Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend TRACE Reporting Rules Relating to Transfers of TRACE-Eligible Securities To Create or Redeem Instruments Such as ETFs, 43885-43887 [2012-17444]

Download as PDF Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.12 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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: printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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–BX– 2012–051 and should be submitted on or before August 16, 2012. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to amend FINRA Rule 6730(e) to expressly exclude from the Trade Reporting and Compliance Engine (‘‘TRACE’’) trade reporting requirements transfers of TRACE– Eligible Securities for the sole purpose of creating or redeeming instruments such as exchange-traded funds (‘‘ETFs’’). The text of the proposed rule change 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. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. [FR Doc. 2012–18215 Filed 7–25–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–BX–2012–051 on the subject line. TKELLEY on DSK3SPTVN1PROD with NOTICES 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–BX–2012–051. 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 12 15 [Release No. 34–67427; File No. SR–FINRA– 2012–034] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend TRACE Reporting Rules Relating to Transfers of TRACE–Eligible Securities To Create or Redeem Instruments Such as ETFs July 12, 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 July 11, 2012, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change, as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comment on the proposed rule change from interested persons. U.S.C. 78s(b)(3)(A)(ii). VerDate Mar<15>2010 16:42 Jul 25, 2012 Jkt 226001 43885 PO 00000 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 17 CFR 240.19b–4(f)(6). 1 15 Frm 00081 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Under the Rule 6700 Series (the TRACE rules), members are required to report transactions in debt securities that are TRACE–Eligible Securities as defined in Rule 6710(a) to FINRA unless they fall within an express exception listed in Rule 6730(e). Certain transactions and transfers are not reported to FINRA (e.g., trades executed and reported through an exchange and transfers made pursuant to an asset purchase agreement that has been approved by a bankruptcy court). Members must have policies and procedures and internal controls in place to determine whether a transaction qualifies for an exception under the TRACE rules. FINRA proposes to amend Rule 6730(e) to provide that transfers of TRACE–Eligible Securities for the sole purpose of creating or redeeming an instrument that evidences ownership or otherwise tracks the underlying securities transferred, such as an ETF, shall be excluded expressly from the TRACE reporting requirements. The proposed amendment to Rule 6730(e) is similar to an exclusion for such E:\FR\FM\26JYN1.SGM 26JYN1 43886 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES transfers in equity securities incorporated in FINRA equity trade reporting rules in 2011.4 For example, a member broker-dealer that is an ‘‘authorized participant’’ of an ETF on behalf of a customer transfers TRACE–Eligible Securities to an ETF and in return receives ETF creation units. Under the proposed rule change, the transfers of the TRACE–Eligible Securities from the broker-dealer to the ETF would not be reported to TRACE.5 (Similarly, the transfer of the ETF creation units to the broker-dealer would not be reported.) In contrast, FINRA notes that purchases and sales of TRACE–Eligible Securities that are to be transferred for the purposes of creating or redeeming instruments such as ETFs (or a creation unit thereof) and subsequent purchases and sales of the ETF or a similar instrument in the secondary market are not subject to an exclusion. Such purchases and sales involving TRACE– Eligible Securities must be reported to FINRA in accordance with the Rule 6700 Series. Additionally, purchases and sales of the underlying TRACE– Eligible Securities in order to track the performance of an instrument such as an ETF, without actually creating the instrument, are reportable events and must be reported to TRACE. As noted in Item 2 of this filing, FINRA has filed the proposed rule change for immediate effectiveness. The implementation date will be 30 days after the date of the filing. 4 See Securities Exchange Act Release No. 65025 (August 3, 2011), 76 FR 48937 (August 9, 2011) (SEC order approving SR–FINRA–2011–027, amending FINRA Rules 6282(i)(1), 6380A(e)(1), 6380B (e)(1) and 6622(e)(1)) and Regulatory Notice 11–40 (August 2011) (2011 Equity Trade Reporting Filing). The proposed rule change also codifies interpretive guidance that was published in 2003 regarding transfers of TRACE–Eligible Securities for such purposes. See Letter dated March 18, 2003, to Alice Yau, Vice President, Compliance, J.P. Morgan Securities from Sharon Zackula, Office of General Counsel, FINRA (f/k/a the National Association of Securities Dealers). 5 FINRA notes that the proposed exception would apply irrespective of whether the member is acting as agent, principal or riskless principal in the creation process. Thus, if the broker-dealer that is an authorized participant in the above example is acting as riskless principal on behalf of its customer, the immediate subsequent transfer of the ETF creation units from the authorized participant to its customer also would not be reportable. Similarly, if a broker-dealer that is an authorized participant is acting as riskless principal on behalf of a customer that redeems an ETF creation unit, neither the transfer of the ETF creation unit from the broker-dealer to the ETF in return for TRACE– Eligible Securities, nor the immediate subsequent transfer of such TRACE–Eligible Securities to the customer would be reportable. This is consistent with interpretive guidance relating to the 2011 Equity Trade Reporting Filing. See Regulatory Notice 11–40. VerDate Mar<15>2010 16:42 Jul 25, 2012 Jkt 226001 2. Statutory Basis IV. Solicitation of Comments FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,6 which requires, among other things, that FINRA rules must 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. FINRA believes that the proposed rule change will clarify members’ obligations with respect to the reporting of transfers of TRACE–Eligible Securities to create or redeem instruments such as ETFs under the Rule 6700 Series. In addition, the proposed rule change is consistent with an exclusion for such transfers in equity securities incorporated in FINRA equity trade reporting rules in 2011. 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: B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act7 and Rule 19b– 4(f)(6) thereunder.8 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. PO 00000 6 15 U.S.C. 78o-3(b)(6). U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b–4(f)(6). 7 15 Frm 00082 Fmt 4703 Sfmt 4703 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–2012–034 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–2012–034. 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 10:00 a.m. and 3:00 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– 2012–034 and should be submitted on or before August 16, 2012. E:\FR\FM\26JYN1.SGM 26JYN1 Federal Register / Vol. 77, No. 144 / Thursday, July 26, 2012 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–17444 Filed 7–25–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67476; File No. SR–BYX– 2012–014] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by BATS Y-Exchange, Inc. To Amend BYX Rules Related to Telemarketing July 20, 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 July 6, 2012, BATS Y–Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) 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 Exchange has designated this proposal as a ‘‘noncontroversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6)(iii) thereunder,4 which renders it effective upon filing with the Commission. 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 adopt BYX Rule 3.23 ‘‘Telemarketing’’, 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.5 The text of the proposed rule change is available at the Exchange’s Web site at https://www.batstrading.com, at the principal office of the Exchange, on the 9 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6)(iii). 5 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. 34–66279 (January 30, 2012), 77 FR 5611 (February 3, 2012) (SR–FINRA–2011–059) (approval order of proposed rule change to adopt telemarketing rule). TKELLEY on DSK3SPTVN1PROD with NOTICES 1 15 VerDate Mar<15>2010 16:42 Jul 25, 2012 Jkt 226001 Commission’s Web site at https:// www.sec.gov, and at the Commission’s Public Reference Room. 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 parts 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 3.23, ‘‘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 3.23 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 BYX to enact these telemarketing rules in accordance with the Telemarketing Consumer Fraud and Abuse Prevention Act of 1994 (‘‘Prevention Act’’).6 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 7 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.8 In 1997, the Commission determined that telemarketing rules promulgated and expected to be promulgated by selfregulatory organizations, together with the other rules of the self- regulatory 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). 8 15 U.S.C. 6102. PO 00000 6 15 7 16 Frm 00083 Fmt 4703 Sfmt 4703 43887 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.9 Since 1997, the FTC has amended its telemarketing rules in light of changing telemarketing practices and technology.10 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.11 In May 2011, Commission staff directed BYX 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.12 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.’’ 13 The proposed rule change, as directed by the Commission staff, adopts provisions in Rule 3.23 that are substantially similar to the FTC’s current rules that prohibit deceptive and other abusive telemarketing acts or practices as described below.14 Telemarketing Restrictions The proposed rule change codifies the telemarketing restrictions in Rule 3.23(a) to provide that no Member or 9 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, 1996). 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. 10 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). 11 See supra note 7. 12 See Letter from Robert W. Cook, Director, Division of Trading and Markets, Securities and Exchange Commission, to Joe Ratterman, President and Chief Executive Officer, BATS Global Markets, Inc., dated May 12, 2011. 13 Id. 14 The proposed rule change is also substantially similar to FINRA Rule 3230. See supra note 3. E:\FR\FM\26JYN1.SGM 26JYN1

Agencies

[Federal Register Volume 77, Number 144 (Thursday, July 26, 2012)]
[Notices]
[Pages 43885-43887]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17444]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67427; File No. SR-FINRA-2012-034]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend TRACE Reporting Rules Relating to 
Transfers of TRACE-Eligible Securities To Create or Redeem Instruments 
Such as ETFs

July 12, 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 July 11, 2012, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change, as described in Items I, II, 
and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. The Commission is publishing this notice to 
solicit comment on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6730(e) to expressly exclude 
from the Trade Reporting and Compliance Engine (``TRACE'') trade 
reporting requirements transfers of TRACE-Eligible Securities for the 
sole purpose of creating or redeeming instruments such as exchange-
traded funds (``ETFs'').
    The text of the proposed rule change 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 Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA 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. FINRA 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Under the Rule 6700 Series (the TRACE rules), members are required 
to report transactions in debt securities that are TRACE-Eligible 
Securities as defined in Rule 6710(a) to FINRA unless they fall within 
an express exception listed in Rule 6730(e). Certain transactions and 
transfers are not reported to FINRA (e.g., trades executed and reported 
through an exchange and transfers made pursuant to an asset purchase 
agreement that has been approved by a bankruptcy court). Members must 
have policies and procedures and internal controls in place to 
determine whether a transaction qualifies for an exception under the 
TRACE rules.
    FINRA proposes to amend Rule 6730(e) to provide that transfers of 
TRACE-Eligible Securities for the sole purpose of creating or redeeming 
an instrument that evidences ownership or otherwise tracks the 
underlying securities transferred, such as an ETF, shall be excluded 
expressly from the TRACE reporting requirements. The proposed amendment 
to Rule 6730(e) is similar to an exclusion for such

[[Page 43886]]

transfers in equity securities incorporated in FINRA equity trade 
reporting rules in 2011.\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 65025 (August 3, 
2011), 76 FR 48937 (August 9, 2011) (SEC order approving SR-FINRA-
2011-027, amending FINRA Rules 6282(i)(1), 6380A(e)(1), 6380B (e)(1) 
and 6622(e)(1)) and Regulatory Notice 11-40 (August 2011) (2011 
Equity Trade Reporting Filing). The proposed rule change also 
codifies interpretive guidance that was published in 2003 regarding 
transfers of TRACE-Eligible Securities for such purposes. See Letter 
dated March 18, 2003, to Alice Yau, Vice President, Compliance, J.P. 
Morgan Securities from Sharon Zackula, Office of General Counsel, 
FINRA (f/k/a the National Association of Securities Dealers).
---------------------------------------------------------------------------

    For example, a member broker-dealer that is an ``authorized 
participant'' of an ETF on behalf of a customer transfers TRACE-
Eligible Securities to an ETF and in return receives ETF creation 
units. Under the proposed rule change, the transfers of the TRACE-
Eligible Securities from the broker-dealer to the ETF would not be 
reported to TRACE.\5\ (Similarly, the transfer of the ETF creation 
units to the broker-dealer would not be reported.)
---------------------------------------------------------------------------

    \5\ FINRA notes that the proposed exception would apply 
irrespective of whether the member is acting as agent, principal or 
riskless principal in the creation process. Thus, if the broker-
dealer that is an authorized participant in the above example is 
acting as riskless principal on behalf of its customer, the 
immediate subsequent transfer of the ETF creation units from the 
authorized participant to its customer also would not be reportable. 
Similarly, if a broker-dealer that is an authorized participant is 
acting as riskless principal on behalf of a customer that redeems an 
ETF creation unit, neither the transfer of the ETF creation unit 
from the broker-dealer to the ETF in return for TRACE-Eligible 
Securities, nor the immediate subsequent transfer of such TRACE-
Eligible Securities to the customer would be reportable. This is 
consistent with interpretive guidance relating to the 2011 Equity 
Trade Reporting Filing. See Regulatory Notice 11-40.
---------------------------------------------------------------------------

    In contrast, FINRA notes that purchases and sales of TRACE-Eligible 
Securities that are to be transferred for the purposes of creating or 
redeeming instruments such as ETFs (or a creation unit thereof) and 
subsequent purchases and sales of the ETF or a similar instrument in 
the secondary market are not subject to an exclusion. Such purchases 
and sales involving TRACE-Eligible Securities must be reported to FINRA 
in accordance with the Rule 6700 Series. Additionally, purchases and 
sales of the underlying TRACE-Eligible Securities in order to track the 
performance of an instrument such as an ETF, without actually creating 
the instrument, are reportable events and must be reported to TRACE.
    As noted in Item 2 of this filing, FINRA has filed the proposed 
rule change for immediate effectiveness. The implementation date will 
be 30 days after the date of the filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ which requires, among 
other things, that FINRA rules must 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. FINRA believes that the proposed rule change will 
clarify members' obligations with respect to the reporting of transfers 
of TRACE-Eligible Securities to create or redeem instruments such as 
ETFs under the Rule 6700 Series. In addition, the proposed rule change 
is consistent with an exclusion for such transfers in equity securities 
incorporated in FINRA equity trade reporting rules in 2011.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others
    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act\7\ and Rule 19b-
4(f)(6) thereunder.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2012-034 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-2012-034. 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 
10:00 a.m. and 3:00 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-2012-034 and should be 
submitted on or before August 16, 2012.


[[Page 43887]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17444 Filed 7-25-12; 8:45 am]
BILLING CODE 8011-01-P
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