Federal Register / Vol. 75, No. 107 / Friday, June 4, 2010 / Notices 31825 

12 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The 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). 

4As defined in NASD Rule 2720(f)(5), a conflict 

of interest exists, if at the time of a member’s 

participation in an entity’s public offering, any of 

the following four conditions applies: (1) The 

securities are to be issued by the member; (2) the 

issuer controls, is controlled by or is under common 

control with the member or the member’s 

associated persons; (3) at least five percent of the 

net offering proceeds, not including underwriting 

compensation, are intended to be (i) used to reduce 

or retire the balance of a loan or credit facility 

extended by the member, its affiliates and its 

associated persons, in the aggregate; or (ii) 

otherwise directed to the member, its affiliates and 

associated persons, in the aggregate; or (4) if, as a 

result of the public offering and any transactions 

contemplated at the time of the public offering (i) 

the member will be an affiliate of the issuer; (ii) the 

member will become publicly owned; or (iii) the 

issuer will become a member or form a brokerdealer subsidiary. NASD Rule 2720 defines several 

terms for purposes of the rule, including ‘‘entity,’’ 

‘‘control,’’ and ‘‘common control.’’ 

5The rule requires prominent disclosure of the 

nature of the conflict, and in certain circumstances, 

the participation of a qualified independent 

underwriter. Members also must comply with 

certain net capital, discretionary accounts and filing 

requirements, as applicable. 

6See Securities Exchange Act Release No. 60113 

(June 15, 2009), 74 FR 29255 (June 19, 2009) (Order 

Approving Proposed Rule Change; File No. SR– 

FINRA–2007–009). 

7See Regulatory Notice 09–49 (SEC Approves 

Amendments to Modernize and Simplify NASD 

Rule 2720 Relating to Public Offerings in Which a 

Member Firm With a Conflict of Interest 

Participates) (August 2009). 

8 15 U.S.C. 78o–3(b)(6). 

available publicly. All submissions 

should refer to File Number SR–CBOE– 

2010–043 and should be submitted on 

or before June 25, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–13437 Filed 6–3–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62199; File No. SR–FINRA– 

2010–026] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rule 5121 (Public Offerings of 

Securities With Conflicts of Interest) in 

the Consolidated FINRA Rulebook 

June 1, 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 May 20, 

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 

substantially prepared by FINRA. 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 is proposing to adopt NASD 

Rule 2720 (Public Offerings of Securities 

With Conflicts of Interest) as a FINRA 

rule in the consolidated FINRA 

rulebook without material change. The 

proposed rule change would renumber 

NASD Rule 2720 as FINRA Rule 5121 in 

the consolidated FINRA rulebook. 

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 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to adopt NASD 

Rule 2720 (Public Offerings of Securities 

With Conflicts of Interest) without 

material change as FINRA Rule 5121 in 

the Consolidated FINRA Rulebook. 

NASD Rule 2720 governs public 

offerings of securities in which a 

member with a conflict of interest 

participates. The rule generally 

prohibits a member with a ‘‘conflict of 

interest,’’ as defined in the rule,4 from 

participating in a public offering, unless 

certain other requirements are met.5

There is no comparable Incorporated 

NYSE Rule. 

On June 15, 2009, the SEC approved 

a proposed rule change to modernize 

NASD Rule 2720 (the ‘‘2009 Rule 

Change’’).6 The 2009 Rule Change 

became effective on September 14, 

2009.7

The proposed rule change would 

adopt NASD Rule 2720 without material 

change as FINRA Rule 5121 in the 

Consolidated FINRA Rulebook. The rule 

would make minor changes to reflect 

the new terminology conventions of the 

Consolidated FINRA Rulebook. 

FINRA will announce the 

implementation date of the proposed 

rule change in a Regulatory Notice to be 

published no later than 90 days 

following Commission approval. The 

implementation date will be no later 

than 180 days from 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,8 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 continue to 

serve to protect investors in offerings 

where the member has a conflict of 

interest. 

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. 


srobinson on DSKHWCL6B1PROD with NOTICES
31826 Federal Register / Vol. 75, No. 107 / Friday, June 4, 2010 / Notices 

9 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. 61785 

(March 25, 2010), 75 FR 16888. 

4Amendment No. 1 deleted the word ‘‘or’’ from 

the rule text of the proposal and deleted a footnote 

from the purpose section and Exhibit 1 of the 

proposal. Because the amendment does not affect 

the substance of the rule filing, the amendment 

does not require notice and comment. 

5 ‘‘Delta neutral’’ is defined as a precise term for 

purposes of the Equity Exemption in Rule 

4.11.04(c)(A). 6Under Rule 4.11.04(c)(C), ‘‘permitted pricing 

model’’ for purposes of the Equity Exemption is a 

pricing model: (1) Maintained and operated by the 

Options Clearing Corporation (‘‘OCC Model’’); (2) 

maintained and used by a member or its nonmember affiliate subject to consolidated supervision 

by the Commission pursuant to Appendix E of Rule 

15c3–1, 17 CFR 240.15c3–1, under the Act; (3) 

maintained and used by a financial holding 

company (‘‘FHC’’) or a company treated as an FHC 

under the Bank Holding Company Act of 1956, or 

its affiliate subject to consolidated holding 

company group supervision; (4) maintained and 

used by a Commission-registered OTC derivatives 

dealer; or (5) used by a national bank under the 

National Bank Act. 

7See Securities Exchange Act Release No. 56970 

(December 14, 2007), 72 FR 72428 (December 20, 

2007) (SR–CBOE–2007–99) (‘‘Exemption Approval 

Order’’). In August 2009, the Commission approved 

a CBOE proposal to extend the Equity Exemption 

to customers. See Securities Exchange Act Release 

No. 60555 (August 21, 2009), 74 FR 43741 (August 

27, 2009) (SR–CBOE–2009–39). The Commission 

notes that the Equity Exemption is not currently 

available to customers. See Securities Exchange Act 

Release No. 61857 (April 7, 2010), 75 FR 18931 

(April 13, 2010) (SR–CBOE–2010–30). 

8 ‘‘Net delta’’ is defined as a precise term for the 

purposes of the Equity Exemption in Rule 

4.11.04(c)(B). 

9However, this would not include baskets of 

securities for purposes of the delta hedging 

exemptions. 

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 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–2010–026 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–2010–026. 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, 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 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–2010–026 and 

should be submitted on or before June 

25, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–13460 Filed 6–3–10; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62190; File No. SR–CBOE– 

2010–021] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Order Approving 

Proposed Rule Change as Modified by 

Amendment No. 1 Thereto Relating to 

Correlated Instrument Delta Hedge 

Exemption 

May 27, 2010. 

On March 19, 2010, the Chicago 

Board Options Exchange, Incorporated 

(‘‘Exchange’’ or ‘‘CBOE’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’), pursuant to Section 

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

(i) expand the delta hedging exemption 

available for equity options position 

limits; (ii) amend the reporting 

requirements applicable to members 

relying on the delta hedging exemption; 

and (iii) adopt a delta hedging 

exemption from certain index options 

position limits. The proposed rule 

change was published for comment in 

the Federal Register on April 2, 2010.3

On May 19, 2010, CBOE filed 

Amendment No. 1 to the proposal.4 The 

Commission received no comment 

letters on the proposal. This order 

approves the proposed rule change, as 

modified by Amendment No. 1. 

In December 2007, the Commission 

approved a CBOE proposal to create an 

exemption from position and exercise 

limits applicable to equity options 

(stock options and options on exchangetraded funds) for positions held by 

CBOE members and certain nonmember affiliates that are delta neutral 5

under a ‘‘permitted pricing model’’ 6

(‘‘Equity Exemption’’).7 When a position 

is not delta neutral, only the option 

contract equivalent of the net delta 8 of 

the position remains subject to the 

position limits in Rule 4.11. Currently, 

the Equity Exemption is available only 

for securities that directly underlie the 

applicable option position. For example, 

with respect to options on exchangetraded funds (‘‘ETF options’’), index 

options overlying the same index on 

which the ETF is based currently cannot 

be combined with the ETF options to 

calculate a net delta for purposes of the 

Equity Exemption. 

The proposed rule change would 

expand the Equity Exemption by 

permitting equity option positions for 

which the underlying security is an ETF 

that is based on the same index as an 

index option to be combined with any 

position in the underlying ETF as well 

as any position in an index option and/ 

or a correlated instrument for 

calculation of the Equity Exemption.9

The term ‘‘correlated instrument’’ would 


srobinson on DSKHWCL6B1PROD with NOTICES