9062 Federal Register / Vol. 76, No. 32 / Wednesday, February 16, 2011 / Notices 

6Each Partnership will preserve the accounts, 

books and other documents required to be 

maintained in an easily accessible place for the first 

two years. 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 63256 

(November 5, 2010), 75 FR 69503 (‘‘Notice’’). 4See Letters from Gary S. Sheller, CFP, Sheller 

Financial Services, dated November 24, 2010 

(‘‘Sheller Letter’’); and Michael S. Nichols, PhD, 

Principal/Financial Advisor, Cutter Advisors 

Group, dated November 29, 2010 (‘‘Cutter Letter’’). 

5See Securities Exchange Act Release No. 63582 

(December 21, 2010), 75 FR 81704 (December 28, 

2010). 

6See Letter to Elizabeth M. Murphy, Secretary, 

Commission, from Stephanie M. Dumont, Senior 

Vice President and Director of Capital Markets 

Policy, FINRA, dated January 24, 2011 (‘‘FINRA 

Response Letter’’). 

7See FINRA Rule 6140(h) and (i). 

8See FINRA Rule 6140(h). 

9See FINRA Rule 6140(h) and (i). 

(d) an entity (other than a Third Party 

Fund) in which a Capital Group entity 

acts as a general partner or has a similar 

capacity to control the sale or other 

disposition of the entity’s securities. 

The restrictions contained in this 

condition, however, shall not be 

deemed to limit or prevent the 

disposition of an investment by an 

Affiliated Co-Investor (a) To its direct or 

indirect wholly-owned subsidiary, to 

any company (a ‘‘Parent’’) of which the 

Affiliated Co-Investor is a direct or 

indirect wholly-owned subsidiary or to 

a direct or indirect wholly-owned 

subsidiary of its Parent, (b) to immediate 

family members of the Affiliated CoInvestor or a trust or other investment 

vehicle established for any Affiliated 

Co-Investor or any such immediate 

family member, or (c) when the 

investment is comprised of securities 

that are (i) listed on a national securities 

exchange registered under section 6 of 

the Exchange Act, (ii) NMS stocks 

pursuant to section 11A(a)(2) of the 

Exchange Act and rule 600(a) of 

Regulation NMS thereunder, (iii) 

government securities as defined in 

section 2(a)(16) of the Act or other 

securities that meet the definition of 

‘‘Eligible Security’’ in rule 2a–7 under 

the Act, or (iv) listed or traded on any 

foreign securities exchange or board of 

trade that satisfies regulatory 

requirements under the law of the 

jurisdiction in which such foreign 

securities exchange or board of trade is 

organized similar to those that apply to 

a national securities exchange or a 

national market system for securities. 

4. Each Partnership and its General 

Partner will maintain and preserve, for 

the life of each Series of the Partnership 

and at least six years thereafter, such 

accounts, books and other documents 

constituting the record forming the basis 

for the audited financial statements that 

are to be provided to the Limited 

Partners in the Partnership, and each 

annual report of the Partnership 

required to be sent to the Limited 

Partners, and agree that all such records 

will be subject to examination by the 

Commission and its staff.6

5. The General Partner of each 

Partnership will send to each Limited 

Partner having an Interest in the 

Partnership at any time during the fiscal 

year then ended, Partnership financial 

statements audited by the Partnership’s 

independent accountants with respect 

to those Series in which the Limited 

Partner had an Interest. At the end of 

each fiscal year, the General Partner will 

make or cause to be made a valuation 

of all of the assets of the Partnership as 

of such fiscal year end in a manner 

consistent with customary practice with 

respect to the valuation of assets of the 

kind held by the Partnership. In 

addition, as soon as practicable after the 

end of each fiscal year of the 

Partnership, the General Partner will 

send a report to each person who was 

a Limited Partner at any time during the 

fiscal year then ended, setting forth such 

tax information as shall be necessary for 

the preparation by the Limited Partner 

of that partner’s federal and state 

income tax returns and a report of the 

investment activities of the Partnership 

during that fiscal year. 

6. If a Partnership makes purchases or 

sales from or to an entity affiliated with 

the Partnership by reason of an officer, 

director or employee of a Capital Group 

entity (a) serving as an officer, director, 

general partner or investment adviser of 

the entity, or (b) having a 5% or more 

investment in the entity, such 

individual will not participate in the 

Partnership’s determination of whether 

or not to effect the purchase or sale. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–3494 Filed 2–15–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63885; File No. SR–FINRA– 

2010–055] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Disapproving 

Proposed Rule Change To Amend 

FINRA Rule 6140 (Other Trading 

Practices) 

February 10, 2011. 

I. Introduction 

On October 29, 2010, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’), 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend FINRA Rule 6140, Other Trading 

Practices. The proposed rule change was 

published for comment in the Federal 

Register on November 12, 2010.3 The 

Commission received two comments on 

the proposal.4 On December 21, 2010, 

the Commission extended the time 

period in which to either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether to 

disapprove the proposed rule change, to 

February 10, 2011.5 On January 24, 

2011, FINRA submitted a response letter 

to the comments.6 This order 

disapproves the proposed rule change. 

II. Description of the Proposal 

FINRA Rule 6140 provides that 

FINRA members may, but are not 

obligated to, accept stop orders in NMS 

stocks, as that term is defined in Rule 

600(b)(47) of Regulation NMS.7 In 

addition, FINRA Rule 6140 provides 

that a stop order becomes a market 

order, or a stop limit order becomes a 

limit order, when a transaction takes 

place at or above the stop price (in the 

case of a buy stop order) or at or below 

the stop price (in the case of a sell stop 

order).8 Thus, under FINRA Rule 6140, 

a stop order cannot be triggered by the 

publication of a quotation at the stop 

price, but only by a transaction.9 FINRA 

proposes to eliminate these provisions 

governing the handling of stop orders in 

their entirety. 

In support of its proposal to eliminate 

entirely from its rules those provisions 

governing the handling of stop orders, 

FINRA states that its members believe 

quotations may be a better indicator of 

the current price of a security than 

transactions, and have requested that 

FINRA provide members the flexibility 

to determine whether the trigger of a 

stop order will be based on transactions 

or quotations at the stop price. FINRA 

represents that its rules do not typically 

define the parameters of the various 

order types that members may accept 

and that FINRA believes that members 

should have the ability to define the 

triggering event for stop orders as well 

as to design their systems consistent 

with such determination. In addition, 

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Federal Register / Vol. 76, No. 32 / Wednesday, February 16, 2011 / Notices 9063 

10See Cutter Letter and Sheller Letter, supra 

note 4. 

11See Sheller Letter, supra note 4. 

12See FINRA Letter, supra note 6, at p. 2. 

13See Cutter Letter, supra note 4. 

14See 15 U.S.C. 78s(b)(2)(C)(i). 

15See 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 

201.700(b)(3) (‘‘The burden to demonstrate that a 

proposed rule change is consistent with the 

Exchange Act and the rules and regulations issued 

thereunder * * * is on the self-regulatory 

organization that proposed the rule change * * * 

A mere assertion that the proposed rule change is 

consistent with those requirements * * * is not 

sufficient.’’) The description of a proposed rule 

change, its purpose and operation, its effect, and a 

legal analysis of its consistency with applicable 

requirements must all be sufficiently detailed and 

specific to support an affirmative Commission 

finding. See 17 CFR 201.700(b)(3). Any failure of a 

self-regulatory organization to provide the 

information elicited by Form 19b–4 may result in 

the Commission not having a sufficient basis to 

make an affirmative finding that a proposed rule 

change is consistent with the Exchange Act and the 

rules and regulations issued thereunder that are 

applicable to the self-regulatory organization. Id. 

16 In disapproving 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). 

17 15 U.S.C. 78o–3(b)(6). 18See Notice, supra note 3. 

FINRA notes that it expects that, 

irrespective of whether a transaction or 

quotation is used as the trigger for a 

customer stop order, each member will 

apply the approach consistently firmwide to all customer orders and fully 

disclose its practice to its customers. 

Finally, FINRA proposes to relocate 

the definition of ‘‘initial public offering’’ 

from Rule 6220 (Definitions) to Rule 

6130 (Transactions Related to Initial 

Public Offerings). FINRA proposes no 

substantive changes to this definition. 

III. Summary of Comment Letters and 

FINRA’s Response 

The Commission received two 

comment letters objecting to the 

proposed rule change. The commenters 

generally were concerned with the use 

of quotations as a trigger for stop 

orders.10 One commenter believed that 

the triggering event for a stop order 

should be a transaction, and expressed 

concern that activating a stop order 

‘‘based solely upon a bid opens the 

process to manipulation by those 

inclined to do so by flashing bids during 

market turbulence.’’ 11 In response, 

FINRA notes that FINRA Rule 5210 

already prohibits the publication of a 

quotation that is not bona fide, and 

therefore the practice of flashing 

quotations for the sole purpose of 

activating a stop order, without the 

intention of trading at the price and 

volume quoted, is impermissible.12

The other commenter expressed 

concern that investors and financial 

advisors would not know whether the 

triggering event was a quote or a trade, 

and believed that investors would have 

a legitimate complaint if their stop order 

was triggered by a quote and there was 

no evidence it ever traded at that 

price.13 FINRA responds that it does not 

believe that it is appropriate at this time 

for FINRA to dictate the definitions for 

the order types offered by a member to 

its customers, and notes that numerous 

member firms have concluded that 

quotes are the more appropriate 

triggering event for stop orders. FINRA 

believes that each member should be 

permitted to determine whether it will 

use quotes or transactions to trigger stop 

orders, provided that the member’s 

approach is disclosed to its customers 

and is consistently applied. 

IV. Discussion 

Under section 19(b)(2)(C) of the Act, 

the Commission shall approve a 

proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Act, and 

the rules and regulations thereunder 

that are applicable to such 

organization.14 The Commission shall 

disapprove a proposed rule change if it 

does not make such a finding.15

After careful consideration, the 

Commission does not find that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.16 In particular, the 

Commission does not find that the 

proposed rule change is consistent with 

Section 15A(b)(6) of the Act, which 

requires that the rules of a national 

securities association be designed, 

among other things, ‘‘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.’’ 17

FINRA proposes to delete in its 

entirety the provisions of Rule 6140 

relating to the handling of stop orders in 

NMS stocks by member firms. Those 

provisions currently require that stop 

orders offered by member firms be 

triggered (i.e., become a market order or 

limit order) by a transaction in the 

security. Accordingly, this requirement 

should be providing customers certainty 

with respect to the operation of a key 

element of their stop orders. 

By proposing to eliminate this 

provision, FINRA effectively would 

allow member firms to offer stop orders 

to customers that are triggered by a 

transaction, a quote or another 

mechanism altogether. While FINRA, in 

its ‘‘Statement of the Purpose’’ of the 

proposed rule change, notes that it 

‘‘expects’’ each member to apply its 

approach to stop orders consistently and 

fully disclose its practice to its 

customers, FINRA has not clearly made 

this expectation enforceable by 

requiring consistency and customer 

disclosure in its rules. 

The Commission acknowledges that 

some may believe a quotation is a better 

trigger mechanism for stop orders than 

a transaction, and there may be good 

reasons for allowing FINRA to provide 

flexibility for this in its rules. FINRA, 

however, has not articulated any such 

reasons. In addition, the Commission 

believes that, if FINRA rules were to 

permit members flexibility in the types 

of stop orders they offer, those rules 

should clearly require, at a minimum, 

that the member disclose to customers 

the type of stop order it offers. The 

Commission believes the regulatory 

framework should promote the ability of 

investors to understand the key 

attributes of order types offered by their 

brokers so that they can make an 

informed choice as to whether to use a 

particular type of order. This is 

especially true with more complex order 

types, such as stop loss orders, and 

particularly if FINRA rules permit a 

variety of stop loss orders to be offered. 

Because of this potential investor 

confusion, and resulting investor harm, 

that could result from FINRA’s 

proposed rule change, the Commission 

is concerned the proposal is not 

designed, among other things, to protect 

investors and the public interest, and 

promote just and equitable principles of 

trade, as required by Section 15A(b)(6) 

of the Exchange Act. The proposed rule 

change filed by FINRA, and its 

subsequent response to comments, does 

not adequately address these concerns. 

FINRA’s proposal simply states that 

‘‘FINRA believes that adopting the 

proposed rule change will provide 

members with the flexibility to 

determine whether the execution of stop 

orders will be triggered by transactions 

or quotations in the subject security 

without compromising investor 

protection.’’ 18 Neither the proposed rule 

change, nor FINRA’s subsequent 

response to comments, offers any 

substantive explanation as to why 

providing flexibility in the types of stop 

orders offered by members—particularly 

without a clearly enforceable disclosure 

requirement—is consistent with the 

provisions of Section 15A(b)(6) 

referenced above. The Commission 

notes that Rule 700(b)(3) of its Rules of 

Practice reiterates that ‘‘[t]he burden to 

demonstrate that a proposed rule change 

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9064 Federal Register / Vol. 76, No. 32 / Wednesday, February 16, 2011 / Notices 

19 17 CFR 201.700(b)(3). 

20 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 63706 

(January 12, 2011), 76 FR 3184 (January 19, 2011) 

(SR–CBOE–2011–004). 

is consistent with the Exchange Act 

* * * is on the self-regulatory 

organization that proposed the rule 

change’’ and that a ‘‘mere assertion that 

the proposed rule change is consistent 

with those requirements * * * is not 

sufficient.’’ 19 For the reasons articulated 

above, the Commission does not believe 

that FINRA has met that burden in this 

case. 

IV. Conclusion 

For the foregoing reasons, the 

Commission does not find that the 

proposed rule change is consistent with 

the Act and the rules and regulations 

thereunder applicable to a national 

securities association, and, in particular, 

with Section 15A(b)(6) of the Act. 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act, that the 

proposed rule change (SR–FINRA– 

2010–055) be, and hereby is, 

disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Cathy H. Ahn, 

Deputy Secretary. 

[FR Doc. 2011–3416 Filed 2–15–11; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63876; File No. SR–CBOE– 

2011–013] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Its Fees 

Schedule and Circular Regarding 

Trading Permit Holder Application and 

Other Related Fees 

February 9, 2011. 

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 February 

1, 2011, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or the 

‘‘Exchange’’) 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 CBOE. 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 

Chicago Board Options Exchange, 

Incorporated (‘‘CBOE’’ or ‘‘Exchange’’) 

proposes to amend its Fees Schedule 

and circular regarding Trading Permit 

Holder application and other related 

fees (‘‘Trading Permit Fee Circular’’). 

The text of the proposed rule change is 

available on the Exchange’s Web site 

(http://www.cboe.org/legal/), at the 

Exchange’s Office of the Secretary, 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, 

CBOE 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. CBOE 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 

CBOE Rule 2.20 grants the Exchange 

the authority to, from time to time, fix 

the fees and charges payable by Trading 

Permit Holders. CBOE is proposing to 

amend its Fees Schedule and Trading 

Permit Fee Circular effective February 1, 

2011 to: (i) Clarify that the tier 

appointment fees will be assessed, as 

applicable, for open outcry transactions 

and not electronic transactions for those 

Market-Maker Trading Permit Holders 

that do not already have a tier 

appointment; (ii) establish a minimum 

open outcry contract level for 

assessment of a tier appointment fee to 

those Market-Maker Trading Permit 

Holders that do not maintain a tier 

appointment in VIX; and (iii) clarify that 

written notification to terminate a tier 

appointment should be provided to the 

Market Quality Assurance & DPM 

Administration Department. 

CBOE Rule 8.3(e) provides that the 

Exchange may establish one or more 

types of tier appointments. In 

accordance with CBOE Rule 8.3(e), a tier 

appointment is an appointment to trade 

one or more options classes that must be 

held by a Market-Maker to be eligible to 

act as a Market-Maker in the options 

class or options classes subject to that 

appointment. CBOE currently maintains 

tier appointments for Market-Maker 

Trading Permit Holders trading in SPX 

and VIX. 

Section 10(A) of the current Fees 

Schedule provides that the SPX Tier 

Appointment fee will be assessed to any 

Market-Maker Trading Permit Holder 

that either (a) has an SPX Tier 

Appointment at any time during a 

calendar month; or (b) conducts any 

open outcry transactions in SPX or any 

open outcry or electronic transaction in 

SPX Weeklys at any time during a 

calendar month. CBOE amended this 

provision in January 2011 to reflect the 

addition of SPX Weeklys and to 

incorporate any electronic transactions 

that occur in SPX Weeklys.3 However, 

since the only Trading Permit Holders 

that are able to submit quotes 

electronically in SPX Weeklys are those 

Market-Maker Trading Permit Holders 

that have an appointment in SPX 

Weeklys, CBOE is proposing to clarify 

this provision by removing the language 

that would assess the tier appointment 

fee to any Market-Maker Trading Permit 

Holder that conducts any electronic 

transactions in SPX Weeklys. CBOE has 

never intended to assess the tier 

appointment fee to a Trading Permit 

Holder that submits an occasional order 

electronically in SPX Weeklys. 

Similarly, Section 10(A) of the current 

Fees Schedule provides that the VIX 

Tier Appointment fee will be assessed 

to any Market-Maker Trading Permit 

Holder that either (a) has a VIX Tier 

Appointment at any time during a 

calendar month; or (b) conducts any 

transactions in VIX at any time during 

a calendar month. However, since the 

only Market-Maker Trading Permit 

Holders that are able to submit quotes 

electronically in VIX are those MarketMaker Trading Permit Holders that have 

an appointment in VIX, CBOE is 

proposing to clarify this provision by 

removing the language that would 

assess the tier appointment fee to any 

Market-Maker Trading Permit Holder 

that conducts any electronic 

transactions in VIX. CBOE has never 

intended to assess the tier appointment 

fee to a Trading Permit Holder that 

submits an occasional order 

electronically in VIX. CBOE is also 

proposing to add language to the Fees 

Schedule to provide that the VIX Tier 

Appointment fee will be assessed to a 

Market-Maker Trading Permit Holder 

that trades at least 1,000 VIX options 

contracts per month in open outcry. In 

addition, because Market-Maker Trading 

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