Federal Register / Vol. 75, No. 222 / Thursday, November 18, 2010 / Notices 70757 

3 17 CFR 200.30–3(a)(12). 

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

2See Securities Exchange Act Release No. 62739 

(August 18, 2010), 75 FR 52380. 

3See letter from Steve Allread, Equity Trader, 

Cutter Company, to Commission, dated September 

10, 2010 (‘‘Cutter Letter’’); letter from Joan Conley, 

Senior Vice President and Corporate Secretary, 

Nasdaq OMX Group, Inc., to Elizabeth M. Murphy, 

Secretary, Commission, dated September 15, 2010 

(‘‘Nasdaq Letter’’); and letter from Manisha Kimmel, 

Executive Director, Financial Information Forum, to 

Elizabeth M. Murphy, Secretary, Commission, dated 

September 17, 2010 (‘‘FIF Letter’’). 

4See letter from Brant K. Brown, Associate 

General Counsel, FINRA, to Elizabeth M. Murphy, 

Secretary, Commission, dated October 28, 2010 

(‘‘FINRA Response’’). 

5As amended by SR–FINRA–2010–003, FINRA 

Rule 7410 defines an ‘‘OTC equity security’’ for 

purposes of the OATS Rules as an equity security 

that is not an NMS stock, except that the term does 

not include restricted equity securities and direct 

Continued 

disciplinary actions imposed by the 

SEC. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The MSRB does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act, since it would 

apply equally to all municipal advisors. 

In particular, the MSRB believes that the 

amendments to Rule G–5 impose no 

regulatory burden on any municipal 

advisor because Section 15B(c) of the 

Act already permits the SEC to limit the 

activities of municipal advisors in the 

manner provided for in amended Rule 

G–5. Further, the MSRB believes that 

the amendment to Rule G–17 imposes 

no regulatory burden on any municipal 

advisor not necessary or appropriate in 

furtherance of the purposes of the Act 

since most municipal advisors already 

comport themselves in accordance with 

the standards of behavior required by 

Rule G–17 and no municipal advisor 

has a legitimate interest in engaging in 

behavior that is fraudulent or otherwise 

unfair. 

C. Self-Regulatory Organization’s 

Statement on Comments Received on 

the Proposed Rule Change by Members, 

Participants, or Others 

Written comments were neither 

solicited nor received on the proposed 

rule. 

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. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–MSRB–2010–16 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–MSRB–2010–16. This file 

number should be included on the 

subject line if e-mail 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 

Web site (http://www.sec.gov/rules/ 

sro.shtml). Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 

10 a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the MSRB’s offices. 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–MSRB–2010–16 and should 

be submitted on or before December 9, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.3

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29077 Filed 11–17–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63311; File No. SR–FINRA– 

2010–044] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving a 

Proposed Rule Change Relating to the 

Expansion of the Order Audit Trail 

System to All NMS Stocks 

November 12, 2010. 

I. Introduction 

On August 6, 2010, the Financial 

Industry Regulatory Authority, Inc. 

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

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’),1 a proposed rule change 

to amend its Order Audit Trail System 

rules to extend the recording and 

reporting requirements to all NMS 

stocks and to exclude certain firms that 

have limited trading activities. The 

proposed rule change was published for 

comment in the Federal Register on 

August 25, 2010.2 The Commission 

received three comment letters on the 

proposed rule change.3 FINRA 

responded to these comment letters in a 

letter dated October 28, 2010.4 This 

order approves the proposed rule 

change. 

II. Description of Proposal 

FINRA Rules 7410 through 7470 (the 

‘‘OATS Rules’’) impose obligations on 

FINRA members to record in electronic 

form and report to FINRA, on a daily 

basis, certain information with respect 

to orders originated, received, 

transmitted, modified, canceled, or 

executed by members in OTC equity 

securities and equity securities listed 

and traded on The Nasdaq Stock 

Market, Inc. (‘‘Nasdaq’’).5 This 

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70758 Federal Register / Vol. 75, No. 222 / Thursday, November 18, 2010 / Notices 

participation programs, as those terms are defined 

in FINRA Rule 6420. See Securities Exchange Act 

Release No. 61979 (April 23, 2010), 75 FR 23316 

(May 3, 2010) (Order Approving File No. SR– 

FINRA–2010–003). 

6Rule 600(b)(47) of Regulation NMS defines 

‘‘NMS stock’’ as ‘‘any NMS security other than an 

option.’’ 17 CFR 242.600(b)(47). An ‘‘NMS security’’ 

is defined as ‘‘any security or class of securities for 

which transaction reports are collected, processed, 

and made available pursuant to an effective 

transaction reporting plan, or an effective national 

market system plan for reporting transactions in 

listed options.’’ 17 CFR 242.600(b)(46). 

7A ‘‘reporting member’’ is defined in FINRA Rule 

7410(o) as a member that receives or originates an 

order and has an obligation to record and report 

information under Rules 7440 and 7450. 

8 In March 2009, NYSE Alternext US LLC 

changed its name to NYSE Amex LLC (‘‘NYSE 

Amex’’). See Securities Exchange Act Release No. 

59575 (March 13, 2009), 74 FR 11803 (March 19, 

2009). 

9See NYSE Rule 2. 

10See supra notes 3 and 4. 

11See FIF Letter, supra note 3. 

12See FIF Letter, supra note 3. 

13See Allread Letter, supra note 3. 

14See Nasdaq Letter, supra note 3. 

15 In approving this 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). 

16 15 U.S.C. 78o–3(b)(6). 

information is used by FINRA staff to 

oversee the markets and to determine if 

members are complying with FINRA’s 

rules. 

FINRA is proposing to extend the 

OATS recording and reporting 

requirements to cover all NMS 

securities.6 FINRA is also proposing to 

exclude from the definition of 

‘‘Reporting Member’’ 7 in FINRA Rule 

7410 certain firms that became FINRA 

members pursuant to NASD IM–1013–1 

(Membership Waive-In Process for 

Certain New York Stock Exchange 

Member Organizations), or NASD IM– 

1013–2 (Membership Waive-In Process 

for Certain NYSE Alternext US LLC8

Member Organizations), and the rules of 

the NYSE,9 and that engage in the floor 

activities permitted in NASD IM–1013– 

1 and IM–1013–2 and receive orders 

through systems operated and regulated 

by the NYSE or NYSE Amex. 

III. Discussion of Comment Letters 

The Commission received three 

comment letters on the proposed rule 

change and FINRA responded to these 

comments.10 One commenter, FIF, 

supported the proposal, but specified a 

variety of terms and provisions that it 

believed should be incorporated by 

FINRA in its expansion of OATS.11

Specifically, FIF suggested that FINRA 

ensure that the terms currently used in 

the Order Tracking System (OTS) Rules 

are harmonized with those used in the 

OATS Rule and noted, for example, that 

account types currently are treated 

differently by NYSE and FINRA. The 

commenter suggested using the ‘‘FIX’’ 

protocol to ensure standardization. FIF 

also requested that FINRA take into 

consideration that certain FINRA 

member firms do not have MPIDs, 

which are required for OATS reporting, 

and that FINRA configure OATS to 

accept symbols under the different 

Nasdaq and NYSE symbology plans. 

FIF suggested that FINRA enhance its 

capacity and processing bandwidth to 

accommodate the millions of additional 

OATS reports it would receive under 

the proposed rule to ensure timely 

processing of files and error free testing. 

FIF also requested that FINRA extend 

the deadline to submit reports due to 

the additional volume of reports that 

would be required. FIF also requested 

an extension of the current time frame 

for members to repair and resubmit 

OATS rejections.12

FINRA responded to these comments 

by stating that it is currently reviewing 

OATS for potential efficiencies and will 

consider the issues raised with respect 

to revising its reporting and rejection 

repair and resubmission deadlines, as 

well as capacity limitations. FINRA 

believes that a phased-in approach for 

inclusion of NMS stocks in OATS is 

acceptable. 

FIF also requested that FINRA adopt 

an exemption for, or provide additional 

time for inclusion in OATS of, 

convertible and non-convertible 

preferred stock listed on the NYSE 

explaining that these securities managed 

by firms’ Fixed Income Desks and 

systems and may not be easily 

reportable on existing platforms. 

FINRA responded that NYSE’s current 

OTS rules do not contain an exemption 

for preferred stock, and therefore, 

members are already required to capture 

order information for these securities. 

Consequentially, FINRA does not 

believe that preferred stock should be 

exempted from OATS, or that it should 

provide additional time for 

implementation of the requirement. 

Another commenter questioned the 

regulatory usage of the data that 

currently is required to be submitted to 

OATS.13 In response, FINRA explained 

that it currently uses OATS data to 

conduct surveillance and investigations 

of its members, and that the expansion 

of this data to include NMS securities 

traded on other exchanges would 

enhance FINRA’s ability to surveil its 

members’ trading activity across 

multiple markets. 

The third commenter, Nasdaq, argued 

that the timing of the OATS proposal, in 

light of the Commission’s proposed 

consolidated audit trail, is an effort by 

FINRA to make OATS the default 

consolidated audit trail choice for the 

industry, and submitted questions for 

FINRA regarding the cost, timing and 

use of its proposal.14 In response, 

FINRA stated that its proposal is not 

intended to replace the Commission’s 

consolidated audit trail proposal, and 

that FINRA views it instead as an effort 

to improve its own regulatory oversight. 

It recognized that the proposal may 

impose costs on its members, but 

believes that most of those affected 

would already have in place the OTS 

infrastructure, which would allow them 

to adopt the proposed changes quickly. 

IV. Commission Findings 

The Commission has carefully 

reviewed the proposed rule change, the 

comments received, and FINRA’s 

response to the comments, and finds 

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.15 In particular, 

the Commission finds that the proposed 

rule change is consistent with Section 

15A(b)(6) of the Act,16 which, among 

other things, requires that FINRA rules 

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. 

The Commission believes that the 

proposed rule change, by requiring 

members to record and report order 

information for all NMS stocks, not just 

those securities listed on Nasdaq or 

traded over-the-counter, will enhance 

FINRA’s market surveillance and 

investigative capabilities. FINRA has 

stated that it is currently unable to view 

a complete order and transaction audit 

trail for all over-the-counter transactions 

in NMS stocks; thus, the proposed 

expansion of surveillance to NMS stocks 

listed on non-Nasdaq markets should 

enhance FINRA’s oversight of the U.S. 

equity markets. 

The Commission believes the 

proposed rule change is a positive step 

toward a cross-market audit trail. The 

Commission views FINRA’s proposed 

expansion of OATS as an interim 

measure that will improve FINRA’s 

regulatory capabilities by broadening its 

oversight. The Commission notes that 

FINRA’s proposal will also remove 

redundancies, as FINRA has represented 

that OTS is expected to be retired by 

NYSE upon the expansion of OATS. 

Additionally, the Commission agrees 

that FINRA’s amendment to its 

definition of ‘‘Reporting Members’’ is 

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Federal Register / Vol. 75, No. 222 / Thursday, November 18, 2010 / Notices 70759 

17NYSE Rule 123 and NYSE Amex Equities Rule 

123 pertain to orders or commitments or obligations 

to trade originated on or transmitted to the floor of 

each exchange. 

18These members would be subject to FINRA’s 

oversight, as FINRA assumed the market 

surveillance and enforcement functions of NYSE 

Regulation, Inc. in June 2010, pursuant to a multiparty regulatory services agreement with NYSE 

Regulation, Inc., NYSE, NYSE Amex, and NYSE 

Arca. See ‘‘FINRA and NYSE Euronext Complete 

Agreement for FINRA to Perform NYSE 

Regulation’s Market Oversight Functions,’’ FINRA 

News Release (June 14, 2010), available at http:// 

www.finra.org/Newsroom/NewsReleases/2010/ 

P121622. 

19 15 U.S.C. 78s(b)(2). 

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(ii). 

4 17 CFR 240.19b–4(f)(2). 

appropriate, as it excludes from the 

OATS recording and reporting 

requirements those members who 

conduct a floor business through NYSE 

and NYSE Amex and who are currently 

not subject to OTS, but to the 

requirements of NYSE Rule 123 and 

NYSE Amex Equities Rule 123 (Record 

of Orders).17 By exempting these 

members from the OATS requirements, 

FINRA is not altering their current audit 

trail obligations.18 The Commission 

believes that FINRA’s proposed 

amendment to Rule 7410 is appropriate 

as these members would continue to be 

required to record and report 

information under NYSE Rule 123 and 

NYSE Amex Equities Rule 123, and 

would continue to be subject to FINRA 

regulation. 

IV. Conclusion 

It is therefore ordered, pursuant to 

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

proposed rule change (SR–FINRA– 

2010–044), be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–29079 Filed 11–17–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63313; File No. SR–MSRB– 

2010–14] 

Self-Regulatory Organizations; 

Municipal Securities Rulemaking 

Board; Notice of Filing and Immediate 

Effectiveness of Amendments to Rule 

A–12, on Initial Fee, and Rule A–14, on 

Annual Fee 

November 12, 2010. 

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 November 

9, 2010, the Municipal Securities 

Rulemaking Board (‘‘Board’’ or ‘‘MSRB’’), 

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 the MSRB. The 

MSRB has designated the proposed rule 

change as changing a fee applicable to 

municipal advisors pursuant to Section 

19(b)(3)(A)(ii) of the Act,3 and Rule 

19b–4(f)(2) thereunder,4 which renders 

the proposal 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 MSRB is filing a proposed rule 

change consisting of amendments to 

Rule A–12, on initial fee, and Rule A– 

14, on annual fee, to provide for the 

payment to the Board by municipal 

advisors of initial and annual fees. The 

proposed rule change is effective 

immediately upon filing. 

The proposed rule change would 

apply to municipal advisors 

immediately; however, it will have a 

deferred compliance date of December 

31, 2010. The text of the proposed rule 

change is available on the MSRB’s Web 

site at http://www.msrb.org/Rules-andInterpretations/SEC-Filings/2010- 

Filings.aspx, at the MSRB’s principal 

office, 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 

MSRB 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 MSRB has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to provide for the assessment 

of reasonable fees to defray a portion of 

the increased costs and expenses 

associated with the operation and 

administration of the Board attributable 

to the Board’s regulation of municipal 

advisors, including an initial fee of $100 

and an annual fee of $500. Except as 

described below, the proposed rule 

change applies the provisions of Rules 

A–12 and A–14 to municipal advisor 

firms in the same manner that they 

currently apply to brokers, dealers, and 

municipal securities dealers (‘‘dealers’’). 

Individuals will not be required to pay 

these fees unless they are sole 

proprietorships. Although the initial fee 

under Rule A–12 normally would be 

payable to the Board prior to a 

municipal advisor engaging in any 

municipal advisory activities, the 

proposed rule change would permit a 

municipal advisor firm to engage in 

such activities prior to January 1, 2011 

so long as the initial fee is paid by 

January 1, 2011. Similarly, although the 

annual fee under Rule A–14 normally 

would be payable by October 31 of each 

fiscal year (or, for municipal advisor 

firms becoming subject to MSRB rules 

in the current fiscal year, 

simultaneously with the initial fee 

under Rule A–12), the proposed rule 

change would permit a municipal 

advisor firm to engage in such activities 

prior to January 1, 2011 so long as the 

annual fee for the current fiscal year of 

the Board is paid by January 1, 2011. 

Each firm subject to the rules of the 

Board shall be required to pay the initial 

fee only once, and the annual fee only 

once each fiscal year, even if a firm is 

both a dealer and a municipal advisor. 

2. Statutory Basis 

The MSRB believes that the proposed 

rule change is consistent with Section 

15B(b)(2)(J) of the Act, which provides 

that the Board’s rules shall: 

Provide that each municipal securities 

broker, municipal securities dealer, and 

municipal advisor shall pay to the Board 

such reasonable fees and charges as may be 

necessary or appropriate to defray the costs 

and expenses of operating and administering 

the Board. 

The $100 initial fee imposed on 

municipal advisors by amended Rule 

A–12 and the $500 annual fee imposed 

on municipal advisors by amended Rule 

A–14 are reasonable. In its filing, the 

MSRB noted that the annual fee is 

comparable to the fees that municipal 

advisors must pay to State regulators if 

they must register as investment 

advisers. The initial fee is less than most 

States impose for the initial registration 

of investment advisers. The revenue 

resulting from these fees will defray 

only a small portion of the cost of MSRB 

regulation of municipal advisors. 

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