7530 Federal Register / Vol. 75, No. 33 / Friday, February 19, 2010 / Notices 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 clarifies the proposed 

revision to FINRA Rule 4560. See infra note 20. 

4 17 CFR 230.144A. 

5See Securities Act Release No. 6862 (April 23, 

1990), 55 FR 17933 (April 30, 1990). For the 

purpose of SEC Rule 144A, a QIB is generally 

defined as any institution acting for its own 

account, or for the accounts of other QIBs, that in 

the aggregate owns and invests on a discretionary 

basis at least $100 million in securities of issuers 

that are not affiliated with the institution. 

6See Securities Exchange Act Release No. 27956 

(April 27, 1990), 55 FR 18781 (May 4, 1990). 

7See Securities Exchange Act Release No. 58638 

(September 24, 2008), 73 FR 57188 (October 1, 

2008). As part of the separation of NASDAQ from 

FINRA, certain functionality relating to PORTAL, 

including the qualification and designation of 

PORTAL securities, became part of NASDAQ’s 

rules and were eliminated from the FINRA rules. 

See Securities Exchange Act Release No. 53128 

(January 13, 2006), 71 FR 3550 (January 23, 2006). 

8 In addition to NASDAQ ceasing operation of the 

PORTAL Market, the Commission has also 

approved the deletion of the Depository Trust 

Company (‘‘DTC’’) requirement that a SEC Rule 

144A security, other than Investment Grade 

Securities, be included in an ‘‘SRO Rule 144A 

System’’ in order to be eligible for DTC’s deposit, 

book-entry delivery, and other depository services. 

See Securities Exchange Act Release No. 59384 

(February 11, 2009), 74 FR 7941 (February 20, 

2009). The PORTAL Market was the only ‘‘SRO Rule 

144A System.’’ Id. 

9Securities Exchange Act Release No. 60991 

(November 12, 2009), 74 FR 60006 (November 19, 

2009). 

10See id. NASDAQ noted in the filing that 

nothing in the proposal was ‘‘intended to impact 

securities previously designated as PORTAL 

securities or alter any existing regulatory obligation 

applicable to such securities, including, but not 

limited to, any trade reporting obligation imposed 

by any self-regulatory organization.’’ Id. 

11See FINRA Rule 6400 Series. 

12FINRA Rule 6633(a). The proposed rule change 

is limited in scope to equity securities and would 

not affect the Trade Reporting and Compliance 

Engine Service (‘‘TRACE’’) or the reporting 

requirements with respect to transactions in debt 

securities. With respect to PORTAL securities that 

are debt securities, FINRA Rule 6633(b) currently 

requires members to report secondary market 

transactions to TRACE in accordance with the 

FINRA Rule 6700 Series. Thus, under current 

FINRA rules, reporting obligations for debt 

securities are set forth in the TRACE rules rather 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BX– 

2010–006, and should be submitted on 

or before March 12, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–3140 Filed 2–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61510; File No. SR–FINRA– 

2010–003] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change, as Modified by 

Amendment No. 1, Relating to Trade 

Reporting of OTC Equity Securities 

and Restricted Equity Securities 

February 5, 2010. 

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 January 

15, 2010, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) 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 

prepared by FINRA. On February 5, 

2010, FINRA filed Amendment No. 1 to 

the proposed rule change.3 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Amendment No. 

1, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend the 

FINRA OTC Reporting Facility (‘‘ORF’’) 

Rules and the PORTAL Rules (FINRA 

Rule 6630 Series) regarding the 

reporting requirements for restricted 

equity securities; update the definition 

of ‘‘OTC Equity Security;’’ and clarify 

member reporting obligations with 

respect to certain trades reported on or 

through an exchange. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The proposed rule change includes 

several amendments to the reporting 

provisions regarding the ORF. In 

general, the proposed rule change 

amends the definition of ‘‘OTC Equity 

Security’’ in the FINRA trade reporting 

rules to address the cessation of the 

PORTAL Market and clarifies the scope 

of the ORF rules. The proposed rule 

change also makes conforming changes 

to other FINRA rules, including the 

Order Audit Trail System (‘‘OATS’’) 

rules. 

(a) Amendments to the ORF Rules 

In 1990, the SEC adopted Rule 144A 

(‘‘SEC Rule 144A’’) under the Securities 

Act of 1933 4 (‘‘Securities Act’’) to 

establish a safe harbor for the private 

resale of ‘‘restricted securities’’ to 

‘‘qualified institutional buyers’’ 

(‘‘QIBs’’).5 At the same time, FINRA 

(then NASD) created the PORTAL 

Market to serve as a system for quoting, 

trading, and reporting trades in certain 

designated restricted securities that 

were eligible for resale under SEC Rule 

144A (‘‘PORTAL securities’’).6 In 

September 2008, the NASDAQ Stock 

Market (‘‘NASDAQ’’) ceased the 

operation of the PORTAL Market.7

NASDAQ explained in the rule filing 

that it is taking a minority stake in a 

consortium that will control and operate 

a new electronic platform for handling 

transactions in SEC Rule 144A-eligible 

securities.8 On October 26, 2009, 

NASDAQ filed a proposed rule change 

with the Commission for immediate 

effectiveness terminating NASDAQ’s 

PORTAL security designation process 

and removing rules related to the 

PORTAL Market from its rulebook.9 As 

a result, NASDAQ no longer accepts 

new applications for debt or equity 

securities seeking PORTAL 

designation.10

FINRA’s transaction reporting rules 

for restricted equity securities are 

currently tied to whether the security is 

designated for inclusion in the PORTAL 

Market. Specifically, FINRA’s general 

transaction reporting rules for over-thecounter equity securities specifically 

exclude restricted securities and 

PORTAL securities from the reporting 

requirements.11 FINRA’s PORTAL rules 

(FINRA Rule 6630 Series) require that 

transactions in PORTAL equity 

securities be reported to the ORF no 

later than 6:30 p.m. Eastern Time.12


pwalker on DSK8KYBLC1PROD with NOTICES
Federal Register / Vol. 75, No. 33 / Friday, February 19, 2010 / Notices 7531 

than the PORTAL rules. The proposed rule change 

deletes FINRA Rule 6633(b); however, the deletion 

of this provision does not affect the reporting 

obligations with respect to transactions in any debt 

security. 

13 In addition to the reporting rules, FINRA Rule 

6635 specifies which FINRA rules are and are not 

applicable to transactions and business activities 

relating to PORTAL securities. FINRA is proposing 

to retain Rule 6635 as FINRA Rule 6630 to maintain 

the status quo with respect to the application of 

FINRA rules to those securities previously 

designated as PORTAL securities prior to October 

26, 2009. 

14FINRA Rule 6633(a)(2) currently requires that 

transactions in PORTAL equity securities be 

reported to the ORF ‘‘no later than 6:30 p.m. Eastern 

Time (or the end of the OTC Reporting Facility 

reporting session that is in effect at that time).’’ 

Since December 4, 2006, the ORF reporting session 

has remained open until 8:00 p.m. Eastern Time. 

See Securities Exchange Act Release No. 54773 

(November 17, 2006), 71 FR 68665 (November 27, 

2006); see also Nasdaq Head Trader Alert 2006–120 

(August 23, 2006). The proposed rule change 

amends the time deadline reference in the rule to 

reflect the current hours of operation. 

15Rule 600 of Regulation NMS defines ‘‘NMS 

stock’’ as any NMS security other than an option. 

‘‘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.’’ See 17 CFR 

242.600(b)(46), 242.600(b)(47). 

16FINRA Rule 6440 (Submission of SEA Rule 

15c2–11 Information on Non-Exchange-Listed 

Securities) and NASD Rule 2320(f), which is often 

referred to as the Three Quote Rule, use the term 

‘‘non-exchange-listed security.’’ Because the 

proposed rule change deletes the term ‘‘nonexchange-listed security’’ from Rule 6420, the 

proposed rule change also amends FINRA Rule 

6440 and NASD Rule 2320(f) to define the term for 

purposes of those rules. The proposed definition in 

each rule is identical to the definition as it appeared 

in FINRA Rule 6420. Consequently, there is no 

change in the application of either rule as a result 

of the proposed rule change. 

17See e.g., FINRA Rule 6100, 6200, and 6300 

Series. 

18See FINRA Rules 6282(i)(1)(C), 6380A(e)(1)(C), 

6380B(e)(1)(C). 

19The ORF Rules do include an exception for 

transactions in foreign equity securities when the 

transaction is executed on and reported to a foreign 

securities exchange or the transaction is executed 

over the counter in a foreign country and is 

reported to the regulator of securities markets for 

that country. See FINRA Rule 6622(g). 

20 In Amendment No. 1, FINRA states as follows: 

‘‘The proposed rule change eliminates the separate 

definition of ‘‘OTC Equity Security’’ in FINRA Rule 

4560 (Short-Interest Reporting). Currently, the 

PORTAL Rules carve out PORTAL securities from 

the record keeping and reporting requirements of 

Rule 4560. See Rule 6635(d). Consistent with this 

existing exclusion for PORTAL securities, FINRA is 

proposing to amend Rule 4560 to exclude from the 

short-interest record keeping and reporting 

requirements all restricted equity securities, such 

that equity securities that are currently PORTAL 

securities would continue to be excepted from the 

record keeping and reporting requirements as well 

as any other restricted equity securities.’’ 

21See FINRA Rules 7440 and 7450. 

22 In addition, the proposed rule change codifies 

prior FINRA guidance that the OATS rules do not 

apply to orders for restricted equity securities. See 

Regulatory Notice 06–70 n.2 (December 2006). 

However, this requirement applies only 

to those restricted equity securities that 

are designated for inclusion in the 

PORTAL Market. Thus, the cessation of 

the operation of the PORTAL Market 

and the designation of securities as 

PORTAL securities creates a gap in 

FINRA’s transaction reporting 

requirements for restricted equity 

securities that are traded pursuant to 

SEC Rule 144A. 

FINRA believes it is appropriate to 

continue to receive information 

regarding transactions in restricted 

equity securities traded pursuant to SEC 

Rule 144A for audit trail and other 

regulatory purposes. FINRA is therefore 

proposing to eliminate the current 

PORTAL reporting rules 13 and amend 

the ORF rules to include reporting 

requirements for all equity securities 

that are ‘‘restricted securities’’ under 

Rule 144(a)(3) of the Securities Act and 

that are traded pursuant to SEC Rule 

144A, irrespective of whether they are 

designated as PORTAL securities. Under 

the proposed rule change, transactions 

in all restricted equity securities 

effected pursuant to SEC Rule 144A 

would generally be required to be 

reported to the ORF no later than 8:00 

p.m. Eastern Time without 

interruption.14 Transactions in 

restricted equity securities effected 

pursuant to SEC Rule 144A and 

executed between 8:00 p.m. and 

midnight would be required to be 

reported the following business day 

(T+1) by 8:00 p.m. 

In addition to the changes relating to 

restricted equity securities, FINRA is 

proposing clarifying changes to the 

definition of ‘‘OTC Equity Security’’ to 

delete the outdated reference to 

securities that ‘‘qualify for real-time 

trade reporting’’ and, instead, to define 

the term as any equity security that is 

not an ‘‘NMS stock’’ as defined by the 

SEC in Regulation NMS.15 The 

proposed rule change will also 

eliminate the defined term ‘‘nonexchange-listed security’’ from Rule 

6420.16 The effect of these changes is 

that any security or class of securities 

for which transaction reports are 

collected, processed, and made 

available pursuant to an effective 

transaction reporting plan will be 

excluded from the definition of ‘‘OTC 

Equity Security’’ in Rule 6420. 

The proposed rule change also 

amends the ORF rules to address 

explicitly transactions in OTC Equity 

Securities that are executed on an 

exchange. FINRA’s trade reporting rules 

historically have been limited to only 

trades executed ‘‘otherwise than on an 

exchange.’’ 17 For example, the FINRA/ 

NASDAQ TRF Rules, the FINRA/NYSE 

TRF Rules, and the ADF Rules all 

include an exception from the reporting 

obligations for transactions reported on 

or through an exchange.18 These rules 

collectively provide for the submission 

of trade reports to FINRA for 

transactions in NMS stocks only if the 

transaction is executed over the counter. 

FINRA Rule 6622 sets forth the 

requirements for members regarding the 

submission of transaction reports to the 

ORF for transactions in OTC Equity 

Securities. While, as discussed above, 

the FINRA TRF and ADF rules 

explicitly except transactions executed 

on or through an exchange, the ORF 

rules do not include a similar exception 

for transactions in otherwise eligible 

securities that are reported on or 

through an exchange.19 Thus, FINRA 

proposes to amend FINRA Rule 6622 to 

explicitly include an exception for 

transactions in OTC Equity Securities 

reported on or through an exchange. In 

addition, the proposed changes to Rule 

6420(k) and Rule 6610 further clarify 

that transactions in OTC Equity 

Securities must be reported to the ORF 

where such transactions are executed 

otherwise than on or through an 

exchange. 

(b) Amendments to the OATS Rules 

FINRA is proposing to conform the 

definition of ‘‘OTC equity security’’ in 

Rule 7410 of the OATS rules to the 

proposed definition in Rule 6420.20

Under the OATS rules, members are 

required to record and report order 

information for transactions in equity 

securities listed on NASDAQ and for 

‘‘OTC equity securities.’’ 21 For purposes 

of the OATS rules, Rule 7410(l) defines 

‘‘OTC equity security’’ as any equity 

security that: (1) is not listed on a 

national securities exchange, or (2) is 

listed on one or more regional stock 

exchanges and does not qualify for 

dissemination of transaction reports via 

the facilities of the Consolidated Tape. 

The rule currently excludes direct 

participation program securities from 

the scope of the OATS requirements, 

and the proposed rule change will 

maintain this exclusion.22 The proposed 

change will not result in any change to 

the scope of securities required to be 

reported to OATS. By using 

substantially similar definitions in both 

rule series, FINRA will ensure that the 

appropriate types of securities are 

addressed throughout FINRA’s order 

reporting, quotation, and trade reporting 

rules and that key terminology reflects 

current market structure and trends. 

FINRA will announce the effective 

date of the proposed rule change in a 

Regulatory Notice to be published no 


pwalker on DSK8KYBLC1PROD with NOTICES
7532 Federal Register / Vol. 75, No. 33 / Friday, February 19, 2010 / Notices 

23 15 U.S.C. 78o–3(b)(6). 

24The text of the proposed rule change is 

available on the Commission’s Web site at http:// 

www.sec.gov/. 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4See Regulatory Notice 09–71 (December 2009) 

(SEC Approves Consolidated FINRA Rules 

Governing Financial Responsibility). FINRA 

announced in Regulatory Notice 09–71 that the new 

financial responsibility rules will be implemented 

on February 8, 2010. 

See also Securities Exchange Act Release No. 

60933 (November 4, 2009), 74 FR 58334 (November 

12, 2009) (Order Granting Approval to Proposed 

Rule Change; File No. SR–FINRA–2008–067); 

Securities Exchange Act Release No. 61408 (January 

22, 2010), 75 FR 4596 (January 28, 2010) (Notice of 

later than 60 days following 

Commission approval. The effective 

date will be 30 days following 

publication of the Regulatory Notice 

announcing 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,23 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, and, in 

general, to protect investors and the 

public interest. FINRA believes that the 

proposed rule change will ensure that 

FINRA continues to receive important 

information regarding transactions in 

restricted securities traded pursuant to 

SEC Rule 144A. 

FINRA believes that the other 

proposed changes to the definition of 

‘‘OTC Equity Security’’ will ensure that 

the appropriate types of securities are 

addressed in the applicable FINRA rules 

and that key terminology reflects 

current market structure and trends. 

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. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 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 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 Exchange 

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–FINRA–2010–003 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2010–003. 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 

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

rules/sro.shtml). Copies of the 

submission,24 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 the 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–2010–003 and 

should be submitted on or before March 

12, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–3142 Filed 2–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–61513; File No. SR–FINRA– 

2010–008] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Incorporated 

NYSE Rule 312(g)(1) 

February 12, 2010. 

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 

4, 2010, 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 and 

II below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by the Commission. The 

Commission is publishing this notice to 

solicit 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 

FINRA proposes to make a technical 

change to the FINRA rulebook. FINRA 

proposes to amend Incorporated NYSE 

Rule 312(g)(1) so as to delete certain 

provisions that are rendered obsolete by 

the adoption of new FINRA Rule 4110 

in FINRA’s consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’).4


pwalker on DSK8KYBLC1PROD with NOTICES