Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendments No. 1 and 2, To Amend FINRA Rule 4560 (Short-Interest Reporting), 26340-26343 [2012-10642]
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26340
Federal Register / Vol. 77, No. 86 / Thursday, May 3, 2012 / Notices
III. Exemption From Section 19(b) of
the Act With Regard to FINRA Rules
Incorporated by Reference
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BOX Exchange proposes to
incorporate by reference certain FINRA
rules.256 Thus, for certain BOX
Exchange rules, BOX Options
Participants will comply with a BOX
Exchange rule by complying with the
referenced FINRA rule.
In connection with the proposal to
incorporate the FINRA rules by
reference, BOX Exchange requested,
pursuant to Rule 240.0–12 under the
Act,257 an exemption under Section 36
of the Act from the rule filing
requirements of Section 19(b) of the Act
for changes to the BOX Exchange rules
that are effected solely by virtue of a
change to a cross-referenced FINRA
rule.258 BOX Exchange proposes to
incorporate by reference categories of
rules, rather than individual rules
within a category, that are not trading
rules. BOX Exchange agrees to provide
written notice to BOX Options
Participants whenever FINRA proposes
a change to a cross-referenced rule 259
and whenever any such proposed
changes are approved by the
Commission or otherwise become
effective.260
Using the authority under Section 36
of the Act, the Commission previously
exempted certain SROs from the
requirement to file proposed rule
changes under Section 19(b) of the
Act.261 Each exempt SRO agreed to be
governed by the incorporated rules, as
amended from time to time, but is not
required to file a separate proposed rule
change with the Commission each time
the SRO whose rules are incorporated
by reference seeks to modify such rules.
In addition, each exempt SRO
incorporated by reference only
regulatory rules, for example, margin,
256 Specifically, BOX Exchange proposes to
incorporate by reference the following FINRA rules:
Series 12000 (Code of Arbitration for Customer
Disputes) and 13000 (Code of Arbitration Procedure
for Industry Disputes), referenced in Exchange Rule
14000.
257 17 CFR 240.0–12.
258 See letter from Lisa J. Fall, President, BOX
Exchange, to Elizabeth M. Murphy, Secretary,
Commission, dated March 30, 2012 (‘‘Section 19(b)
Exemption Request’’).
259 See id.
260 BOX Exchange will provide such notice
through a posting on the same Web site location
where BOX Exchange posts its own rule filings
pursuant to Rule 19b–4 under the Act, within the
required time frame. The Web site posting will
include a link to the location on the FINRA Web
site where FINRA’s proposed rule change is posted.
See id.
261 See e.g., DirectEdge Exchanges Order and
BATS Order, supra note 21, C2 Order, supra note
29, Nasdaq Order, supra note 34 and NOM
Approval Order, supra note 122.
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suitability, and arbitration rules, and not
trading rules, and incorporated by
reference whole categories of rules. Each
exempt SRO had reasonable procedures
in place to provide written notice to its
members each time a change is
proposed to the incorporated rules of
another SRO in order to provide such
members with notice of a proposed rule
change that affects the members’
interests, so that the members will have
an opportunity to comment.
The Commission is granting BOX
Exchange’s request for exemption,
pursuant to Section 36 of the Act, from
the rule filing requirements of Section
19(b) of the Act with respect to the rules
that BOX Exchange proposes to
incorporate by reference. The exemption
is conditioned upon BOX Exchange
providing written notice to BOX
Options Participants whenever FINRA
proposes to change an incorporated by
reference rule. The Commission believes
that the exemption is appropriate in the
public interest and consistent, with the
protection of investors because it will
promote more efficient use of
Commission and SROs resources by
avoiding duplicative rule filings based
on simultaneous changes to identical
rule text sought by more than one SRO.
IV. Conclusion
It is ordered that the application of
BOX Exchange for registration as a
national securities exchange be, and it
hereby is, granted.
It is furthered ordered that operation
of BOX Exchange is conditioned on the
satisfaction of the requirements below:
A. Participation in National Market
System Plans Relating to Options
Trading. BOX Exchange must join: (1)
The Plan for the Reporting of
Consolidated Options Last Sale Reports
and Quotation Information (Options
Price Reporting Authority); (2) the
OLPP; (3) the Linkage Plan; and (4) the
Plan of the Options Regulatory
Surveillance Authority.
B. Participation in Multiparty Rule
17d–2 Plans. BOX Exchange must
become a party to the multiparty Rule
17d–2 agreements concerning options
sales practice regulation and market
surveillance.
C. Participation in the Options
Clearing Corporation. BOX Exchange
must become an Options Clearing
Corporation participant exchange.
D. Participation in the Intermarket
Surveillance Group. BOX Exchange
must join the Intermarket Surveillance
Group.
E. Effective Regulation. BOX
Exchange must have, and represent in a
letter to the staff in the Commission’s
Office of Compliance Inspections and
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Examinations that it has, adequate
procedures and programs in place to
effectively regulate the BOX options
trading facility.
F. Trade Processing and Exchange
Systems. BOX Exchange must have, and
represent in a letter to the staff in the
Commission’s Division of Trading and
Markets that it has, adequate procedures
and programs in place, as detailed in
Commission Automation Policy Review
guidelines, to effectively process trades
and maintain the confidentiality,
integrity, and availability of BOX
Exchange’s systems.262
It is further ordered, pursuant to
Section 36 of the Act,263 that BOX
Exchange shall be exempted from the
rule filing requirements of Section 19(b)
of the Act with respect to the FINRA
rules that BOX Exchange proposes to
incorporate by reference, subject to the
conditions specified in this Order.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012–10620 Filed 5–2–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66872; File No. SR–FINRA–
2012–001]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendments No. 1 and 2, To Amend
FINRA Rule 4560 (Short-Interest
Reporting)
April 27, 2012.
I. Introduction
On January 10, 2012, 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
262 On November 16, 1989, the Commission
published its first Automation Review Policy (‘‘ARP
I’’), in which the Commission created a voluntary
framework for SROs to establish comprehensive
planning and assessment programs to determine
systems capacity and vulnerability. On May 9,
1991, the Commission published its second
Automation Review Policy (‘‘ARP II’’) to clarify the
types of review and reports expected from SROs.
See Securities Exchange Act Release Nos. 27445
(November 16, 1989), 54 FR 48703 (November 24,
1989) and 29185 (May 9, 1991), 56 FR 22490 (May
15, 1991).
263 15 U.S.C. 78mm.
1 15 U.S.C. 78s(b)(1).
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Federal Register / Vol. 77, No. 86 / Thursday, May 3, 2012 / Notices
thereunder,2 a proposed rule change to
amend FINRA Rule 4560. On January
20, 2012, FINRA filed Amendment No.
1 to the proposed rule change
(‘‘Amendment No. 1’’).3 The proposed
rule change, as modified by Amendment
No. 1, was published for comment in
the Federal Register on January 30,
2012.4 The Commission received one
comment letter, from the Securities
Industry and Financial Markets
Association (‘‘SIFMA’’), on the
proposal.5 On April 23, 2012, FINRA
responded to the comments in the
SIFMA Letter 6 and filed Amendment
No. 2 to the proposed rule change
(‘‘Amendment No. 2’’ and collectively
with Amendment No. 1, the
‘‘Amendments’’).7 The Commission is
publishing this notice and order to
solicit comments on Amendment No. 2
and to approve the proposed rule
change, as modified by the
Amendments, on an accelerated basis.
II. Description of the Proposal
FINRA has proposed to amend FINRA
Rule 4560. FINRA Rule 4560 (the
‘‘Rule’’) requires each FINRA member to
maintain a record of total short
positions in all customer and
proprietary firm accounts in all equity
securities (other than Restricted Equity
Securities as defined in Rule 6420) and
regularly report such information to
FINRA in the manner prescribed by
FINRA. The Rule generally provides
that the short positions to be recorded
and reported are those resulting from
‘‘short sales’’ as that term is defined in
Rule 200(a) of Regulation SHO.8 FINRA
2 17
CFR 240.19b–4.
No. 1 was a partial amendment that
clarified the reference to a defined term in SEC
Regulation SHO in the rule text and purpose section
of the proposed rule change.
4 See Securities Exchange Act Release No. 66220
(January 24, 2012), 77 FR 4599 (January 30, 2012).
5 See letter from Melissa MacGregor, Managing
Director and Associate General Counsel, SIFMA, to
Elizabeth M. Murphy, Secretary, Commission, dated
February 23, 2012 (‘‘SIFMA Letter’’).
6 See letter from Racquel L. Russell, Assistant
General Counsel, FINRA, to Elizabeth M. Murphy,
Secretary, Commission, dated April 23, 2012
(‘‘Response Letter’’).
7 Amendment No. 2 was a partial amendment that
deleted the proposed requirement concerning the
adjustment of corporate actions for short interest
reporting purposes. The text of the proposed rule
change and FINRA’s Response Letter are available
on FINRA’s Web site at https://www.finra.org, at the
principal offices of FINRA, on the Commission’s
Web site at https://www.sec.gov, and at the
Commission’s Public Reference Room.
8 Rule 200 of SEC Regulation SHO provides that
‘‘short sale’’ means ‘‘any sale of a security which
the seller does not own or any sale which is
consummated by the delivery of a security
borrowed by, or for the account of, the seller.’’ See
Rule 200(a) of SEC Regulation SHO, 17 CFR
242.200. SEC Rule 200 further provides, among
other things, that a person is deemed to own a
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has proposed to amend the Rule to
clarify members’ recording and
reporting obligations and to delete
several exceptions to the Rule.
First, FINRA has proposed to codify
interpretive guidance previously issued
by the Intermarket Surveillance Group
(ISG) that instructed members to report
‘‘gross’’ short positions existing in each
proprietary and customer account
(rather than net positions across
accounts).9 Thus, the proposed rule
change provides that members must
report all gross short positions existing
in each firm or customer account,
including the account of a broker-dealer,
that resulted from a ‘‘short sale’’ as that
term is defined in Rule 200(a) of
Regulation SHO, as well as where the
sale transaction that caused the short
position was marked ‘‘long,’’ consistent
with SEC Regulation SHO, due to the
firm’s or the customer’s net long
position at the time of the transaction
(e.g., aggregation units).
Second, FINRA has proposed to
clarify that members’ short interest
reports must reflect only those short
positions that have settled or reached
settlement date by the close of the
reporting settlement date designated by
FINRA. Therefore, short positions
resulting from short sales that were
effected but have not reached settlement
date by the given designated reporting
settlement date, should not be included
in a member’s short interest report for
that reporting cycle. Of course, short
interest positions resulting from short
sales that reached the expected
settlement date, but failed to settle (i.e.,
‘‘fails’’), must be included.
Third, FINRA has proposed to clarify
that members must reflect companyrelated actions in their short-interest
reports adjusted as of the ex-date of the
corporate action (and if no ex-date is
declared by a self-regulatory
organization (‘‘SRO’’), then the payment
date).10 Therefore, for the purposes of
security if: (a) The person or his agent has title to
it; or (b) The person has purchased, or has entered
into an unconditional contract, binding on both
parties thereto, to purchase it, but has not yet
received it; or (c) The person owns a security
convertible into or exchangeable for it and has
tendered such security for conversion or exchange;
or (d) The person has an option to purchase or
acquire it and has exercised such option; or (e) The
person has rights or warrants to subscribe to it and
has exercised such rights or warrants; or (f) The
person holds a security futures contract to purchase
it and has received notice that the position will be
physically settled and is irrevocably bound to
receive the underlying security. See Rule 200(b) of
SEC Regulation SHO.
9 See Intermarket Surveillance Group,
Consolidated Reporting of Short Interest Positions,
ISG Regulatory Memorandum 95–01 (March 6,
1995).
10 The ex-date is the date on or after which a
security is traded without a specific dividend or
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26341
short interest reporting, members must
reflect corporate actions (e.g., a reverse
or forward split) that impact the total
number of shares in the short position
in their short interest report for a
reporting cycle if the ex-date of the
corporate action occurs by the reporting
settlement date designated by FINRA for
such cycle (even if payment of the
distribution is not received until after
the designated reporting settlement
date).
Finally, consistent with discussions
with the ISG, FINRA has proposed
amendments to delete certain existing
exceptions to the Rule.11 The Rule
provides five exceptions, including an
exception for stabilizing activity,
domestic arbitrage and international
arbitrage. FINRA, in cooperation with
the ISG Short Interest Working Group
(‘‘ISG Working Group’’), determined
that the transactions addressed in these
three exceptions result in the type of
short positions that would be of interest
to regulators and the public, and
therefore, determined that these
exceptions no longer are appropriate.12
FINRA has stated that it believes that
the proposed amendments will remove
confusion regarding the operation of the
Rule and help facilitate the availability
to the public and regulators of accurate
and complete short interest information.
FINRA has represented that it will
announce the effective date of the
proposed rule change in a Regulatory
Notice to be published no later than 120
days following Commission approval.
FINRA has also represented that the
effective date will be no more than 365
days following Commission approval.
distribution. The ex-date also is the date that DTCC
uses to determine who is entitled to the
distribution. The payable date is the date that the
dividend is sent to the record owner of the security.
See e.g., Regulatory Notice 00–54 (August 2000).
11 FINRA has worked closely with other SRO
members of the ISG, a group that includes
representatives of every U.S. SRO, to address
problems that reach across marketplaces. Each ISG
member adopted consistent short-interest reporting
rules to enhance surveillance capabilities, augment
market transparency, enable investors to make more
informed decisions, and provide greater disclosure
for regulatory purposes.
12 FINRA and the ISG Working Group determined
that the remaining two exceptions continue to be
appropriate. Specifically, the exception for sales for
an account in which the person has an interest,
owns the security and intends to deliver it as soon
as is possible (which FINRA is retaining) is
intended to address circumstances where there may
be a brief delay in delivery but the sale is a long
sale, i.e., exercise of a right, option, or warrant. In
addition, the over-allotment exception (which
FINRA also is retaining) addresses the narrow
circumstance where the underwriter has not
received shares and results in a short position for
a very brief duration.
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Federal Register / Vol. 77, No. 86 / Thursday, May 3, 2012 / Notices
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III. Summary of Comments and
FINRA’s Response
In the SIFMA Letter, the commenter
generally supports the proposal but
raised concerns with one aspect of the
proposal. In the SIFMA Letter, the
commenter also recommends other
changes to the existing short interest
reporting requirements. First, the
commenter supports (1) the reporting of
short positions based on gross short
positions in all customer and
proprietary accounts, (2) the deletion of
certain existing exceptions to short
interest reporting for stabilizing activity,
domestic arbitrage and international
arbitrage, and (3) the reporting of short
positions that have settled or reached
settlement date by the close of the
reporting settlement date designated by
FINRA. The commenter, however,
opposes the proposed requirement that
short interest reports reflect corporate
actions adjusted as of the ex-date of the
corporate action (and if no ex-date is
declared by an SRO, then the payment
date of a corporate action). The
commenter argues that such
requirement is inconsistent with other
proposed requirements, is inconsistent
with how firms maintain their stock
records and how firms’ systems capture
short interest position information, and
would require extensive programming at
significant cost.
In the Response Letter, FINRA stated
that it would amend the proposed rule
change to delete the adjustment of
corporate actions aspect of the proposal
to provide FINRA additional time to
gather further information on the issue
and formulate a regulatory approach.
FINRA also stated that it would
separately amend Rule 4560 at a future
date to propose a uniform requirement
regarding the adjustment of corporate
actions for short interest reporting
purposes.
Additionally, in the SIFMA Letter, the
commenter recommends changes to the
existing short interest reporting
requirements, including narrowing the
exception from the reporting
requirements for ‘‘owned’’ securities.
FINRA declined to amend the proposal
to make the requested changes
suggested by SIFMA. In the Response
Letter, FINRA stated that the additional
comments raised by SIFMA relate to
existing requirements of the Rule and
not the current proposal. FINRA noted
that SIFMA’s recommendations are not
germane to the consideration of the
merits of the proposal or relevant to
whether the proposal is consistent with
the Exchange Act.
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IV. Discussion and Commission’s
Findings
After careful review of the proposed
rule change, the comments received and
FINRA’s Response Letter and the
Amendments, the Commission finds
that the proposed rule change, as
modified by the Amendments, is
consistent with the requirements of the
Act, and the rules and regulations
thereunder that are applicable to a
national securities association.13 In
particular, the Commission believes that
the proposed rule change is consistent
with the provisions of Section 15A(b)(6)
of the Act, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. More specifically, the
Commission believes that the proposed
rule change to amend FINRA Rule 4560
will promote consistency and accuracy
in the calculation and reporting of short
interest positions by members. The
Commission believes that FINRA has
adequately responded to the concerns
the SIFMA Letter. In response to
SIFMA’s comments concerning the
adjustment of corporate actions for short
interest reporting purposes, FINRA
amended its proposal to delete this
aspect of the proposal in order to allow
additional time to gather further
information. In addition, FINRA has
suitably explained its reasons for
declining to amend the proposed rule
change by making the additional
changes recommended by SIFMA.
V. Accelerated Approval
The Commission finds good cause,
pursuant to Section 19(b)(2) of the Act 14
for approving the proposed rule change,
as modified by the Amendments, prior
to the 30th day after publication of
Amendment No. 2 in the Federal
Register. In response to certain concerns
raised by SIFMA, FINRA proposed in
Amendment No. 2 to delete the
proposed requirement that short interest
reports reflect corporate actions
adjusted as of the ex-date of the
corporate action (and if no ex-date is
declared by a self-regulatory
organization, then the payment date of
a corporate action). FINRA proposed
Amendment No. 2 to allow FINRA
additional time to gather further
13 In approving the proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
14 15 U.S.C. 78s(b)(2).
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information on the issue of adjustment
of corporate actions for short interest
reporting purposes. Accordingly, the
Commission finds that good cause exists
to approve the proposal, as modified by
the Amendments, on an accelerated
basis.
VI. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether Amendment No. 2 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 rulecomments@sec.gov. Please include File
Number SR–FINRA–2012–001 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–2012–001. 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–2012–001 and
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Federal Register / Vol. 77, No. 86 / Thursday, May 3, 2012 / Notices
Web site at www.directedge.com, at the
Exchange’s principal office, on the
Commission’s Web site at www.sec.gov,
and at the Public Reference Room of the
Commission.
should be submitted on or before May
24, 2012.
VII. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,15 that the
proposed rule change (File No. SR–
FINRA–2012–001), as modified by the
Amendments, be and hereby is
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–10642 Filed 5–2–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66873; File No. SR–EDGX–
2012–15]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to New EDGX
Rule Regarding Telemarketing
April 27, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 16,
2012, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘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 proposes to add Rule
3.26, Telemarketing,3 to its rulebook to
codify provisions that are substantially
similar to Federal Trade Commission
(‘‘FTC’’) rules that prohibit deceptive
and other abusive telemarketing acts or
practices. The text of the proposed rule
change is available on the Exchange’s
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15 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The proposed rule change is substantially
similar in all material respects to Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’) Rule 3230
(Telemarketing), which the Commission recently
approved. See Securities Exchange Act Release No.
66279 (Jan. 30, 2012), 77 FR 5611 (Feb. 3, 2012)
(SR–FINRA–2011–059) (approval order of proposed
rule change to adopt telemarketing rule).
16 17
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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
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to add Rule
3.26, Telemarketing, to its rulebook to
codify provisions that are substantially
similar to FTC rules that prohibit
deceptive and other abusive
telemarketing acts or practices. Rule
3.26 will require Members to, among
other things, maintain do-not-call lists,
limit the hours of telephone
solicitations, and not use deceptive and
abusive acts and practices in connection
with telemarketing. The Commission
directed EDGX to enact these
telemarketing rules in accordance with
the Telemarketing Consumer Fraud and
Abuse Prevention Act of 1994
(‘‘Prevention Act’’).4 The Prevention Act
requires the Commission to promulgate,
or direct any national securities
exchange or registered securities
association to promulgate, rules
substantially similar to the FTC rules 5
to prohibit deceptive and other abusive
telemarketing acts or practices, unless
the Commission determines either that
the rules are not necessary or
appropriate for the protection of
investors or the maintenance of orderly
markets, or that existing federal
securities laws or Commission rules
already provide for such protection.6
In 1997, the Commission determined
that telemarketing rules promulgated
and expected to be promulgated by self4 15
U.S.C. 6101–6108.
CFR 310.1–.9. The FTC adopted these rules
under the Prevention Act in 1995. See Federal
Trade Commission, Telemarketing Sales Rule, 60
FR 43842 (Aug. 23, 1995).
6 15 U.S.C. 6102.
5 16
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26343
regulatory organizations, together with
the other rules of the self-regulatory
organizations, the federal securities laws
and the Commission’s rules thereunder,
satisfied the requirements of the
Prevention Act because, at the time, the
applicable provisions of those laws and
rules were substantially similar to the
FTC’s telemarketing rules.7 Since 1997,
the FTC has amended its telemarketing
rules in light of changing telemarketing
practices and technology.8
As mentioned above, the Prevention
Act requires the Commission to
promulgate, or direct any national
securities exchange or registered
securities association to promulgate,
rules substantially similar to the FTC
rules to prohibit deceptive and other
abusive telemarketing acts or practices.9
In May 2011, Commission staff directed
EDGX to conduct a review of its
telemarketing rule and propose rule
amendments that provide protections
that are at least as strong as those
provided by the FTC’s telemarketing
rules.10 Commission staff had concerns
‘‘that the [Exchange] rules overall have
not kept pace with the FTC’s rules, and
thus may no longer meet the standards
of the [Prevention] Act.’’ 11
The proposed rule change, as directed
by the Commission staff, adopts
provisions in Rule 3.26 that are
substantially similar to the FTC’s
current rules that prohibit deceptive and
other abusive telemarketing acts or
practices as described below.12
Telemarketing Restrictions
The proposed rule change codifies the
telemarketing restrictions in Rule
3.26(a) to provide that no Member or
7 See Telemarketing and Consumer Fraud and
Abuse Prevention Act; Determination that No
Additional Rulemaking Required, Securities
Exchange Act Release No. 38480 (Apr. 7, 1997), 62
FR 18666 (Apr. 16, 1997). The Commission also
determined that some provisions of the FTC’s
telemarketing rules related to areas already
extensively regulated by existing securities laws or
activities not applicable to securities transactions
See id.
8 See, e.g., Federal Trade Commission,
Telemarketing Sales Rule, 73 FR 51164 (Aug. 29,
2008) (amendments to the Telemarketing Sales Rule
relating to prerecorded messages and call
abandonments); and Federal Trade Commission,
Telemarketing Sales Rule, 68 FR 4580 (Jan. 29,
2003) (amendments to the Telemarketing Sales Rule
establishing requirements for sellers and
telemarketers to participate in the national do-notcall registry).
9 See supra note 6.
10 See Letter from Robert W. Cook, Director,
Division of Trading and Markets, Securities and
Exchange Commission, to William O’Brien, Chief
Executive Officer, Direct Edge Holdings LLC, dated
May 12, 2011.
11 Id.
12 The proposed rule change is also substantially
similar to FINRA Rule 3230. See supra note 3.
E:\FR\FM\03MYN1.SGM
03MYN1
]]>Agencies
[Federal Register Volume 77, Number 86 (Thursday, May 3, 2012)]
[Notices]
[Pages 26340-26343]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10642]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66872; File No. SR-FINRA-2012-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment No. 2 and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendments No. 1 and 2, To Amend FINRA Rule 4560 (Short-Interest
Reporting)
April 27, 2012.
I. Introduction
On January 10, 2012, 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
[[Page 26341]]
thereunder,\2\ a proposed rule change to amend FINRA Rule 4560. On
January 20, 2012, FINRA filed Amendment No. 1 to the proposed rule
change (``Amendment No. 1'').\3\ The proposed rule change, as modified
by Amendment No. 1, was published for comment in the Federal Register
on January 30, 2012.\4\ The Commission received one comment letter,
from the Securities Industry and Financial Markets Association
(``SIFMA''), on the proposal.\5\ On April 23, 2012, FINRA responded to
the comments in the SIFMA Letter \6\ and filed Amendment No. 2 to the
proposed rule change (``Amendment No. 2'' and collectively with
Amendment No. 1, the ``Amendments'').\7\ The Commission is publishing
this notice and order to solicit comments on Amendment No. 2 and to
approve the proposed rule change, as modified by the Amendments, on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 was a partial amendment that clarified the
reference to a defined term in SEC Regulation SHO in the rule text
and purpose section of the proposed rule change.
\4\ See Securities Exchange Act Release No. 66220 (January 24,
2012), 77 FR 4599 (January 30, 2012).
\5\ See letter from Melissa MacGregor, Managing Director and
Associate General Counsel, SIFMA, to Elizabeth M. Murphy, Secretary,
Commission, dated February 23, 2012 (``SIFMA Letter'').
\6\ See letter from Racquel L. Russell, Assistant General
Counsel, FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated
April 23, 2012 (``Response Letter'').
\7\ Amendment No. 2 was a partial amendment that deleted the
proposed requirement concerning the adjustment of corporate actions
for short interest reporting purposes. The text of the proposed rule
change and FINRA's Response Letter are available on FINRA's Web site
at https://www.finra.org, at the principal offices of FINRA, on the
Commission's Web site at https://www.sec.gov, and at the Commission's
Public Reference Room.
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II. Description of the Proposal
FINRA has proposed to amend FINRA Rule 4560. FINRA Rule 4560 (the
``Rule'') requires each FINRA member to maintain a record of total
short positions in all customer and proprietary firm accounts in all
equity securities (other than Restricted Equity Securities as defined
in Rule 6420) and regularly report such information to FINRA in the
manner prescribed by FINRA. The Rule generally provides that the short
positions to be recorded and reported are those resulting from ``short
sales'' as that term is defined in Rule 200(a) of Regulation SHO.\8\
FINRA has proposed to amend the Rule to clarify members' recording and
reporting obligations and to delete several exceptions to the Rule.
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\8\ Rule 200 of SEC Regulation SHO provides that ``short sale''
means ``any sale of a security which the seller does not own or any
sale which is consummated by the delivery of a security borrowed by,
or for the account of, the seller.'' See Rule 200(a) of SEC
Regulation SHO, 17 CFR 242.200. SEC Rule 200 further provides, among
other things, that a person is deemed to own a security if: (a) The
person or his agent has title to it; or (b) The person has
purchased, or has entered into an unconditional contract, binding on
both parties thereto, to purchase it, but has not yet received it;
or (c) The person owns a security convertible into or exchangeable
for it and has tendered such security for conversion or exchange; or
(d) The person has an option to purchase or acquire it and has
exercised such option; or (e) The person has rights or warrants to
subscribe to it and has exercised such rights or warrants; or (f)
The person holds a security futures contract to purchase it and has
received notice that the position will be physically settled and is
irrevocably bound to receive the underlying security. See Rule
200(b) of SEC Regulation SHO.
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First, FINRA has proposed to codify interpretive guidance
previously issued by the Intermarket Surveillance Group (ISG) that
instructed members to report ``gross'' short positions existing in each
proprietary and customer account (rather than net positions across
accounts).\9\ Thus, the proposed rule change provides that members must
report all gross short positions existing in each firm or customer
account, including the account of a broker-dealer, that resulted from a
``short sale'' as that term is defined in Rule 200(a) of Regulation
SHO, as well as where the sale transaction that caused the short
position was marked ``long,'' consistent with SEC Regulation SHO, due
to the firm's or the customer's net long position at the time of the
transaction (e.g., aggregation units).
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\9\ See Intermarket Surveillance Group, Consolidated Reporting
of Short Interest Positions, ISG Regulatory Memorandum 95-01 (March
6, 1995).
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Second, FINRA has proposed to clarify that members' short interest
reports must reflect only those short positions that have settled or
reached settlement date by the close of the reporting settlement date
designated by FINRA. Therefore, short positions resulting from short
sales that were effected but have not reached settlement date by the
given designated reporting settlement date, should not be included in a
member's short interest report for that reporting cycle. Of course,
short interest positions resulting from short sales that reached the
expected settlement date, but failed to settle (i.e., ``fails''), must
be included.
Third, FINRA has proposed to clarify that members must reflect
company-related actions in their short-interest reports adjusted as of
the ex-date of the corporate action (and if no ex-date is declared by a
self-regulatory organization (``SRO''), then the payment date).\10\
Therefore, for the purposes of short interest reporting, members must
reflect corporate actions (e.g., a reverse or forward split) that
impact the total number of shares in the short position in their short
interest report for a reporting cycle if the ex-date of the corporate
action occurs by the reporting settlement date designated by FINRA for
such cycle (even if payment of the distribution is not received until
after the designated reporting settlement date).
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\10\ The ex-date is the date on or after which a security is
traded without a specific dividend or distribution. The ex-date also
is the date that DTCC uses to determine who is entitled to the
distribution. The payable date is the date that the dividend is sent
to the record owner of the security. See e.g., Regulatory Notice 00-
54 (August 2000).
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Finally, consistent with discussions with the ISG, FINRA has
proposed amendments to delete certain existing exceptions to the
Rule.\11\ The Rule provides five exceptions, including an exception for
stabilizing activity, domestic arbitrage and international arbitrage.
FINRA, in cooperation with the ISG Short Interest Working Group (``ISG
Working Group''), determined that the transactions addressed in these
three exceptions result in the type of short positions that would be of
interest to regulators and the public, and therefore, determined that
these exceptions no longer are appropriate.\12\
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\11\ FINRA has worked closely with other SRO members of the ISG,
a group that includes representatives of every U.S. SRO, to address
problems that reach across marketplaces. Each ISG member adopted
consistent short-interest reporting rules to enhance surveillance
capabilities, augment market transparency, enable investors to make
more informed decisions, and provide greater disclosure for
regulatory purposes.
\12\ FINRA and the ISG Working Group determined that the
remaining two exceptions continue to be appropriate. Specifically,
the exception for sales for an account in which the person has an
interest, owns the security and intends to deliver it as soon as is
possible (which FINRA is retaining) is intended to address
circumstances where there may be a brief delay in delivery but the
sale is a long sale, i.e., exercise of a right, option, or warrant.
In addition, the over-allotment exception (which FINRA also is
retaining) addresses the narrow circumstance where the underwriter
has not received shares and results in a short position for a very
brief duration.
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FINRA has stated that it believes that the proposed amendments will
remove confusion regarding the operation of the Rule and help
facilitate the availability to the public and regulators of accurate
and complete short interest information.
FINRA has represented that it will announce the effective date of
the proposed rule change in a Regulatory Notice to be published no
later than 120 days following Commission approval. FINRA has also
represented that the effective date will be no more than 365 days
following Commission approval.
[[Page 26342]]
III. Summary of Comments and FINRA's Response
In the SIFMA Letter, the commenter generally supports the proposal
but raised concerns with one aspect of the proposal. In the SIFMA
Letter, the commenter also recommends other changes to the existing
short interest reporting requirements. First, the commenter supports
(1) the reporting of short positions based on gross short positions in
all customer and proprietary accounts, (2) the deletion of certain
existing exceptions to short interest reporting for stabilizing
activity, domestic arbitrage and international arbitrage, and (3) the
reporting of short positions that have settled or reached settlement
date by the close of the reporting settlement date designated by FINRA.
The commenter, however, opposes the proposed requirement that short
interest reports reflect corporate actions adjusted as of the ex-date
of the corporate action (and if no ex-date is declared by an SRO, then
the payment date of a corporate action). The commenter argues that such
requirement is inconsistent with other proposed requirements, is
inconsistent with how firms maintain their stock records and how firms'
systems capture short interest position information, and would require
extensive programming at significant cost.
In the Response Letter, FINRA stated that it would amend the
proposed rule change to delete the adjustment of corporate actions
aspect of the proposal to provide FINRA additional time to gather
further information on the issue and formulate a regulatory approach.
FINRA also stated that it would separately amend Rule 4560 at a future
date to propose a uniform requirement regarding the adjustment of
corporate actions for short interest reporting purposes.
Additionally, in the SIFMA Letter, the commenter recommends changes
to the existing short interest reporting requirements, including
narrowing the exception from the reporting requirements for ``owned''
securities. FINRA declined to amend the proposal to make the requested
changes suggested by SIFMA. In the Response Letter, FINRA stated that
the additional comments raised by SIFMA relate to existing requirements
of the Rule and not the current proposal. FINRA noted that SIFMA's
recommendations are not germane to the consideration of the merits of
the proposal or relevant to whether the proposal is consistent with the
Exchange Act.
IV. Discussion and Commission's Findings
After careful review of the proposed rule change, the comments
received and FINRA's Response Letter and the Amendments, the Commission
finds that the proposed rule change, as modified by the Amendments, is
consistent with the requirements of the Act, and the rules and
regulations thereunder that are applicable to a national securities
association.\13\ In particular, the Commission believes that the
proposed rule change is consistent with the provisions of Section
15A(b)(6) of the Act, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest. More
specifically, the Commission believes that the proposed rule change to
amend FINRA Rule 4560 will promote consistency and accuracy in the
calculation and reporting of short interest positions by members. The
Commission believes that FINRA has adequately responded to the concerns
the SIFMA Letter. In response to SIFMA's comments concerning the
adjustment of corporate actions for short interest reporting purposes,
FINRA amended its proposal to delete this aspect of the proposal in
order to allow additional time to gather further information. In
addition, FINRA has suitably explained its reasons for declining to
amend the proposed rule change by making the additional changes
recommended by SIFMA.
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\13\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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V. Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act \14\ for approving the proposed rule change, as modified by the
Amendments, prior to the 30th day after publication of Amendment No. 2
in the Federal Register. In response to certain concerns raised by
SIFMA, FINRA proposed in Amendment No. 2 to delete the proposed
requirement that short interest reports reflect corporate actions
adjusted as of the ex-date of the corporate action (and if no ex-date
is declared by a self-regulatory organization, then the payment date of
a corporate action). FINRA proposed Amendment No. 2 to allow FINRA
additional time to gather further information on the issue of
adjustment of corporate actions for short interest reporting purposes.
Accordingly, the Commission finds that good cause exists to approve the
proposal, as modified by the Amendments, on an accelerated basis.
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\14\ 15 U.S.C. 78s(b)(2).
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VI. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether Amendment No. 2
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-2012-001 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-2012-001. 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-2012-001 and
[[Page 26343]]
should be submitted on or before May 24, 2012.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (File No. SR-FINRA-2012-001), as
modified by the Amendments, be and hereby is approved on an accelerated
basis.
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\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-10642 Filed 5-2-12; 8:45 am]
BILLING CODE 8011-01-P
