46108 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 

5 15 U.S.C. 78o–3(b)(6). 

6 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3On May 23, 2008, FINRA filed with the 

Commission a proposed rule change (SR–FINRA–

2008–021) in which FINRA proposed, among other 

things, to adopt without material change NASD 

Rule 6200 Series and NASD Rule 6230 as, 

respectively, FINRA Rule 6700 Series and FINRA 

Rule 6730. If the Commission approves this 

proposed rule change prior to approving SR–

FINRA–2008–021, FINRA will amend SR–FINRA–

2008–021 as necessary to reflect such approval. If 

the Commission approves SR–FINRA–2008–021 

prior to approving this proposed rule change, 

FINRA will amend this proposed rule change as 

necessary to reflect such approval. 

4The term ‘‘TRACE-eligible security’’ is defined 

in NASD Rule 6210(a). 

the subsidiaries are that of NASD, 

subject to oversight pursuant to the 

Exchange Act, and all officers, directors, 

employees and agents of the 

subsidiaries are that of NASD for 

purposes of the Exchange Act. FINRA is 

proposing that this rule be transferred 

into the Consolidated FINRA Rulebook 

with only minor, non-substantive 

changes. 

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,5 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 clarify and 

streamline the General Provisions rules 

for adoption as FINRA rules in the new 

Consolidated FINRA Rulebook. 

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 reason for so finding or (ii) 

as to which FINRA 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–2008–026 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–FINRA–2008–026. 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 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 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–

2008–026 and should be submitted on 

or before August 28, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–18152 Filed 8–6–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58283; File No. SR–FINRA–

2008–040] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Eliminate 

the Requirement To Report Yield to 

TRACE and for FINRA To Calculate 

Yield That Will Be Disseminated by 

TRACE 

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 17, 

2008, the 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. 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: (a) Amend 

NASD Rule 6230(c) 3 to eliminate the 

requirement to report yield to the Trade 

Reporting and Compliance Engine 

(‘‘TRACE’’) system (‘‘TRACE System’’) 

when a member reports a transaction in 

a TRACE-eligible security 4 and (b) 

implement a policy to disseminate yield 


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Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 46109 

5 Yield is not reported when the TRACE-eligible 

security is in default; a security for which the 

interest rate floats; a security for which the interest 

rate will or may be ‘‘stepped-up’’ or ‘‘steppeddown’’ and the amount of increase or decrease is 

an unknown variable; a pay-in-kind (‘‘PIK’’) 

security; a security where the principal or interest 

to be paid is an unknown variable or is an amount 

that is not currently ascertainable; or any other 

security that FINRA designates if FINRA determines 

that reporting yield would provide inaccurate or 

misleading information concerning the price of, or 

trading in, the security. See NASD Rule 6230(c)(13). 

6The disseminated TRACE data includes all 

transactions reported to TRACE except certain 

transactions executed pursuant to Rule 144A under 

the Securities Act of 1933. 17 CFR 230.144A. 

7Standard yield is included in the disseminated 

TRACE data when yield is required to be reported 

and the member fails to submit it. 

8The Standard yield in TRACE is calculated as 

the internal rate of return according to a discounted 

cash flow model. Currently, Standard yield is 

calculated, in a principal trade, on the reported 

price, which includes the mark-up/mark-down, and 

in an agency trade, on the reported price and 

reported commission. Standard yield does not 

include any fees or charges that are not included, 

in a principal trade, as part of the reported price, 

and in an agency trade, in the reported commission. 

Standard yield is calculated as the lower of yield 

to call (if the bond is callable) and yield to maturity, 

or so-called ‘‘yield-to-worst.’’ All results are 

calculated using standards, rules or practices 

generally accepted in the industry (e.g., Standard 

yield is calculated using a day count of 30/360, 

which is standard for corporate bonds). Currently, 

Standard yield is calculated utilizing a calculation 

library that is widely used by professionals in the 

securities industry. See e-mail from Sharon 

Zackula, Associate Vice President and Associate 

General Counsel, FINRA, to Michael Gaw, Assistant 

Director, and Geoffrey Pemble, Special Counsel, 

Division of Trading and Markets, Commission, 

dated July 25, 2008. 

as calculated by the TRACE system 

(‘‘Standard yield’’) in TRACE data. 

Below is the text of the proposed rule 

change. Proposed new language is in 

italics; proposed deletions are in 

brackets. 

* * * * * 

6200. TRADE REPORTING AND 

COMPLIANCE ENGINE (TRACE) 

* * * * * 

6230. Transaction Reporting 

(a) through (b) No Change. 

(c) Transaction Information to Be 

Reported 

Each TRACE trade report shall 

contain the following information: 

(1) Through (10) No Change. 

(11) Stated commissions; and 

(12) Such trade modifiers as required 

by either the TRACE rules or the TRACE 

users guide.[; and] 

[(13) The lower of yield to call or 

yield to maturity. A member is not 

required to report yield when the 

TRACE-eligible security is a security 

that is in default; a security for which 

the interest rate is floating; a security for 

which the interest rate will be or may 

be increased (e.g., certain ‘‘step-up 

bonds’’) or decreased (e.g., certain ‘‘stepdown bonds’’) and the amount of 

increase or decrease is an unknown 

variable; a pay-in-kind security (‘‘PIK’’); 

any other security where the principal 

or interest to be paid is an unknown 

variable or is an amount that is not 

currently ascertainable, or any other 

security that the Association designates 

if the Association determines that 

reporting yield would provide 

inaccurate or misleading information 

concerning the price of, or trading in, 

the security.] 

(d) through (f) No Change. 

* * * * * 

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 

FINRA proposes to eliminate the 

requirement to report yield when a 

member reports a transaction in a 

TRACE-eligible security. In addition, 

FINRA proposes to include a yield 

(‘‘Standard yield’’) calculated based on 

the disseminated price in disseminated 

real-time TRACE data, with certain 

exceptions that would be identified 

clearly. 

Currently, NASD Rule 6230(c) 

requires that a member report to TRACE 

price, yield and other information for 

every transaction in a TRACE-eligible 

security. NASD Rule 6230(c)(13) 

specifically requires that a member 

report, for most transactions, the lower 

of yield to call or yield to maturity. 

Yield is not reported if the TRACEeligible security is in default, if the 

interest rate floats and the adjusted 

amount is unknown and in several other 

circumstances where an unknown 

variable prevents yield calculation or 

where the reported yield would provide 

inaccurate or misleading information.5

Information, including memberreported yield, on all transactions 

(except Rule 144A transactions) is 

disseminated currently by TRACE upon 

receipt of the report.6 The TRACE 

System also calculates the Standard 

yield. However, generally this Standard 

yield currently is not disseminated in 

TRACE data.7

FINRA proposes to eliminate the 

requirement to report yield to TRACE 

and to disseminate a Standard yield in 

disseminated TRACE data. The 

Standard yield for each transaction 

would be calculated based on the same 

assumptions, using a method adopted 

by many professional market 

participants.8 The price upon which 

Standard yield would be calculated 

would be the price as disseminated by 

TRACE. Generally, this means that, for 

principal transactions, it would be the 

reported price inclusive of markup, and, 

for agency trades, it would be the 

reported price plus any reported 

commission. 

Disseminated TRACE data would not 

include Standard yield for those 

transactions with respect to which a 

member currently is not required to 

report yield under NASD Rule 

6230(c)(13). Thus, Standard yield would 

not be disseminated when the TRACEeligible security is in default; a security 

for which the interest rate floats; a 

security for which the interest rate will 

or may be ‘‘stepped-up’’ or ‘‘steppeddown’’ and the amount of increase or 

decrease is an unknown variable; a payin-kind (‘‘PIK’’) security; a security 

where the principal or interest to be 

paid is an unknown variable or is an 

amount that is not currently 

ascertainable; or when FINRA 

determines that disseminating a yield 

would provide inaccurate or misleading 

information concerning the price of, or 

trading in, the security. 

FINRA does not believe that 

transparency will be affected adversely 

if member-reported yields are no longer 

reported nor disseminated and, instead, 

Standard yields are disseminated. 

Currently, there is no uniformity in the 

manner by which members calculate 

yield, as members use several different 

methods (and assumptions). For 

example, some firms begin the 

calculation based on Trade date, while 

others begin on T + 1. In addition, some 

firms include all miscellaneous fees and 

charges in their yield calculations, 

while others only include such fees and 

charges if they exceed a specified 

amount. Thus, it is possible for two 

firms to report contemporaneous 

transactions in the same bond at the 


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46110 Federal Register / Vol. 73, No. 153 / Thursday, August 7, 2008 / Notices 

9 17 CFR 240.10b–10. 

10 Id. 

11 Id. 12 15 U.S.C. 78o–3(b)(6). 

same price, charging the same 

miscellaneous fees, but report different 

yields because they use different 

methods or assumptions or include or 

omit certain charges or fees. The 

possible variance in member-reported 

yields in the same security executed at 

the same price makes such yields less 

valuable as a tool to improve corporate 

bond market transparency for market 

participants, especially individual 

investors. 

In addition, the consistency achieved 

by FINRA’s proposal to disseminate a 

Standard yield will enhance the 

usefulness of TRACE data to market 

participants. Disseminating Standard 

yields in TRACE data, which are 

calculated according to a single formula 

and a uniform set of assumptions, will 

provide more useful information, 

especially for customers other than 

market professionals, and will permit 

retail customers to compare yields of 

contemporaneous transactions in the 

same and similar securities more 

meaningfully. 

Moreover, deleting member-reported 

yields from disseminated TRACE data 

and replacing them with Standard 

yields will not limit a customer’s access 

to relevant yield information. Under 

SEC Rule 10b–10, a customer currently 

receives yield information in the 

customer’s confirmation.9 That yield is 

specifically calculated, reflecting the 

price and various fees the customer was 

charged by the member, as required in 

SEC Rule 10b–10.10 The value of seeing 

both the Standard yield and the 

member-calculated yield may provide 

additional transparency to retail 

customers. For example, a customer 

could compare the yield calculated by 

the member in the SEC Rule 10b–10 11

confirmation with the Standard yield in 

the TRACE data and more readily 

determine the impact that fees specific 

to a corporate bond transaction or a 

member have on the customer’s yield. 

Finally, FINRA’s assessment of a 

member’s compliance with various 

provisions of the TRACE rules and the 

federal securities laws will continue to 

be achieved using the Standard yield 

calculated by TRACE. For example, 

FINRA currently uses member-reported 

yields to validate member-reported 

prices. However, by comparing memberreported prices to the Standard yield, 

FINRA will be able to continue 

performing basic price validation 

without requiring firms to provide yield 

as part of their trade reports. 

Vendors. As part of FINRA’s yield 

dissemination policy, FINRA will 

require that data vendors providing 

TRACE data to the market and to 

redistributors of such data display yield 

in real-time TRACE data. However, 

certain vendors desire to disseminate a 

yield calculated by the vendor, rather 

than use the Standard yield. FINRA 

proposes to permit this flexibility, 

provided that vendors that display a 

yield other than the Standard yield 

disclose that they are disseminating a 

yield other than the Standard yield 

provided by FINRA. 

FINRA will announce the effective 

date of the proposed rule change in a 

Regulatory Notice to be published no 

later than 60 days following 

Commission approval. The effective 

date will be no later than 90 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,12 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 

amending the TRACE reporting 

provisions to reduce a reporting burden 

and to implement a dissemination 

policy to provide more standardized 

yield information to investors will 

increase transparency in the corporate 

bond markets, protect investors and is 

in the public interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change would impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of 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 SR–FINRA–2008–040 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2008–040. 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 


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13 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)(i). 

4 17 CFR 240.19b–4(f)(1). 

5The current FINRA rulebook consists of two sets 

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

from NYSE (‘‘Incorporated NYSE Rules’’). While the 

NASD Rules generally apply to all FINRA members, 

the Incorporated NYSE Rules apply only to 

members of both FINRA and the NYSE, referred to 

as Dual Members. 

6See Exchange Act Release No. 55471 (March 14, 

2007), 72 FR 13149 (March 20, 2007) (Notice of 

Filing and Immediate Effectiveness of SR–NASD–

2007–013). 

7See Exchange Act Release No. 54918 (December 

12, 2006), 71 FR 75790 (December 18, 2006) (SR–

NYSE–2006–13, relating to further amendments to 

the NYSE’s portfolio margin pilot program); 

Exchange Act Release No. 54125 (July 11, 2006), 71 

FR 40766 (July 18, 2006) (SR–NYSE–2005–93, 

relating to amendments to the NYSE’s portfolio 

margin pilot program); Exchange Act Release No. 

52031 (July 14, 2005) 70 FR 42130 (July 21, 2005) 

(SR–NYSE–2002–19, relating to the NYSE’s original 

portfolio margin pilot). See also Exchange Act 

Release No. 54919 (December 12, 2006), 71 FR 

75781 (December 18, 2006) (SR–CBOE–2006–14, 

relating to amendments to the CBOE’s portfolio 

margin pilot); Exchange Act Release No. 52032 (July 

14, 2005) 70 FR 42118 (July 21, 2005) (SR–CBOE–

2002–03, relating to the CBOE’s original portfolio 

margin pilot). 

8See Exchange Act Release No. 56108 (July 19, 

2007) 72 FR 41375 (July 27, 2007) (Notice of Filing 

and Immediate Effectiveness of SR–NASD–2007–

045). See also Exchange Act Release No. 56107 (July 

19, 2007) 72 FR 41377 (July 27, 2007) (Notice of 

Filing and Immediate Effectiveness of SR–NYSE–

2007–56, relating to extension of the NYSE portfolio 

margin pilot program to July 31, 2008) and 

Exchange Act Release No. 56109 (July 19, 2007) 72 

FR 41365 (July 27, 2007) (Notice of Filing and 

Immediate Effectiveness of SR–CBOE–2007–75, 

relating to extension of the CBOE portfolio margin 

pilot program to July 31, 2008). 

9See SR–FINRA–2008–041 and SR–CBOE–2008–

73. 

10See http://www.finra.org/RulesRegulation/ 

PublicationsGuidance/p038849. 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2008–040 and 

should be submitted on or before 

August 28, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–18160 Filed 8–6–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58263; File No. SR–FINRA–

2008–042] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Amendments 

to Portfolio Margin 

July 30, 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 25, 

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. 

FINRA has designated the proposed rule 

change as ‘‘constituting a stated policy, 

practice, or interpretation with respect 

to the meaning, administration, or 

enforcement of an existing rule’’ under 

Section 19(b)(3)(A)(i) of the Act 3 and 

Rule 19b–4(f)(1) thereunder,4 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 is proposing to codify FINRA’s 

interpretation of the portfolio margin 

program set forth in NASD Rule 2520(g) 

and Incorporated NYSE Rule 431(g) 5

regarding (1) monitoring concentrated 

equity positions and (2) timing of day 

trading margin calls. The text of the 

proposed rule change is available at 

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

offices of FINRA, and 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 

On February 12, 2007, FINRA (then 

known as NASD) filed SR–NASD–2007–

013 for immediate effectiveness to 

establish a portfolio margin pilot 

program that permits member firms to 

elect to margin certain products 

according to a prescribed portfolio 

margin methodology.6 The portfolio 

margin pilot program is substantially 

similar to margin rule amendments by 

the NYSE and the Chicago Board 

Options Exchange (‘‘CBOE’’), which 

were approved by the Commission.7

Consistent with the amended NYSE and 

CBOE portfolio margin programs, the 

pilot, as proposed in SR–NASD–2007–

013, started on April 2, 2007 and ended 

on July 31, 2007. The pilot program was 

extended for a one-year period to July 

31, 2008, also consistent with the NYSE 

and CBOE portfolio margin programs.8

Concurrently with this proposed rule 

change and consistent with the CBOE, 

FINRA proposes to make the portfolio 

margin pilot program contained in 

NASD Rule 2520(g) and Incorporated 

NYSE Rule 431(g) permanent.9

FINRA proposes to codify FINRA’s 

interpretation of NASD Rule 2520(g) 

and Incorporated NYSE Rule 431(g) 

regarding (1) monitoring concentrated 

equity positions and (2) timing of day 

trading margin calls. 

Concentrated Equity Positions 

NASD Rule 2520(g)(1) and 

Incorporated NYSE Rule 431(g)(1) 

outline various procedural guidelines 

that firms are required to meet in order 

to offer portfolio margin to customers. 

FINRA has issued guidance in the form 

of frequently asked questions regarding 

its expectation that, among other things, 

firms develop reports that identify a 

concentration of any individual security 

in both individual portfolio margin 

accounts and across all portfolio margin 

accounts.10 FINRA proposes to codify 

this requirement in NASD Rule 

2520(g)(1)(I) and Incorporated NYSE 

Rule 431(g)(1)(I) because FINRA 

believes it is an essential component in 

monitoring the risk to broker-dealers 

that offer portfolio margin to customers. 

FINRA expects that firms impose a 

higher maintenance margin requirement 

on any identified concentrated 

positions. 

Day Trading 

NASD Rule 2520(g)(13) and 

Incorporated NYSE Rule 431(g)(13) 

require firms to monitor accounts that 

do not maintain $5 million minimum 

equity to ensure that the day trading 

requirements pursuant to NASD Rule 

2520(f)(8)(B) and Incorporated NYSE 

Rule 431(f)(8)(B) are applied. Pursuant 


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