Federal Register / Vol. 73, No. 155 / Monday, August 11, 2008 / Notices 46657 

16 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 two sets 

of rules: (1) NASD Rules and (2) rules incorporated 

from NYSE (‘‘Incorporated NYSE Rules’’) (together 

referred to as the ‘‘Transitional Rulebook’’). The 

Incorporated NYSE Rules apply only to those 

members of FINRA that are also members of the 

NYSE (‘‘Dual Members’’). Dual Members also must 

comply with NASD Rules. For more information 

about the rulebook consolidation process, see 

FINRA Information Notice, March 12, 2008 

(Rulebook Consolidation Process). 

4NASD Rule 6610(d) defines OTC Equity 

Security as ‘‘any non-exchange-listed security and 

certain exchange-listed securities that do not 

otherwise qualify for real-time trade reporting.’’

of the filing of the proposed rule change, 

the Commission may summarily 

abrogate such rule change if it appears 

to the Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

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–CBOE–2008–81 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington DC 20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2008–81. 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 inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 am and 3 pm. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of the Exchange. 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 No. 

SR–CBOE–2008–81 and should be 

submitted on or before September 2, 

2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–18487 Filed 8–8–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58302; File No. SR–FINRA–

2008–039] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rules 5110 (Corporate 

Financing Rule), 5190 (Notification 

Requirements for Offering 

Participants) and 6470 (Withdrawal of 

Quotations in an OTC Equity Security 

in Compliance With SEC Regulation M) 

in the Consolidated FINRA Rulebook 

August 4, 2008. 

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 July 16, 

2008, 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 (1) adopt 

NASD Rule 2710, without material 

change except for paragraphs (b)(10) and 

(11), as a FINRA rule in the 

consolidated FINRA rulebook; and (2) 

clarify and streamline the notice and 

other requirements in FINRA rules 

relating to Regulation M under the Act 

(including paragraphs (b)(10) and (11) of 

NASD Rule 2710 and paragraph (a) of 

Incorporated NYSE Rule 392). The 

proposed rule change would renumber 

NASD Rule 2710 as FINRA Rule 5110 

and adopt new FINRA Rules 5190 and 

6470 in the consolidated FINRA 

rulebook. 

The text of the proposed rule change 

is available at FINRA, on FINRA’s Web 

site at http://www.finra.org, and in 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 

the new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),3

FINRA is proposing to (1) adopt NASD 

Rule 2710 as FINRA Rule 5110, with the 

exception of paragraphs (b)(10) and (11); 

(2) adopt new FINRA Rule 5190, which 

would house the Regulation M-related 

notice requirements applicable to 

members participating in securities 

offerings (including paragraphs (b)(10) 

and (11) of NASD Rule 2710 and 

paragraph (a) of Incorporated NYSE 

Rule 392); (3) adopt new FINRA Rule 

6470, which would house certain 

Regulation M-related requirements that 

are currently in the OTC Bulletin Board 

(‘‘OTCBB’’) rules and would apply to all 

OTC Equity Securities;4 and (4) make 

conforming amendments to the 

Regulation M-related rules applicable to 

the Alternative Display Facility 

(‘‘ADF’’). 

Corporate Financing Rule 

NASD Rule 2710 (Corporate 

Financing Rule), except paragraphs 

(b)(10) and (11) (which are discussed 

below), regulates the underwriting terms 


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46658 Federal Register / Vol. 73, No. 155 / Monday, August 11, 2008 / Notices 

5See Exchange Act Release No. 38067 (December 

20, 1996), 62 FR 520 (January 3, 1997). 

6A ‘‘stabilizing bid’’ is a bid that is intended to 

maintain the price of the offered security and is 

necessary to prevent or retard a decline in the 

security’s price. A ‘‘penalty bid’’ allows a lead 

underwriter to reclaim a selling concession paid to 

a syndicate member if that member’s customers sell 

their allocated shares in the immediate aftermarket. 

A ‘‘syndicate covering transaction’’ is generally 

defined as placing a bid or effecting a purchase to 

reduce a syndicate short position. 

7See Exchange Act Release No. 56206 (August 6, 

2007), 72 FR 45094 (August 10, 2007). 

8See NASD Rule 6540(d)(1)(D)(iii). 

9See NASD Rule 6540(d)(1)(D)(ii). 

and arrangements of most public 

offerings, including shelf offerings, of 

securities sold through FINRA members. 

The Rule requires members to file with 

FINRA’s Corporate Financing 

Department (the ‘‘Corporate Financing 

Department’’) information regarding 

initial public offerings and certain 

secondary offerings and to submit 

pertinent documentation, including 

registration statements. The Corporate 

Financing Department reviews this 

information prior to commencement of 

the offering to determine whether the 

underwriting compensation and other 

terms and arrangements meet the 

requirements of applicable FINRA rules. 

Members are required to receive the 

Corporate Financing Department’s 

opinion of no-objections to the offering 

terms prior to participating in the 

offering. 

FINRA is proposing to adopt NASD 

Rule 2710 as FINRA Rule 5110 in the 

Consolidated FINRA Rulebook. With the 

exception of the deletion of paragraphs 

(b)(10) and (11), as discussed below, 

FINRA is proposing to make only 

technical non-substantive changes to the 

Rule, such as replacing references to 

NASD or the Association with FINRA, 

and certain conforming changes to 

references in the Rule to, e.g., the 

Exchange Act, SEA Rules, the Securities 

Act and Securities Act Rules. 

Regulation M-Related Requirements 

Background and Discussion of Current 

FINRA Rules 

Regulation M is designed to prevent 

manipulation by persons with an 

interest in the outcome of an offering 

and generally prohibits activities and 

conduct that could artificially influence 

the market for an offered security.5 In 

this regard, Regulation M generally 

prohibits underwriters, broker-dealers, 

issuers and other persons participating 

in a distribution from directly or 

indirectly bidding for or purchasing the 

offered security (or inducing another 

person to do so) during the ‘‘restricted 

period,’’ which commences on the later 

of either one or five business days prior 

to the determination of the offering 

price or such time that a person 

becomes a distribution participant. For 

purposes of determining whether a one 

or five-day or no restricted period 

applies under Regulation M, the SEC 

has adopted a dual standard of worldwide average daily trading volume 

(‘‘ADTV’’) and public float value. 

Regulation M also governs certain 

market activities, usually undertaken by 

the managing underwriter or 

underwriting group (i.e., stabilizing 

bids, syndicate covering transactions 

and penalty bids) 6 in connection with 

an offering and requires that notice of 

such activity be provided to the relevant 

self-regulatory organization or, in the 

case of stabilizing bids, the market 

where the stabilizing bid is to be posted. 

Finally, Regulation M generally 

prohibits any person from selling short 

a security that is the subject of a public 

offering and purchasing the security in 

the offering if such short sale was 

effected during the restricted period 

(which, for purposes of the short sale 

restrictions, generally is the five-day 

period prior to pricing).7

As part of FINRA’s program to 

monitor for member compliance with 

Regulation M, FINRA’s Market 

Regulation Department (the ‘‘Market 

Regulation Department’’) reviews 

members’ over-the-counter (‘‘OTC’’) 

trading and quoting activity for 

prohibited purchases and/or bids during 

the applicable restricted period and 

short sales during the five-day period 

prior to pricing the offering. FINRA 

rules must ensure that FINRA receives 

pertinent distribution-related 

information in a timely fashion to 

facilitate this component of FINRA’s 

Regulation M compliance program. 

FINRA’s current Regulation M-related 

rules comprise notice requirements set 

forth in NASD Rule 2710(b)(10) and (11) 

and Incorporated NYSE Rule 392 

(Notification Requirements for Offerings 

of Listed Securities), as well as 

marketplace-specific requirements in 

the OTCBB and ADF rules. NASD Rule 

2710(b)(10) requires members that are 

acting as manager (or in a similar 

capacity) of a distribution of unlisted 

securities that are considered a subject 

or reference security subject to Rule 101 

of Regulation M or an ‘‘actively traded’’

security under Rule 101 of Regulation M 

to submit a request for an Underwriting 

Activity Report (‘‘UAR’’) from the 

Market Regulation Department. The 

request for a UAR, which is the 

mechanism by which FINRA currently 

receives notice of prospective 

distributions, must be submitted at the 

time a registration statement or similar 

offering document is filed with the 

Corporate Financing Department, the 

SEC or other regulatory agency and if 

not filed with any regulatory agency, at 

least two business days prior to 

commencement of the restricted period. 

Such request must include a copy of the 

registration statement or similar offering 

document. If no member is acting as 

manager, then each member that is a 

distribution participant or affiliated 

purchaser shall submit the request for a 

UAR, unless another member has 

assumed responsibility for compliance. 

NASD Rule 2710(b)(11) requires 

members that are acting as manager (or 

in a similar capacity) of a distribution of 

securities that are listed on a national 

securities exchange and considered a 

subject security or reference security 

subject to Rule 101 of Regulation M or 

an ‘‘actively traded’’ security under Rule 

101 of Regulation M to provide notice 

to the Market Regulation Department of 

the pricing of the distribution, including 

the date and time of pricing, the offering 

price and the time the distribution 

terminated. Such notice must be 

provided no later than the close of 

business the day the offering terminates 

and may be submitted on the UAR. 

Incorporated NYSE Rule 392(a) 

requires that Dual Members provide 

notice of pricing and related 

information (including the restricted 

period, if any, the offering price and the 

basis for pricing) in connection with an 

offering of an NYSE-listed security. 

Incorporated NYSE Rule 392(b) requires 

that Dual Members provide notice of 

syndicate covering transactions and 

penalty and stabilizing bids in 

connection with an offering of an NYSElisted security. 

FINRA’s OTCBB and ADF-related 

marketplace rules also include certain 

Regulation M-related requirements. Any 

member that is a distribution participant 

or affiliated purchaser in a distribution 

of an OTCBB-eligible security must 

provide notice to the Corporate 

Financing Department of its intention to 

impose a penalty bid or conduct a 

syndicate covering transaction pursuant 

to Rule 104 of Regulation M.8

In addition, members are required to 

withdraw their quotations in the OTCBB 

(in OTCBB-eligible securities) and the 

ADF (in NMS stocks) to comply with 

applicable restricted periods under 

Regulation M. Specifically, a member 

that is a distribution participant or 

affiliated purchaser in a distribution of 

an OTCBB-eligible security must 

withdraw its quotations in the offered 

security 9 and provide notice to FINRA’s 

Operations Department prior to 


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10See NASD Rule 6540(d)(1)(D)(i). 

11See NASD Rule 6540(d)(1)(D)(iv). 

12See NASD Rule 6540(d)(1)(D)(ii). 

13See NASD Rule 4619A(f). 

14See NASD Rule 4619A(f)(1). 

15See NASD Rule 4619A(f)(3). 

16While the proposed rule change would place 

the onus of determining the applicable restricted 

period on the member for all distributions, as a 

practical matter, FINRA would accept notification 

by a member that the maximum five-day restricted 

period applies to a prospective distribution, 

without providing the basis for that determination. 

If, on the other hand, a member were to assert that 

a one-day or no restricted period applied to a 

particular distribution, FINRA would require that 

the member demonstrate the basis for that 

determination. 

17 In most instances, FINRA would expect to 

receive notification within the prescribed time 

frame, but may permit later notification in limited 

circumstances. Such determination would be made 

by the Market Regulation Department on a case-bycase basis. For example, there may be instances 

where the nature of the transaction has made it 

impossible to provide timely notice (e.g., a private 

investment in public equity (‘‘PIPE’’) offering is 

commenced and priced on the same day, and thus 

the member could not have provided notice on the 

business day prior to the first complete trading 

session of the applicable restricted period). Current 

NASD Rule 4619A(f)(1), which sets forth the notice 

and withdrawal of quotations requirements 

applicable to ADF participants for purposes of 

compliance with Regulation M, similarly 

contemplates later notification where necessary 

under the specific circumstances. 

18FINRA will announce the form and method of 

transmission in a Notice to be published on its Web 

site. For example, such form could include the 

request for a UAR in connection with distributions 

of Nasdaq-listed securities. 

Additionally, FINRA notes that the Market 

Regulation Department monitors for purposes of 

compliance with Regulation M on behalf of the 

Nasdaq Exchange pursuant to a Regulatory Services 

Agreement (RSA). The Market Regulation 

Department will continue to generate UARs on 

behalf of the Nasdaq Exchange under the RSA to 

assist firms in determining the applicable restricted 

period, as well as applicable Nasdaq passive market 

making limits, under Regulation M with respect to 

Nasdaq-listed securities pursuant to Nasdaq 

Exchange rules. 

pricing.10 The member must also 

provide notice to the Market Regulation 

Department upon the pricing of the 

distribution.11 Additionally, members 

are prohibited from entering stabilizing 

bids pursuant to Rule 104 of Regulation 

M in the OTCBB.12

With respect to quotations in the 

ADF, FINRA’s Operations Department 

may grant excused withdrawal status to 

a Registered Reporting ADF Market 

Maker, as defined in NASD Rule 

4200A(a)(14), that is a distribution 

participant or affiliated purchaser in a 

distribution of an NMS stock in order to 

comply with the applicable restricted 

period under Regulation M.13 A member 

acting as manager (or in a similar 

capacity), or any member that is a 

distribution participant or affiliated 

purchaser in a distribution that does not 

have a manager, must notify FINRA’s 

ADF Operations and the Market 

Regulation Department of a prospective 

distribution and request a withdrawal of 

each market maker’s quotations.14

Members also must submit a written 

request to ADF Operations and the 

Market Regulation Department to 

rescind the market maker’s excused 

withdrawal status and provide notice of 

the date and time of the pricing of the 

offering, the offering price, and the time 

the offering terminated.15

Proposed New FINRA Rule 5190 

To clarify and streamline FINRA’s 

rules in this area, FINRA is proposing to 

consolidate and house all Regulation 

M-related notice requirements in a 

single rule—proposed new FINRA Rule 

5190 (Notification Requirements for 

Offering Participants). The scope of the 

current rules and information required 

would be expanded, as necessary, to 

impose consistent notice requirements 

relating to distributions of listed and 

unlisted securities. The proposed rule 

change would ensure that FINRA 

receives from its members pertinent 

distribution-related information in a 

timely fashion. 

Proposed Rule 5190(c) sets forth the 

notice requirements applicable to 

distributions of listed and unlisted 

securities that are ‘‘covered securities’’

(as that term is defined under 

Regulation M) subject to a restricted 

period under Rule 101 or 102 of 

Regulation M. Specifically, proposed 

Rule 5190(c)(1)(A) would require 

members to determine, in accordance 

with Regulation M, whether a 

distribution is subject to a one-day or 

five-day restricted period under Rule 

101 of Regulation M, and provide 

written notice to FINRA of the members’

determination and the basis for such 

determination.16 Additionally, pursuant 

to proposed Rule 5190(c)(1)(A), 

members would be required to include 

in the written notice the contemplated 

date and time of commencement of the 

restricted period, identifying the 

distribution participants and affiliated 

purchasers. 

Members would be required to 

provide such notice no later than the 

business day prior to the first complete 

trading session of the applicable 

restricted period, unless later 

notification is necessary under specific 

circumstances.17 FINRA notes that 

where the principal market closes early, 

e.g., for a holiday, the shortened session 

would constitute a complete trading 

session for purposes of the proposed 

Rule. NASD Rule 2710(b)(10) requires 

that notice be provided at the time of 

filing the registration statement. 

However, for some distributions, 

particularly shelf offerings, the 

registration statement may be filed well 

in advance of commencement of the 

distribution. As a result, by the time the 

distribution takes place, the information 

previously provided by the member 

could be out-of-date or the ADTV or 

public float levels could have changed, 

in which case a different restricted 

period would apply. 

The proposed rule change would 

eliminate the express requirement under 

FINRA rules that members request a 

UAR and would instead permit FINRA 

to prescribe the form in which notice 

and the required information must be 

submitted to FINRA (including, as 

discussed above, notice of the member’s 

independent determination regarding 

whether a restricted period applies).18

The proposed rule change also would 

eliminate the requirement in NASD 

Rule 2710(b)(10) that members submit a 

copy of the registration statement. The 

Market Regulation Department does not 

rely on the registration statement in 

monitoring member quoting and trading 

activity for purposes of Regulation M 

compliance. Moreover, FINRA believes 

that this requirement could potentially 

suggest that the Regulation M-related 

requirements are applicable only to 

registered offerings when, in fact, 

certain unregistered offerings, e.g., 

private placements and PIPEs, are 

subject to Regulation M and FINRA’s 

notice requirements. 

Proposed Rule 5190(c)(1)(B) would 

require that upon pricing a distribution 

that is subject to a restricted period 

under Rule 101 of Regulation M, 

members provide written notice to 

FINRA and the following information: 

The security name and symbol, the type 

of security, the number of shares 

offered, the offering price, the last sale 

before the distribution, the pricing basis 

(e.g., the prior day closing price, a 

negotiated price, last sale, etc.), the SEC 

effective date and time, the trade date 

and the restricted period. Consistent 

with proposed paragraph (c)(1)(A), 

members also would be required to 

identify the distribution participants 

and affiliated purchasers. 

The notice under proposed Rule 

5190(c)(1)(B) would be required to be 

submitted no later than the close of 

business the next business day 

following the pricing of the distribution, 

unless later notification is necessary 

under specific circumstances. NASD 

Rule 2710(b)(11) requires that notice of 

pricing be provided no later than the 

close of business the day the offering 

terminates; however, most members 

immediately provide notice of pricing 

today. In addition to being consistent 


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19The exclusion for ‘‘actively traded securities’’

removes from Rule 101 of Regulation M securities 

with an ADTV value of at least $1 million where 

the issuer’s common equity securities have a public 

float value of at least $150 million. 

20FINRA notes that a member that is an issuer or 

selling security holder in a distribution of an 

actively traded security that is subject to a restricted 

period under Rule 102 of Regulation M would be 

required to comply with the notice requirements 

under proposed Rule 5190(c)(2). 

21Members would be required to update the 

notice required under the proposed Rule, as 

necessary (e.g., a manager would update the notice 

where distribution participants are added after 

commencement of the restricted period). 

22On May 23, 2008, FINRA filed proposed rule 

change SR–FINRA–2008–021, in which FINRA 

proposes, among other things, to adopt NASD 

Marketplace Rules 4200A, 4619A and 6540 as 

FINRA Rules 6220, 6275 and 6540, respectively, 

and the NASD Rule 6600 Series as the FINRA Rule 

6400 Series, without material change, in the 

Consolidated FINRA Rulebook. Assuming 

Commission approval of SR–FINRA–2008–021 

prior to the approval of this proposed rule change, 

FINRA will amend this filing, as necessary, to 

reflect such approval. 

The Staff of the Commission (‘‘Staff’’) also notes 

that FINRA has filed two other proposals related to 

NASD Rule 2710 previously (SR–NASD–2004–022 

and SR–FINRA–2007–009) that are outstanding. 

The Staff has confirmed with FINRA that they will 

amend those filings to reflect the movement of 

NASD Rule 2710 to the Consolidated FINRA 

Rulebook. 

with current practice, the proposed rule 

change would ensure that FINRA gets 

timely pricing information in instances 

where a distribution does not terminate 

for weeks or even months after pricing. 

Finally, proposed Rule 5190(c)(1)(C) 

would require that members provide 

written notice of the cancellation or 

postponement of any distribution for 

which prior notice of commencement of 

the restricted period has been provided 

to FINRA. Members would be required 

to provide such notice immediately 

upon the cancellation or postponement 

of the distribution. 

Proposed Rule 5190(c)(2) would 

require that any member that is an 

issuer or selling security holder in a 

distribution of any security that is a 

covered security subject to a restricted 

period under Rule 102 of Regulation M 

comply with the notice requirements of 

proposed Rule 5190(c)(1), unless 

another member has assumed 

responsibility in writing for compliance 

therewith. The proposed provision 

would ensure that FINRA receives 

notice of any distribution in which a 

member is participating as an issuer or 

selling security holder, to the extent that 

notice of such distribution has not 

already been provided under proposed 

Rule 5190. 

Proposed Rule 5190(d) sets forth the 

notice requirements applicable to 

distributions of listed and unlisted 

securities that are considered ‘‘actively 

traded’’ securities and thus are not 

subject to a restricted period under Rule 

101 of Regulation M.19 In connection 

with such distributions, pursuant to 

proposed Rule 5190(d)(1), members 

would be required to provide written 

notice to FINRA of the member’s 

determination that no restricted period 

applies and the basis for such 

determination. Proposed Rule 

5190(d)(1) would require that such 

notice be provided at least one business 

day prior to the pricing of the 

distribution, unless later notification is 

necessary under specific circumstances. 

Proposed Rule 5190(d)(2) would 

require that upon pricing a distribution 

of a security that is considered ‘‘actively 

traded’’ under Rule 101 of Regulation 

M, members provide written notice to 

FINRA and the same pricing-related 

information that would be required 

under proposed paragraph (c)(1)(B) 

(discussed above). Also consistent with 

proposed paragraph (c)(1)(B), proposed 

Rule 5190(d)(2) would require members 

to identify the distribution participants 

and affiliated purchasers, and provide 

the required notice no later than the 

close of business the next business day 

following the pricing of the distribution, 

unless later notification is necessary 

under specific circumstances.20

Under paragraphs (c)(1) and (d) of 

proposed Rule 5190, a member acting as 

manager (or in a similar capacity) of the 

distribution would have the obligation 

to submit the requisite notice to FINRA. 

However, if no member is acting as 

manager (or in a similar capacity), then 

each member that is a distribution 

participant or affiliated purchaser 

would be required to provide notice to 

FINRA, unless another FINRA member 

has assumed responsibility in writing 

for compliance with the notice 

requirement. This is consistent with the 

current approach under NASD Rule 

2710(b)(10).21

Finally, proposed Rule 5190(e) would 

require members to provide notice to 

FINRA of penalty bids or syndicate 

covering transactions in connection 

with an offering of an OTC Equity 

Security. Members would be required to 

provide notice to FINRA of their 

intention to conduct such activity, prior 

to imposing the penalty bid or engaging 

in the first syndicate covering 

transaction, as well as pertinent 

information, such as identification of 

the security and its symbol and the date 

such activity will occur. In addition, 

members would be required to 

subsequently confirm such activity 

within one business day of completion, 

including identification of the security 

and its symbol, the total number of 

shares and the date(s) of such activity. 

The proposed provision is substantially 

similar to NASD Rule 6540(d)(1)(D)(iii). 

By including these notice requirements 

in proposed Rule 5190, the proposed 

rule change would clarify that they 

apply to distributions of all OTC Equity 

Securities and are not limited to 

distributions of OTCBB-eligible 

securities. 

In light of the foregoing, FINRA is 

proposing to delete paragraphs (b)(10) 

and (11) from NASD Rule 2710 and 

Incorporated NYSE Rule 392 in its 

entirety. The notice requirements of 

NASD Rule 2710(b)(10) and (11) and 

Incorporated NYSE Rule 392(a) largely 

would be incorporated in proposed Rule 

5190. Because Incorporated NYSE Rule 

392(b) is specific to the NYSE 

marketplace, FINRA is not proposing 

that these requirements become part of 

the Consolidated FINRA Rulebook. 

Proposed Amendments to Marketplace 

Rules 

FINRA also is proposing to clarify the 

scope and application of the Regulation 

M-related requirements that are in the 

current OTCBB and ADF marketplace 

rules.22 FINRA is proposing to adopt 

new FINRA Rule 6470 (Withdrawal of 

Quotations in an OTC Equity Security in 

Compliance with SEC Regulation M), 

which would (1) require a member that 

is a distribution participant, affiliated 

purchaser, selling security holder or 

issuer in a distribution of an OTC Equity 

Security that is a covered security 

subject to Rule 101 or Rule 102 of 

Regulation M to withdraw all quotations 

in the security during the restricted 

period; and (2) prohibit the entry of 

stabilizing bids for the OTC Equity 

Security pursuant to Rule 104 of 

Regulation M. Proposed Rule 6470 is 

substantially similar to NASD Rule 

6540(d)(1)(D)(ii) and would clarify that 

the requirements apply not only to 

OTCBB-eligible securities, but to all 

OTC Equity Securities quoted in any 

inter-dealer quotation system (i.e., 

OTCBB and Pink Sheets). Thus, under 

the proposed rule change, the 

Regulation M-related provisions would 

be deleted from the OTCBB rules 

(specifically, paragraphs (d)(1)(D), (E) 

and (F) would be deleted from NASD 

Rule 6540) and comparable 

requirements would be housed in either 

proposed Rule 5190, as discussed above, 

or proposed Rule 6470. 

Second, FINRA is proposing to make 

certain conforming changes to the 

Regulation M-related rules applicable to 

the ADF. Specifically, FINRA is 

proposing to amend NASD Rule 

4619A(f) to conform to the language and 

structure of proposed Rule 6470. Thus, 

a Registered Reporting ADF Market 


rmajette on PRODPC74 with NOTICES
Federal Register / Vol. 73, No. 155 / Monday, August 11, 2008 / Notices 46661 

23 15 U.S.C. 78o–3(b)(6). 

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Maker that is a distribution participant, 

affiliated purchaser, selling security 

holder or issuer in a distribution of an 

NMS stock that is a covered security 

subject to Rule 101 or 102 of Regulation 

M would be required to request an 

excused withdrawal of its quotations in 

the ADF in the offered security. FINRA 

believes that it is more appropriate to 

impose such obligation on the member 

that is posting the quotation, rather than 

require the manager of the distribution 

to do so on behalf of each member. 

FINRA also is proposing to amend 

NASD Rule 4200A, which sets forth the 

definitions applicable to the ADF rules, 

to make technical and conforming 

changes such as adding necessary 

references to Regulation M and deleting 

definitions that are currently not used in 

the ADF rules. 

FINRA believes that the proposed rule 

change will significantly improve the 

clarity of the current rules and enhance 

the information FINRA receives, which 

will better enable FINRA to monitor 

member OTC quoting and trading for 

purposes of Regulation M compliance. 

FINRA will announce the 

implementation date of the proposed 

rule change in a Regulatory Notice to be 

published no later than 60 days 

following 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. The rules being adopted 

as part of the Consolidated FINRA 

Rulebook previously have been found to 

meet the statutory requirements, and 

FINRA believes that those rules have 

since proven effective in achieving the 

statutory mandates. In addition, FINRA 

believes that the proposed rule change 

will significantly improve the clarity of 

FINRA’s current Regulation M-related 

rules and enhance FINRA’s ability to 

monitor member OTC quoting and 

trading for purposes of Regulation M 

compliance. 

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 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 insert SR–FINRA–2008–039 on 

the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Florence Harmon, Acting Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2008–039. 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 inspection and copying 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–2008–039 and 

should be submitted on or before 

September 2, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Florence Harmon, 

Acting Secretary. 

[FR Doc. E8–18371 Filed 8–8–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58291; File No. SR–FINRA–

2008–043] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Establish a 

Membership Waive-In Process and Fee 

Waiver for Certain NYSE Alternext U.S. 

LLC Member Organizations 

August 1, 2008. 

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 July 30, 

2008, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) 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 FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 


rmajette on PRODPC74 with NOTICES