SR–FINRA–2011–
058) (‘‘Proceedings Order’’).
8 See letter to Elizabeth M. Murphy, Secretary,
Commission, from Daniel Zinn, General Counsel,
OTC Markets Group Inc., dated February 14, 2012.
9 See Securities Exchange Act Release No. 62359
(June 22, 2010), 75 FR 37488 (June 29, 2010) (File
No. SR–FINRA–2009–054; ‘‘Order Approving NMSPrincipled Rules for OTC Equity Securities’’).
FINRA Rule 6434 became effective on February 11,
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Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices
and, importantly, (5) facilitate the
display of customer limit orders under
FINRA Rule 6460 (Display of Customer
Limit Orders) (the ‘‘limit order display
rule’’).10
In this Amendment No. 1, FINRA is
modifying the Original Proposal in
response to comment letters as well as
further discussions with members,
particularly with regard to the lower
minimum dollar amount of displayed
liquidity required under the proposed
tiers.11 For example, commenters
expressed concern that the Original
Proposal would remove meaningful
minimum dollar value level
requirements for displayed liquidity by
market makers and suggested that any
changes be implemented as a pilot.12
FINRA believes that these proposed
modifications, which increase several
minimum tier sizes as compared to the
Original Proposal, would address
commenters’ concerns by increasing the
minimum dollar commitment to the
market overall, while nonetheless
facilitating investor protection by
23771
providing for increased display of
customer limit orders than is currently
provided under the limit order display
rule. As noted in the FINRA Response
Letter, through the extension of limit
order display for OTC equity securities,
investors may now benefit from
enhanced transparency of limit orders,
improved prices and increased
execution opportunities.13
The minimum quotation sizes and
liquidity ranges of the Original Proposal
and the revised proposals are as follows:
ORIGINAL PROPOSAL
Tier size range
Min. shares
$0.0001 ...........................................................
$0.02 ...............................................................
$0.26 ...............................................................
$0.51 ...............................................................
$1.00 ...............................................................
$175.00 ...........................................................
$0.0199
0.2599
0.5099
0.9999
174.99
........................
10,000
1,000
500
200
100
1
Minimum liquidity range
$1.00 ..............................................................
$20.00 ............................................................
$130.00 ..........................................................
$102.00 ..........................................................
$100.00 ..........................................................
$175.00.
$199.00
259.90
254.95
199.98
17,499.00
REVISED PROPOSAL
Tier size range
Min. shares
$0.0001 ...........................................................
$0.10 ...............................................................
$0.20 ...............................................................
$0.51 ...............................................................
$1.00 ...............................................................
$175.00 ...........................................................
$0.0999
0.1999
0.5099
0.9999
174.99
........................
10,000
5,000
2,500
1,000
100
1
Minimum liquidity range
$1.00 ..............................................................
$500.00 ..........................................................
$500.00 ..........................................................
$510.00 ..........................................................
$100.00 ..........................................................
$175.00 ..........................................................
$999.00
999.50
1,274.75
999.90
17,499.00
........................
tkelley on DSK3SPTVN1PROD with NOTICES
These revisions increase the
minimum quotation sizes for price
points between $0.02 and $1.00 (as
compared to the Original Proposal).
Specifically, the minimum quotation
size required for securities priced
between $0.02 and $0.0999 would be
increased from 1,000 shares to 10,000
shares; between $0.10 and $0.1999
would be increased from 1,000 shares to
5,000 shares; between $0.26 and
$0.5099 would be increased from 500
shares to 2,500 shares; and between
$0.51 and $0.9999 from 200 shares to
1,000 shares. Therefore, under the
revised tiers, for securities priced from
$0.10 up to $1.00, the required
minimum dollar value of displayed
liquidity would range from $500.00 to
$1,274.75—dollar amounts FINRA
believes represent both appropriate
minimum dollar value of displayed
liquidity for members and reasonable
dollar values for customer orders to be
eligible for display on an inter-dealer
quotation system.
Thus, FINRA believes that these
revised tier sizes and corresponding
liquidity minimum amounts are in the
best interest of the market for OTC
Equity Securities and investors in that
they facilitate the display of additional
liquidity by market makers and of
approximately 95% of all customer limit
orders reviewed.14 In addition, FINRA
expects that—as the SEC has found in
the context of its display rule—the
improved display of customer limit
orders resulting from the revised
minimum quotation sizes will enhance
the quality of published quotations for
OTC Equity Securities and enhance
competition and pricing efficiency in
the market for OTC Equity Securities,
which also should have a positive
impact on capital formation.15
Further, FINRA believes that the
resulting increased display of customer
limit orders will improve the public
availability of quotation information,
increase quote competition, market
efficiency, best execution and
disintermediation.16
2011 and FINRA Rule 6460 became effective on
May 9, 2011. See Regulatory Notice 10–42
(September 2010).
10 See Order Approving NMS-Principled Rules for
OTC Equity Securities.
11 See, e.g., Knight #1 and Knight #2.
12 See, e.g., Knight #1 and Knight #2.
13 As previously stated by the SEC, customer limit
order display is beneficial to the markets:
The financial markets as a whole should benefit
from [limit order display] because the price
discovery process will be enhanced, market
transparency will be improved and price
competition will be promoted. By their very nature,
these benefits are broad-based and pervasive.
Securities Exchange Act Release No. 36310
(September 29, 1995), 60 FR 52792 (October 10,
1995).
14 FINRA analyzed a random sample of over 100
million customer limit orders in OTC Equity
Securities that were reported to FINRA during a sixmonth period.
15 See Securities Exchange Act Release No.
37619A, 61 FR 48290 (September 12, 1996) (‘‘SEC
Display Rule Adopting Release’’).
16 See also SEC Display Rule Adopting Release.
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Federal Register / Vol. 77, No. 77 / Friday, April 20, 2012 / Notices
The revised tiers also would continue
to yield the other benefits discussed in
the Original Proposal, including
simplifying the existing Rule by
reducing the number of minimum
quotation tiers from nine tiers to six
tiers and requiring a round lot of one
hundred shares for all securities priced
at or above $1.00.17
FINRA is proposing that the proposed
rule change be implemented for all OTC
Equity Securities displayed on an interdealer quotation system on a pilot basis
for a period of one year from the
effective date. The effective date of the
minimum quotation size pilot will be
120 days from Commission approval.
FINRA will provide the Commission
with trading data, as necessary, to
evaluate the impact of the pilot.
III. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended by Amendment No.
1, is consistent with the Act. Comments
may be submitted by any of the
following methods:
tkelley on DSK3SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–FINRA–2011–058 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–FINRA–2011–058. This file
number should be included on the
subject line if email 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
17 A round lot of 100 shares applies to most
NASDAQ and NYSE listed securities. The
Commission notes that those OTC Equity Securities
priced at or above $175 are proposed to have a
minimum quotation size that would equal the
round lot size applicable to those securities, which
is one share.
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18:17 Apr 19, 2012
Jkt 226001
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for 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
FINRA. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2011–058 and
should be submitted on or before May
7, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–9593 Filed 4–19–12; 8:45 am]
BILLING CODE 8011–01–P
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of JPM XF Physical Copper
Trust (the ‘‘Trust’’) pursuant to NYSE
Arca Equities Rule 8.201. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and www.nyse.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66816; File No. SR–
NYSEArca–2012–28]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the JPM XF Physical Copper Trust
Pursuant to NYSE Arca Equities Rule
8.201
April 16, 2012.
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 April 2,
2012, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
18 17
CFR 200.30–3(a)(57).
U.S.C.78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Sfmt 4703
The Exchange proposes to list and
trade JPM XF Physical Copper Shares
(‘‘Shares’’) of the Trust under NYSE
Arca Equities Rule 8.201. Under NYSE
Arca Equities Rule 8.201, the Exchange
may propose to list and/or trade
pursuant to unlisted trading privileges
(‘‘UTP’’) ‘‘Commodity-Based Trust
Shares.’’ 4 The Commission has
previously approved listing on the
Exchange under NYSE Arca Equities
Rule 8.201 of other issues of
Commodity-Based Trust Shares. The
Commission has approved listing on the
Exchange of the streetTRACKS Gold
Trust and iShares COMEX Gold Trust.5
The Commission also has approved
listing of the iShares Silver Trust on the
Exchange 6 and, previously, listing of
the iShares Silver Trust on the
4 Commodity-Based Trust Shares are securities
issued by a trust that represent investors’ discrete
identifiable and undivided interest in and
ownership of the net assets of the Trust.
5 See Securities Exchange Act Release No. 56224
(August 8, 2007), 72 FR 45850 (August 15, 2007)
(SR–NYSEArca–2007–76) (approving listing on the
Exchange of the streetTRACKS Gold Trust);
Securities Exchange Act Release No. 56041 (July 11,
2007), 72 FR 39114 (July 17, 2007) (SR–NYSEArca–
2007–43) (order approving listing on the Exchange
of iShares COMEX Gold Trust).
6 See Securities Exchange Act Release Nos. 58956
(November 14, 2008), 73 FR 71074 (November 24,
2008) (SR–NYSEArca–2008–124) (approving listing
on the Exchange of the iShares Silver Trust).
E:\FR\FM\20APN1.SGM
20APN1
Agencies
[Federal Register Volume 77, Number 77 (Friday, April 20, 2012)]
[Notices]
[Pages 23770-23772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9593]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66819; File No. SR-FINRA-2011-058]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 1 to Proposed Rule
Change To Amend FINRA Rule 6433 (Minimum Quotation Size Requirements
for OTC Equity Securities)
April 17, 2012.
I. Introduction
On October 6, 2011, 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 Rule 6433 (Minimum Quotation Size
Requirements for OTC Equity Securities). The proposed rule change was
published for comment in the Federal Register on October 20, 2011.\3\
The Commission received seven comment letters on the proposed rule
change--two from individual investors, three from an inter-dealer
quotation system and two from a member firm.\4\ FINRA responded to
comments on December 23, 2011.\5\ The Commission published an order
instituting proceedings pursuant to Section 19(b)(2)(B) of the Act,\6\
to determine whether to approve or disapprove the proposed rule change,
in the Federal Register on January 24, 2012.\7\ The comment period
closed on February 14, 2012, and FINRA's rebuttal period closed on
February 28, 2012. The Commission received one comment letter in
response to the Proceedings Order.\8\ On April 17, 2012, FINRA filed
Amendment No. 1 to the proposed rule change. The text of Amendment No.
1 is available on FINRA's Web site at https://www.finra.org, at the
principal office of FINRA and at the Commission's Public Reference
Room.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 65568 (October 14,
2011), 76 FR 65307 (October 20, 2011) (Notice of Filing of File No.
SR-FINRA-2011-058) (``Original Proposal'').
\4\ Letters to Elizabeth M. Murphy, Secretary, Commission, from
Suzanne H. Shatto, Seattle, Washington, dated October 20, 2011;
Naphtali M. Hamlet, Seattle, Washington, dated October 21, 2011;
Daniel Zinn, General Counsel, OTC Markets Group, Inc., dated
November 10, 2011; Michael T. Corrao, Managing Director, Knight
Capital Group, Inc., dated November 16, 2011 (``Knight
1''); R. Cromwell Coulson, President and CEO, OTC Markets,
dated November 18, 2011; Daniel Zinn, General Counsel, OTC Markets
Group, Inc., dated December 29, 2011; Michael T. Corrao, Managing
Director, Knight Capital Group, Inc., dated January 13, 2012
(``Knight 2'').
Comment letters are available at www.sec.gov.
\5\ On December 23, 2011, FINRA responded to comment letters
received by the SEC as of that date. See letter to Elizabeth M.
Murphy, Secretary, Commission, from Stephanie M. Dumont, Senior Vice
President and Director of Capital Markets Policy, FINRA (``FINRA
Response Letter'').
\6\ 15 U.S.C. 78s(b)(2)(B).
\7\ See Securities Exchange Act Release No. 66168 (January 17,
2012), 77 FR 3515 (January 24, 2012) (Order Instituting Proceedings
to Determine Whether to Disapprove File No. SR-FINRA-2011-058)
(``Proceedings Order'').
\8\ See letter to Elizabeth M. Murphy, Secretary, Commission,
from Daniel Zinn, General Counsel, OTC Markets Group Inc., dated
February 14, 2012.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
As stated in the Original Proposal, FINRA is amending FINRA Rule
6433 (Minimum Quotation Size Requirements for OTC Equity Securities)
(the ``Rule'') to, among other things, (1) Simplify the tier structure,
(2) parallel the approach taken by the national securities exchanges
for securities priced at or above $1.00, (3) expand the scope of the
Rule to apply to all quotations or orders displayed on an inter-dealer
quotation system, (4) incorporate the requirements of FINRA Rule 6434
(Minimum Pricing Increments for OTC Equity Securities) \9\
[[Page 23771]]
and, importantly, (5) facilitate the display of customer limit orders
under FINRA Rule 6460 (Display of Customer Limit Orders) (the ``limit
order display rule'').\10\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 62359 (June 22,
2010), 75 FR 37488 (June 29, 2010) (File No. SR-FINRA-2009-054;
``Order Approving NMS-Principled Rules for OTC Equity Securities'').
FINRA Rule 6434 became effective on February 11, 2011 and FINRA Rule
6460 became effective on May 9, 2011. See Regulatory Notice 10-42
(September 2010).
\10\ See Order Approving NMS-Principled Rules for OTC Equity
Securities.
---------------------------------------------------------------------------
In this Amendment No. 1, FINRA is modifying the Original Proposal
in response to comment letters as well as further discussions with
members, particularly with regard to the lower minimum dollar amount of
displayed liquidity required under the proposed tiers.\11\ For example,
commenters expressed concern that the Original Proposal would remove
meaningful minimum dollar value level requirements for displayed
liquidity by market makers and suggested that any changes be
implemented as a pilot.\12\ FINRA believes that these proposed
modifications, which increase several minimum tier sizes as compared to
the Original Proposal, would address commenters' concerns by increasing
the minimum dollar commitment to the market overall, while nonetheless
facilitating investor protection by providing for increased display of
customer limit orders than is currently provided under the limit order
display rule. As noted in the FINRA Response Letter, through the
extension of limit order display for OTC equity securities, investors
may now benefit from enhanced transparency of limit orders, improved
prices and increased execution opportunities.\13\
---------------------------------------------------------------------------
\11\ See, e.g., Knight 1 and Knight 2.
\12\ See, e.g., Knight 1 and Knight 2.
\13\ As previously stated by the SEC, customer limit order
display is beneficial to the markets:
The financial markets as a whole should benefit from [limit
order display] because the price discovery process will be enhanced,
market transparency will be improved and price competition will be
promoted. By their very nature, these benefits are broad-based and
pervasive.
Securities Exchange Act Release No. 36310 (September 29, 1995),
60 FR 52792 (October 10, 1995).
---------------------------------------------------------------------------
The minimum quotation sizes and liquidity ranges of the Original
Proposal and the revised proposals are as follows:
Original Proposal
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Tier size range Min. shares Minimum liquidity range
----------------------------------------------------------------------------------------------------------------
$0.0001............................... $0.0199 10,000 $1.00................... $199.00
$0.02................................. 0.2599 1,000 $20.00.................. 259.90
$0.26................................. 0.5099 500 $130.00................. 254.95
$0.51................................. 0.9999 200 $102.00................. 199.98
$1.00................................. 174.99 100 $100.00................. 17,499.00
$175.00............................... .............. 1 $175.00.................
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Revised Proposal
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Tier size range Min. shares Minimum liquidity range
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$0.0001............................... $0.0999 10,000 $1.00................... $999.00
$0.10................................. 0.1999 5,000 $500.00................. 999.50
$0.20................................. 0.5099 2,500 $500.00................. 1,274.75
$0.51................................. 0.9999 1,000 $510.00................. 999.90
$1.00................................. 174.99 100 $100.00................. 17,499.00
$175.00............................... .............. 1 $175.00................. ..............
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These revisions increase the minimum quotation sizes for price
points between $0.02 and $1.00 (as compared to the Original Proposal).
Specifically, the minimum quotation size required for securities priced
between $0.02 and $0.0999 would be increased from 1,000 shares to
10,000 shares; between $0.10 and $0.1999 would be increased from 1,000
shares to 5,000 shares; between $0.26 and $0.5099 would be increased
from 500 shares to 2,500 shares; and between $0.51 and $0.9999 from 200
shares to 1,000 shares. Therefore, under the revised tiers, for
securities priced from $0.10 up to $1.00, the required minimum dollar
value of displayed liquidity would range from $500.00 to $1,274.75--
dollar amounts FINRA believes represent both appropriate minimum dollar
value of displayed liquidity for members and reasonable dollar values
for customer orders to be eligible for display on an inter-dealer
quotation system.
Thus, FINRA believes that these revised tier sizes and
corresponding liquidity minimum amounts are in the best interest of the
market for OTC Equity Securities and investors in that they facilitate
the display of additional liquidity by market makers and of
approximately 95% of all customer limit orders reviewed.\14\ In
addition, FINRA expects that--as the SEC has found in the context of
its display rule--the improved display of customer limit orders
resulting from the revised minimum quotation sizes will enhance the
quality of published quotations for OTC Equity Securities and enhance
competition and pricing efficiency in the market for OTC Equity
Securities, which also should have a positive impact on capital
formation.\15\
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\14\ FINRA analyzed a random sample of over 100 million customer
limit orders in OTC Equity Securities that were reported to FINRA
during a six-month period.
\15\ See Securities Exchange Act Release No. 37619A, 61 FR 48290
(September 12, 1996) (``SEC Display Rule Adopting Release'').
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Further, FINRA believes that the resulting increased display of
customer limit orders will improve the public availability of quotation
information, increase quote competition, market efficiency, best
execution and disintermediation.\16\
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\16\ See also SEC Display Rule Adopting Release.
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[[Page 23772]]
The revised tiers also would continue to yield the other benefits
discussed in the Original Proposal, including simplifying the existing
Rule by reducing the number of minimum quotation tiers from nine tiers
to six tiers and requiring a round lot of one hundred shares for all
securities priced at or above $1.00.\17\
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\17\ A round lot of 100 shares applies to most NASDAQ and NYSE
listed securities. The Commission notes that those OTC Equity
Securities priced at or above $175 are proposed to have a minimum
quotation size that would equal the round lot size applicable to
those securities, which is one share.
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FINRA is proposing that the proposed rule change be implemented for
all OTC Equity Securities displayed on an inter-dealer quotation system
on a pilot basis for a period of one year from the effective date. The
effective date of the minimum quotation size pilot will be 120 days
from Commission approval. FINRA will provide the Commission with
trading data, as necessary, to evaluate the impact of the pilot.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended by Amendment No. 1, 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 email to rule-comments@sec.gov. Please include
File Number SR-FINRA-2011-058 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2011-058. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for 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 FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2011-058 and should be
submitted on or before May 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(57).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-9593 Filed 4-19-12; 8:45 am]
BILLING CODE 8011-01-P