Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend FINRA Rule 0150 to Apply FINRA Rule 2121 and its Supplementary Material .01 and .02 to Transactions in Exempted Securities That Are Government Securities, 60416-60419 [2015-25329]
Download as PDF
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Federal Register / Vol. 80, No. 193 / Tuesday, October 6, 2015 / Notices
plant pest provisions of the PPA or to
regulatory requirements when APHIS
determines that it is unlikely to pose a
plant pest risk.
The EPA under the Federal
Insecticide, Fungicide, and Rodenticide
Act (FIFRA) and the FD&C Act regulates
the sale and distribution of all
pesticides, including those produced
through genetic engineering. This
includes microorganisms, biochemicals
isolated from organisms, and plantincorporated protectants (PIPs), a type
of pesticide intended to be produced
and used in living plants. Under the
Toxic Substances Control Act (TSCA),
EPA has oversight responsibilities for a
wide range of commercial, industrial,
and consumer applications of microbial
biotechnology. New chemicals
produced through those microbial
biotechnology applications are subject
to premanufacturing review under
TSCA.
tkelley on DSK3SPTVN1PROD with NOTICES
Questions
Keeping in mind the principles of the
regulation of the products of
biotechnology as articulated in the CF
and the 1992 update to the CF, as well
as the objectives of the July 2, 2015 EOP
memorandum, respondents are welcome
to address one or more of the following
questions in regards to the proposed
update to the CF and the development
of the long-term strategy. Respondents
are asked to indicate to which question
responses are targeted.
1. What additional clarification could
be provided regarding which
biotechnology product areas are within
the statutory authority and
responsibility of each agency?
2. What additional clarification could
be provided regarding the roles that
each agency plays for different
biotechnology product areas,
particularly for those product areas that
fall within the responsibility of multiple
agencies, and how those roles relate to
each other in the course of a regulatory
assessment?
3. How can Federal agencies improve
their communication to consumers,
industry, and other stakeholders
regarding the authorities, practices, and
bases for decision-making used to
ensure the safety of the products of
biotechnology?
4. Are there relevant data and
information, including case studies, that
can inform the update to the CF or the
development of the long-term strategy
regarding how to improve the
transparency, coordination,
predictability, and efficiency of the
regulatory system for the products of
biotechnology?
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18:31 Oct 05, 2015
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5. Are there specific issues that
should be addressed in the update of the
CF or in the long-term strategy in order
to increase the transparency,
coordination, predictability, and
efficiency of the regulatory system for
the products of biotechnology?
References
These references are available
electronically at https://
www.regulations.gov. We have verified
the Web site addresses, but we are not
responsible for any subsequent changes
to Web sites after this document
publishes in the Federal Register.
1. Executive Office of the President. Office of
Science and Technology Policy, Office of
Management and Budget, United States
Trade Representative, and Council on
Environmental Quality. Modernizing the
Regulatory System for Biotechnology
Products, July 2, 2015. Available online
at: https://www.whitehouse.gov/sites/
default/files/microsites/ostp/
modernizing_the_reg_system_for_
biotech_products_memo_final.pdf.
2. Executive Office of the President. Office of
Science and Technology Policy.
Coordinated Framework for Regulation
of Biotechnology. 51 FR 23302, June 26,
1986. Available online at: https://
www.aphis.usda.gov/brs/fedregister/
coordinated_framework.pdf
3. Executive Office of the President. Office of
Science and Technology Policy. Exercise
of Federal Oversight Within Scope of
Statutory Authority: Planned
Introductions of Biotechnology Products
Into the Environment. 57 FR 6753,
February 27, 1992. Available online at:
https://www.whitehouse.gov/sites/
default/files/microsites/ostp/57_fed_reg_
6753__1992.pdf
Ted Wackler,
Deputy Chief of Staff and Assistant Director.
[FR Doc. 2015–25325 Filed 10–5–15; 8:45 am]
BILLING CODE 3270–F5–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, October 8, 2015 at 2:00
p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or her designee, has
certified that, in her opinion, one or
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more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matter at the Closed Meeting.
Commissioner Stein, as duty officer,
voted to consider the items listed for the
Closed Meeting in closed session.
The subject matter of the Closed
Meeting will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings;
Adjudicatory matters; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact the Office of the Secretary at
(202) 551–5400.
Dated: October 1, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015–25451 Filed 10–2–15; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76059; File No. SR–FINRA–
2015–033]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Amend
FINRA Rule 0150 to Apply FINRA Rule
2121 and its Supplementary Material
.01 and .02 to Transactions in
Exempted Securities That Are
Government Securities
September 30, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 17, 2015, Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been substantially prepared by
FINRA. The Commission is publishing
this notice to solicit comments on the
proposed rule change from interested
persons.
1 15
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
06OCN1
Federal Register / Vol. 80, No. 193 / Tuesday, October 6, 2015 / Notices
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
FINRA is proposing to amend FINRA
Rule 0150, Application of Rules to
Exempted Securities Except Municipal
Securities, so that FINRA Rule 2121 and
its Supplementary Material .01 and .02,
which govern mark-ups and
commissions, will apply to transactions
in exempted securities that are
government securities.
Below is the text of the proposed rule
change. Proposed new language is in
italics.
*
*
*
*
*
0100. GENERAL STANDARDS
*
*
*
*
*
0150. Application of Rules to Exempted
Securities Except Municipal Securities
(a) through (c) No Change.
(d) FINRA Rule 2121 is applicable to
transactions in, and business activities
relating to, exempted securities that are
government securities.
*
*
*
*
*
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
Statutory Basis for, the Proposed Rule
Change
tkelley on DSK3SPTVN1PROD with NOTICES
1. Purpose
Rule 0150(c) enumerates the FINRA
rules and the rules of the National
Association of Securities Dealers
(‘‘NASD’’) that apply to transactions in,
and business activities relating to,
exempted securities, except municipal
securities, conducted by members and
associated persons.3 Currently, this rule
3 The terms exempted securities, government
securities, and municipal securities are defined in
Sections 3(a)(12), 3(a)(42), and 3(a)(29) of the Act,
respectively. The current FINRA rulebook consists
of: (1) FINRA Rules; (2) NASD Rules; and (3) rules
incorporated from NYSE (‘‘Incorporated NYSE
Rules’’) (together, the NASD Rules and Incorporated
NYSE Rules are referred to as the ‘‘Transitional
Rulebook’’). While the NASD Rules generally apply
to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that
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does not include Rule 2121,
Supplementary Material .01, or
Supplementary Material .02, which
govern mark-ups and commissions
(‘‘mark-up rule’’).4
The basis for not applying certain
FINRA and NASD rules, including the
mark-up rules, to exempted securities
(except municipal securities) is largely
historical. Prior to 1993, there were
statutory limitations on NASD’s ability
to apply sales practice rules, including
the mark-up rules, to transactions in
exempted securities. Specifically,
Section 15A(f) of the Act imposed
limitations on the authority of registered
securities associations over transactions
by a registered broker or dealer in an
exempted security.5 This provision was
eliminated as part of the Government
Securities Act Amendments of 1993
(‘‘GSAA’’).6 Following the GSAA, the
NASD proposed to apply certain NASD
rules to exempted securities other than
to municipal securities, although it did
not propose to apply the mark-up rule
then in effect (NASD Rule 2440 and IM–
2440–1) to such securities.7 Rather, the
are also members of the NYSE (‘‘Dual Members’’).
The FINRA Rules apply to all FINRA members,
unless such rules have a more limited application
by their terms. For more information about the
rulebook consolidation process, see Information
Notice, March 12, 2008 (Rulebook Consolidation
Process).
4 NASD Rule 2440, IM–2440–1, and IM–2440–2
were recently moved to the FINRA rules without
any substantive changes, becoming Rule 2121,
Supplementary Material .01, and Supplementary
Material .02, respectively. See Securities Exchange
Act Release No. 72208 (May 21, 2014), 79 FR 30675
(May 28, 2014) (Notice of Filing and Immediate
Effectiveness of File No. SR–FINRA–2014–023).
5 Prior to 1986, Section 15A(f) provided that
‘‘[n]othing in this section shall be construed to
apply with respect to any transaction by a broker
or dealer in any exempted security.’’ See 15 U.S.C.
78o–3 (historical notes).
In 1986, the Government Securities Act of 1986
(‘‘GSA’’) was enacted, which established a federal
system for the regulation of brokers and dealers
who transact business in government securities and
certain other exempted securities. See Government
Securities Act of 1986, Pub. L. 99–571, 100 Stat.
3208 (1986). The GSA, among other things,
amended Section 15A(f) to provide that, ‘‘[e]xcept
as provided in paragraph (2) of this subsection,
nothing in this section shall be construed to apply
with respect to any transaction by a registered
broker or dealer in any exempted security.’’ See
Government Securities Act of 1986, Pub. L. 99–571,
§ 102(g)(1), 100 Stat. 3208 (1986). Paragraph (f)(2),
which was added by the GSA, provided that a
registered securities association could adopt and
implement rules with respect to exempted
securities to (1) enforce members’ compliance with
the relevant provisions of the Act and rules and
regulations thereunder, (2) adequately discipline its
members, (3) inspect members’ books and records,
and (4) prohibit fraudulent, misleading, deceptive
and false advertising. Id.
6 See Government Securities Act Amendments of
1993, Pub. L. 103–202, § 106(b)(1), 107 Stat. 2344
(1993).
7 See Securities Exchange Act Release No. 37588
(August 20, 1996), 61 FR 44100 (August 27, 1996)
(Order Approving File No. SR–NASD–95–39).
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60417
NASD stated that it intended to review
the specific application of these rules to
the government securities market and
that it was developing an interpretation
of the mark-up rule with respect to
exempted securities and other debt
securities.8 The NASD further stated
that actions for conduct generally
encompassed by the NASD mark-up
rule in the government securities market
could be brought under NASD Rule
2110 (Standards of Commercial Honor
and Principles of Trade).9 In 2001,
NASD adopted Rule 0116 (now FINRA
Rule 0150), which set forth the NASD
rules that would apply to transactions in
exempted securities, except municipal
securities.10 In 2007, the SEC approved
IM–2440–2, which set forth a mark-up
policy for transactions in debt
securities, except municipal
securities.11
FINRA is now proposing to amend
Rule 0150 so that Rule 2121, along with
Supplementary Material .01 and .02,
would apply to transactions in, and
business activities relating to, exempted
securities that are government
securities, as defined in Section 3(a)(42)
of the Exchange Act.12 FINRA believes
that amending Rule 0150 to apply the
mark-up rule to transactions in
government securities is consistent with
the GSAA. FINRA also believes that
amending Rule 0150 in this manner is
consistent with NASD’s application of
certain of its rules, following the GSAA,
to exempted securities except for
municipal securities.13
FINRA also notes the regulatory
benefits of applying the mark-up rule to
8 See
id. at 44104–44105 nn.3–4.
id. at 44113 (noting that Amendment No. 5
to the proposal ‘‘clarifies and reminds members that
[NASD] rules requiring members to adhere to just
and equitable principles of trade apply to conduct
that may violate the Fair Prices and Commissions
provision and the Mark-Up Policy.’’)
NASD Rule 2110 has since been adopted as
FINRA Rule 2010. See Securities Exchange Release
No. 58643 (September 25, 2008), 73 FR 57174
(October 1, 2008) (Order Approving File No. SR–
FINRA–2008–028).
10 See Securities Exchange Act Release No. 44631
(July 31, 2001), 66 FR 41283 (August 7, 2001)
(Order Approving File No. SR–NASD–00–38).
11 See Securities Exchange Act Release No. 55638
(April 16, 2007), 72 FR 20150 (April 23, 2007)
(Order Approving File No. SR–NASD–2003–141).
As noted above, NASD Rule 2440, IM–2440–1, and
IM–2440–2 were recently moved to the FINRA
rulebook without any substantive changes,
becoming FINRA Rule 2121, Supplementary
Material .01, and Supplementary Material .02,
respectively. See supra note 4.
12 This includes U.S. Treasury securities, as
defined in FINRA Rule 6710(p). As defined in Rule
6710(p), a U.S. Treasury Security means a ‘‘security
issued by the U.S. Department of the Treasury to
fund the operations of the federal government or to
retire such outstanding securities.’’
13 See Securities Exchange Act Release No. 37588
(August 20, 1996), 61 FR 44100 (August 27, 1996)
(Order Approving File No. SR–NASD–95–39).
9 See
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Federal Register / Vol. 80, No. 193 / Tuesday, October 6, 2015 / Notices
government securities. Under current
rules, if FINRA staff wishes to bring a
case alleging excessive mark-ups, markdowns or commissions in transactions
in exempted securities other than
municipal securities, such as agency
debt securities or U.S. Treasury
securities, FINRA must bring the case
under Rule 2010. Amending Rule 0150
to apply the mark-up rule to
transactions and business activities
relating to government securities would
provide a specific cause of action under
which conduct involving such securities
could be regulated, in addition to the
more general provisions of Rule 2010.
As such, this proposed rule change
would clearly signal to members that
conduct relating to mark-ups and
commissions in the market for
government securities directly
implicates the mark-up rule, in addition
to Rule 2010. FINRA also notes that the
mark-up rule provides specific criteria
by which members should assess debt
mark-ups and mark-downs.14 Amending
Rule 0150 to apply these standards to
transactions in government securities
would provide both members and
FINRA staff with clearer standards by
which to measure the propriety of markups, mark-downs and commissions in
such transactions.
As a practical matter, FINRA believes
that amending Rule 0150 to apply to
government securities would have little
impact upon members. Rule 2010
already governs transactions in
government securities, which would
include instances of improper or
excessive mark-ups, mark-downs or
commissions. Although this proposal
would apply the more specific
provisions of the mark-up rule to
transactions involving government
securities, these provisions are already
applicable to corporate debt securities.
Member firms that currently engage in
transactions in corporate debt will
therefore already be familiar with the
application of the mark-up rule, and
FINRA believes that most firms apply
substantially similar standards to
transactions in all fixed income
securities.
FINRA also does not believe that this
proposal will impact the reporting or
surveillance of transactions in
government securities. FINRA currently
requires members to report transactions
in many government securities (i.e.,
agency debentures and agency assetbacked securities) to its Trade Reporting
and Compliance Engine (‘‘TRACE’’), and
actively surveils the markets in such
14 See Rule 2121, Supplementary Material .02
(Additional Mark-Up Policy For Transactions in
Debt Securities, Except Municipal Securities).
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18:31 Oct 05, 2015
Jkt 238001
securities. For those government
securities that are not TRACE-eligible,
such as U.S. Treasury securities, any
review of transactions in such securities
pursuant to the mark-up rule would
occur as it does today, e.g., through a
manual process that is part of FINRA’s
regular examination cycle.
FINRA notes that, following the end
of the comment period for this proposal,
it will consult with the U.S. Department
of the Treasury with respect to the
application of the mark-up rule to
transactions in government securities
that are U.S. Treasury securities.15
If the Commission approves the
proposed rule change, the proposed rule
change will be effective upon
Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,16 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, and Section 15A(b)(9) of
the Act,17 which requires that FINRA
rules not impose any burden on
competition that is not necessary or
appropriate. FINRA believes that
amending Rule 0150 so that the markup rule will apply to government
securities is consistent with the Act,
because government securities can be
subject to instances of excessive markups, and investors in government
securities will therefore benefit from the
specific application of the mark-up rule
to that market. FINRA also believes that
this proposal is consistent with both the
GSAA and with NASD’s subsequent
application of certain of its rules to
exempted securities except for
municipal securities. FINRA also
believes that the proposed rule change
is consistent with the Act as it will
provide FINRA with specific authority
over instances of excessive mark-ups,
mark-downs or commissions relating to
government securities that may be
15 FINRA also notes that, pursuant to Section
19(b)(5) of the Act, the SEC ‘‘shall consult with and
consider the views of the Secretary of the Treasury
prior to approving a proposed rule filed by a
registered securities association that primarily
concerns conduct related to transactions in
government securities, except where the
Commission determines that an emergency exists
requiring expeditious or summary action and
publishes its reasons therefor.’’ See 15 U.S.C.
78s(b)(5).
16 15 U.S.C. 78o–3(b)(6).
17 15 U.S.C. 78o–3(b)(9).
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pursued, in addition to the more general
provisions of Rule 2010.
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. FINRA notes
that the proposed rule change is
designed to assist FINRA in meeting its
regulatory obligations by extending the
rule governing mark-ups and
commissions to government securities.
FINRA believes that the proposed rule
change will have minimal impact on
members, as FINRA currently requires
members to report transactions in many
government securities, and members
that charge an excessive mark-up,
markdown or commission in
transactions in exempted securities are
already subject to the provisions of Rule
2010.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
Written comments were solicited in
Regulatory Notice 13–07 but none were
received.18
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
18 In 2013, FINRA published Regulatory Notice
13–07, which sought comment on a proposed rule
change that would have amended several aspects of
the mark-up rule, including amending Rule 0150 to
apply the mark-up rule to certain government
securities. Although FINRA received eight comment
letters in connection with this Regulatory Notice,
none of those comment letters addressed the
proposed rule change that is the subject of this rule
filing. A copy of the Regulatory Notice is included
as Exhibit 2.
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Federal Register / Vol. 80, No. 193 / Tuesday, October 6, 2015 / Notices
Comments may be submitted by any of
the following methods:
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–FINRA–2015–033 on the
subject line.
[Release No. 34–76054; File No. SR–BATS–
2015–78]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Delete Rule 2.13,
Fidelity Bonds
Paper Comments
• Send paper comments in triplicate
to Robert W. Errett, Deputy Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
tkelley on DSK3SPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–FINRA–2015–033. 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–
2015–033 and should be submitted on
or before October 27, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–25329 Filed 10–5–15; 8:45 am]
BILLING CODE 8011–01–P
19 17
18:31 Oct 05, 2015
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’)1, and Rule 19b–4 thereunder,2
notice is hereby given that on
September 24, 2015, BATS Exchange,
Inc. (the ‘‘Exchange’’ or ‘‘BZX’’) 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 ‘‘non-controversial’’ 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 is proposing to delete
Rule 2.13, Fidelity Bonds, in order to
conform to the rules of EDGA Exchange,
Inc. (‘‘EDGA’’) and EDGX Exchange, Inc.
(‘‘EDGX’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
principal office of the Exchange, 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 aspects of such
statements.
1 See
15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
2 See
CFR 200.30–3(a)(12).
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September 30, 2015.
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60419
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
In early 2014, the Exchange and its
affiliate, BATS Y-Exchange, Inc.
(‘‘BYX’’), received approval to effect a
merger (the ‘‘Merger’’) of the Exchange’s
parent company, BATS Global Markets,
Inc., with Direct Edge Holdings LLC, the
indirect parent of EDGX and EDGA
(together with BZX, BYX and EDGX, the
‘‘BGM Affiliated Exchanges’’).5 In the
context of the Merger, the BGM
Affiliated Exchanges are working to
align its [sic] rules, retaining only
intended differences between the BGM
Affiliated Exchanges. Thus, the proposal
set forth below is intended to delete
Rule 2.13, Fidelity Bonds, in order to
conform to the rules of EDGA and EDGX
in order to provide a consistent rule set
across each of the BGM Affiliated
Exchanges.6
In sum, Exchange Rule 2.13(a) states
that each Member 7 required to join the
Securities Investor Protection
Corporation (‘‘SIPC’’) who has
employees and who is a member in
good standing of another self-regulatory
organization shall follow the applicable
fidelity bond rule of the self-regulatory
organization to which it is designated by
the Commission for financial
responsibility pursuant to Section 17 of
the Act and SEC Rule 17d-1 thereunder
(i.e., its Designated Examining
Authority or ‘‘DEA’’). Subparagraph (b)
to Rule 2.13 simply incorporates by
reference NASD Rule 3020 (now FINRA
Rule 4360) in to Exchange Rule 2.13.
Subparagraph (c) of Rule 2.13 states that
references to: (i) An ‘‘Association
member’’ shall be construed as
references to a ‘‘Member’’; and (ii)
Article I, paragraph (q) of the By-Laws
shall be construed as references to
Exchange Rule 1.5(q). Lastly,
subparagraph (d) to Rule 2.13 states that
pursuant to Exchange Rule 1.6, any
Member subject to paragraph (c) of
NASD Rule 3020 (now FINRA Rule
4360), through the application of
paragraph (b) of Rule 2.13, may apply to
the Exchange for an exemption from
such requirements. The exemption may
be granted upon a showing of good
cause, including a substantial change in
5 See Securities Exchange Act Release No. 71375
(January 23, 2014), 79 FR 4771 (January 29, 2014)
(SR–BATS–2013–059; SR–BYX–2013–039).
6 The Exchange notes that BYX intends to file a
proposal to delete its identical Rule 2.13, Fidelity
Bonds.
7 A Member is defined as ‘‘any registered broker
or dealer that has been admitted to membership in
the Exchange.’’ See Exchange Rule 1.5(n).
E:\FR\FM\06OCN1.SGM
06OCN1
]]>Agencies
[Federal Register Volume 80, Number 193 (Tuesday, October 6, 2015)]
[Notices]
[Pages 60416-60419]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25329]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76059; File No. SR-FINRA-2015-033]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 0150 to Apply FINRA Rule 2121 and its Supplementary Material
.01 and .02 to Transactions in Exempted Securities That Are Government
Securities
September 30, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 17, 2015, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been substantially prepared by
FINRA. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 60417]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rule 0150, Application of Rules
to Exempted Securities Except Municipal Securities, so that FINRA Rule
2121 and its Supplementary Material .01 and .02, which govern mark-ups
and commissions, will apply to transactions in exempted securities that
are government securities.
Below is the text of the proposed rule change. Proposed new
language is in italics.
* * * * *
0100. GENERAL STANDARDS
* * * * *
0150. Application of Rules to Exempted Securities Except Municipal
Securities
(a) through (c) No Change.
(d) FINRA Rule 2121 is applicable to transactions in, and business
activities relating to, exempted securities that are government
securities.
* * * * *
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rule 0150(c) enumerates the FINRA rules and the rules of the
National Association of Securities Dealers (``NASD'') that apply to
transactions in, and business activities relating to, exempted
securities, except municipal securities, conducted by members and
associated persons.\3\ Currently, this rule does not include Rule 2121,
Supplementary Material .01, or Supplementary Material .02, which govern
mark-ups and commissions (``mark-up rule'').\4\
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\3\ The terms exempted securities, government securities, and
municipal securities are defined in Sections 3(a)(12), 3(a)(42), and
3(a)(29) of the Act, respectively. The current FINRA rulebook
consists of: (1) FINRA Rules; (2) NASD Rules; and (3) rules
incorporated from NYSE (``Incorporated NYSE Rules'') (together, the
NASD Rules and Incorporated NYSE Rules are referred to as the
``Transitional Rulebook''). While the NASD Rules generally apply to
all FINRA members, the Incorporated NYSE Rules apply only to those
members of FINRA that are also members of the NYSE (``Dual
Members''). The FINRA Rules apply to all FINRA members, unless such
rules have a more limited application by their terms. For more
information about the rulebook consolidation process, see
Information Notice, March 12, 2008 (Rulebook Consolidation Process).
\4\ NASD Rule 2440, IM-2440-1, and IM-2440-2 were recently moved
to the FINRA rules without any substantive changes, becoming Rule
2121, Supplementary Material .01, and Supplementary Material .02,
respectively. See Securities Exchange Act Release No. 72208 (May 21,
2014), 79 FR 30675 (May 28, 2014) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2014-023).
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The basis for not applying certain FINRA and NASD rules, including
the mark-up rules, to exempted securities (except municipal securities)
is largely historical. Prior to 1993, there were statutory limitations
on NASD's ability to apply sales practice rules, including the mark-up
rules, to transactions in exempted securities. Specifically, Section
15A(f) of the Act imposed limitations on the authority of registered
securities associations over transactions by a registered broker or
dealer in an exempted security.\5\ This provision was eliminated as
part of the Government Securities Act Amendments of 1993 (``GSAA'').\6\
Following the GSAA, the NASD proposed to apply certain NASD rules to
exempted securities other than to municipal securities, although it did
not propose to apply the mark-up rule then in effect (NASD Rule 2440
and IM-2440-1) to such securities.\7\ Rather, the NASD stated that it
intended to review the specific application of these rules to the
government securities market and that it was developing an
interpretation of the mark-up rule with respect to exempted securities
and other debt securities.\8\ The NASD further stated that actions for
conduct generally encompassed by the NASD mark-up rule in the
government securities market could be brought under NASD Rule 2110
(Standards of Commercial Honor and Principles of Trade).\9\ In 2001,
NASD adopted Rule 0116 (now FINRA Rule 0150), which set forth the NASD
rules that would apply to transactions in exempted securities, except
municipal securities.\10\ In 2007, the SEC approved IM-2440-2, which
set forth a mark-up policy for transactions in debt securities, except
municipal securities.\11\
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\5\ Prior to 1986, Section 15A(f) provided that ``[n]othing in
this section shall be construed to apply with respect to any
transaction by a broker or dealer in any exempted security.'' See 15
U.S.C. 78o-3 (historical notes).
In 1986, the Government Securities Act of 1986 (``GSA'') was
enacted, which established a federal system for the regulation of
brokers and dealers who transact business in government securities
and certain other exempted securities. See Government Securities Act
of 1986, Pub. L. 99-571, 100 Stat. 3208 (1986). The GSA, among other
things, amended Section 15A(f) to provide that, ``[e]xcept as
provided in paragraph (2) of this subsection, nothing in this
section shall be construed to apply with respect to any transaction
by a registered broker or dealer in any exempted security.'' See
Government Securities Act of 1986, Pub. L. 99-571, Sec. 102(g)(1),
100 Stat. 3208 (1986). Paragraph (f)(2), which was added by the GSA,
provided that a registered securities association could adopt and
implement rules with respect to exempted securities to (1) enforce
members' compliance with the relevant provisions of the Act and
rules and regulations thereunder, (2) adequately discipline its
members, (3) inspect members' books and records, and (4) prohibit
fraudulent, misleading, deceptive and false advertising. Id.
\6\ See Government Securities Act Amendments of 1993, Pub. L.
103-202, Sec. 106(b)(1), 107 Stat. 2344 (1993).
\7\ See Securities Exchange Act Release No. 37588 (August 20,
1996), 61 FR 44100 (August 27, 1996) (Order Approving File No. SR-
NASD-95-39).
\8\ See id. at 44104-44105 nn.3-4.
\9\ See id. at 44113 (noting that Amendment No. 5 to the
proposal ``clarifies and reminds members that [NASD] rules requiring
members to adhere to just and equitable principles of trade apply to
conduct that may violate the Fair Prices and Commissions provision
and the Mark-Up Policy.'')
NASD Rule 2110 has since been adopted as FINRA Rule 2010. See
Securities Exchange Release No. 58643 (September 25, 2008), 73 FR
57174 (October 1, 2008) (Order Approving File No. SR-FINRA-2008-
028).
\10\ See Securities Exchange Act Release No. 44631 (July 31,
2001), 66 FR 41283 (August 7, 2001) (Order Approving File No. SR-
NASD-00-38).
\11\ See Securities Exchange Act Release No. 55638 (April 16,
2007), 72 FR 20150 (April 23, 2007) (Order Approving File No. SR-
NASD-2003-141). As noted above, NASD Rule 2440, IM-2440-1, and IM-
2440-2 were recently moved to the FINRA rulebook without any
substantive changes, becoming FINRA Rule 2121, Supplementary
Material .01, and Supplementary Material .02, respectively. See
supra note 4.
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FINRA is now proposing to amend Rule 0150 so that Rule 2121, along
with Supplementary Material .01 and .02, would apply to transactions
in, and business activities relating to, exempted securities that are
government securities, as defined in Section 3(a)(42) of the Exchange
Act.\12\ FINRA believes that amending Rule 0150 to apply the mark-up
rule to transactions in government securities is consistent with the
GSAA. FINRA also believes that amending Rule 0150 in this manner is
consistent with NASD's application of certain of its rules, following
the GSAA, to exempted securities except for municipal securities.\13\
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\12\ This includes U.S. Treasury securities, as defined in FINRA
Rule 6710(p). As defined in Rule 6710(p), a U.S. Treasury Security
means a ``security issued by the U.S. Department of the Treasury to
fund the operations of the federal government or to retire such
outstanding securities.''
\13\ See Securities Exchange Act Release No. 37588 (August 20,
1996), 61 FR 44100 (August 27, 1996) (Order Approving File No. SR-
NASD-95-39).
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FINRA also notes the regulatory benefits of applying the mark-up
rule to
[[Page 60418]]
government securities. Under current rules, if FINRA staff wishes to
bring a case alleging excessive mark-ups, mark-downs or commissions in
transactions in exempted securities other than municipal securities,
such as agency debt securities or U.S. Treasury securities, FINRA must
bring the case under Rule 2010. Amending Rule 0150 to apply the mark-up
rule to transactions and business activities relating to government
securities would provide a specific cause of action under which conduct
involving such securities could be regulated, in addition to the more
general provisions of Rule 2010. As such, this proposed rule change
would clearly signal to members that conduct relating to mark-ups and
commissions in the market for government securities directly implicates
the mark-up rule, in addition to Rule 2010. FINRA also notes that the
mark-up rule provides specific criteria by which members should assess
debt mark-ups and mark-downs.\14\ Amending Rule 0150 to apply these
standards to transactions in government securities would provide both
members and FINRA staff with clearer standards by which to measure the
propriety of mark-ups, mark-downs and commissions in such transactions.
---------------------------------------------------------------------------
\14\ See Rule 2121, Supplementary Material .02 (Additional Mark-
Up Policy For Transactions in Debt Securities, Except Municipal
Securities).
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As a practical matter, FINRA believes that amending Rule 0150 to
apply to government securities would have little impact upon members.
Rule 2010 already governs transactions in government securities, which
would include instances of improper or excessive mark-ups, mark-downs
or commissions. Although this proposal would apply the more specific
provisions of the mark-up rule to transactions involving government
securities, these provisions are already applicable to corporate debt
securities. Member firms that currently engage in transactions in
corporate debt will therefore already be familiar with the application
of the mark-up rule, and FINRA believes that most firms apply
substantially similar standards to transactions in all fixed income
securities.
FINRA also does not believe that this proposal will impact the
reporting or surveillance of transactions in government securities.
FINRA currently requires members to report transactions in many
government securities (i.e., agency debentures and agency asset-backed
securities) to its Trade Reporting and Compliance Engine (``TRACE''),
and actively surveils the markets in such securities. For those
government securities that are not TRACE-eligible, such as U.S.
Treasury securities, any review of transactions in such securities
pursuant to the mark-up rule would occur as it does today, e.g.,
through a manual process that is part of FINRA's regular examination
cycle.
FINRA notes that, following the end of the comment period for this
proposal, it will consult with the U.S. Department of the Treasury with
respect to the application of the mark-up rule to transactions in
government securities that are U.S. Treasury securities.\15\
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\15\ FINRA also notes that, pursuant to Section 19(b)(5) of the
Act, the SEC ``shall consult with and consider the views of the
Secretary of the Treasury prior to approving a proposed rule filed
by a registered securities association that primarily concerns
conduct related to transactions in government securities, except
where the Commission determines that an emergency exists requiring
expeditious or summary action and publishes its reasons therefor.''
See 15 U.S.C. 78s(b)(5).
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If the Commission approves the proposed rule change, the proposed
rule change will be effective upon Commission approval.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\16\ 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, and Section 15A(b)(9) of the Act,\17\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate. FINRA believes that amending Rule 0150 so
that the mark-up rule will apply to government securities is consistent
with the Act, because government securities can be subject to instances
of excessive mark-ups, and investors in government securities will
therefore benefit from the specific application of the mark-up rule to
that market. FINRA also believes that this proposal is consistent with
both the GSAA and with NASD's subsequent application of certain of its
rules to exempted securities except for municipal securities. FINRA
also believes that the proposed rule change is consistent with the Act
as it will provide FINRA with specific authority over instances of
excessive mark-ups, mark-downs or commissions relating to government
securities that may be pursued, in addition to the more general
provisions of Rule 2010.
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\16\ 15 U.S.C. 78o-3(b)(6).
\17\ 15 U.S.C. 78o-3(b)(9).
---------------------------------------------------------------------------
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. FINRA notes that the proposed
rule change is designed to assist FINRA in meeting its regulatory
obligations by extending the rule governing mark-ups and commissions to
government securities. FINRA believes that the proposed rule change
will have minimal impact on members, as FINRA currently requires
members to report transactions in many government securities, and
members that charge an excessive mark-up, markdown or commission in
transactions in exempted securities are already subject to the
provisions of Rule 2010.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were solicited in Regulatory Notice 13-07 but none
were received.\18\
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\18\ In 2013, FINRA published Regulatory Notice 13-07, which
sought comment on a proposed rule change that would have amended
several aspects of the mark-up rule, including amending Rule 0150 to
apply the mark-up rule to certain government securities. Although
FINRA received eight comment letters in connection with this
Regulatory Notice, none of those comment letters addressed the
proposed rule change that is the subject of this rule filing. A copy
of the Regulatory Notice is included as Exhibit 2.
---------------------------------------------------------------------------
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.
[[Page 60419]]
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-2015-033 on the subject line.
Paper Comments
Send paper comments in triplicate to Robert W. Errett,
Deputy Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2015-033. 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-2015-033 and should be
submitted on or before October 27, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-25329 Filed 10-5-15; 8:45 am]
BILLING CODE 8011-01-P
