[Federal Register Volume 73, Number 176 (Wednesday, September 10, 2008)]
[Notices]
[Pages 52710-52711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20964]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58461; File No. SR-FINRA-2008-033]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change and Amendment No. 
1 Thereto To Adopt FINRA Rule 4560 (Short-Interest Reporting) in the 
Consolidated FINRA Rulebook

September 4, 2008.

I. Introduction

    On June 23, 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 
(``Commission'' or ``SEC'') 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 adopt the short interest 
reporting requirements (NASD Rule 3360 and Incorporated NYSE Rules 
421(1) and 421.10) as FINRA Rule 4560 in the consolidated FINRA 
rulebook. On July 16, 2008, FINRA submitted Amendment No. 1 to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on July 31, 2008.\3\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 58227 (July 25, 2008), 
43 FR 44793 (July 31, 2008).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    As part of the process of developing the new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\4\

[[Page 52711]]

FINRA proposed to adopt the short interest reporting requirements in 
NASD Rule 3360 and Incorporated NYSE Rules 421(1) and 421.10 as FINRA 
Rule 4560 in the Consolidated FINRA Rulebook.
---------------------------------------------------------------------------

    \4\ The 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'').
---------------------------------------------------------------------------

    NASD Rule 3360 and Incorporated NYSE Rules 421(1) and 421.10 set 
forth FINRA's short interest reporting requirements.\5\ NASD Rule 3360 
requires members to report short positions \6\ in OTC Equity Securities 
\7\ and exchange-listed securities not otherwise reported to another 
self-regulatory organization (``SRO''),\8\ and Incorporated NYSE Rules 
421(1) and 421.10 require members to report short positions in NYSE-
listed securities. Members must report total short positions in all 
customer and proprietary accounts as of the designated settlement dates 
and in the manner so prescribed.\9\ Currently, the rules require such 
information to be reported twice a month, which in turn, is then made 
publicly available on an aggregate basis twice a month.\10\
---------------------------------------------------------------------------

    \5\ Incorporated NYSE Rules 421(2) and 421.40 require members 
carrying margin accounts for customers to report certain aggregate 
debit and free credit balances.
    \6\ Short positions required to be reported under the rules are 
those resulting from ``short sales'' as the term is defined in Rule 
200(a) of Regulation SHO, subject to certain limited exceptions. See 
NASD Rule 3360(b)(1).
    \7\ The term ``OTC Equity Securities'' refers to any equity 
security that is not listed on a national securities exchange. See 
NASD Rule 3360(b)(3).
    \8\ It is the responsibility of each member firm to ensure that 
it is reporting accurate short interest data, including confirming 
that issue symbols are active and valid as of the designated 
settlement date. See Notice to Members 06-20 (April 2006).
    \9\ Non-self-clearing broker-dealers generally are considered to 
have satisfied their reporting requirement by making appropriate 
arrangements with their respective clearing organizations. See 
Notice to Members 03-08 (February 2003).
    \10\ A schedule of FINRA's designated settlement dates can be 
found on its Web site at http://www.finra.org. See also Notice to 
Members 07-24 (May 2007).
---------------------------------------------------------------------------

    As of June 30, 2008, FINRA consolidated the collection of short 
interest data, so that firms report short interest positions in all 
securities to FINRA using the Regulation Filing Applications system; 
consequently, firms will no longer be able to report any of their short 
interest positions using the NYSE's Electronic Filing Platform 
(``EFP'') or the Securities Industry Automation Corporation 
(``SIAC'').\11\
---------------------------------------------------------------------------

    \11\ See Regulatory Notice 08-13 (March 2008). Prior to June 30, 
firms reported short interest positions in NYSE-listed securities 
through the EFP and all other securities through FINRA's Regulation 
Filing Applications (``RFA'') system or the SIAC.
---------------------------------------------------------------------------

    Given that the short interest requirements in each of the rules are 
substantially similar, FINRA proposed to adopt these requirements as 
part of the Consolidated FINRA Rulebook, subject only to certain non-
substantive changes. Most notably, because FINRA will now be the 
primary collector of consolidated short interest data for its members 
in all securities (rather than only if such positions in exchange-
listed securities are not reported to another SRO), FINRA is not 
retaining the text in NASD Rule 3360 that limits short interest 
reportable to FINRA to those positions in exchange-listed securities 
``not otherwise reported to another self-regulatory organization.''

III. Discussion and Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act, and the rules 
and regulations thereunder that are applicable to a national securities 
association.\12\ In particular, the Commission believes that the 
proposed rule change is consistent with the provisions of Section 
15A(b)(6) of the Act,\13\ 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 
Commission notes that it has previously approved the short interest 
reporting requirements of NASD Rule 3360 \14\ and NYSE Rules 421(1) and 
421.10 \15\, and the proposed rule change moves these requirements to 
the Consolidated FINRA Rulebook, subject only to certain non-
substantive changes. The short interest reporting requirements 
previously have been found to meet the statutory requirements, and the 
Commission believes such requirements have since proven effective in 
achieving the statutory mandates.
---------------------------------------------------------------------------

    \12\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78(c)(f).
    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ Securities Exchange Act Release No. 56279 (Aug. 17, 2007), 
72 FR 48713 (Aug. 24, 2007).
    \15\ Securities Exchange Act Release No. 57252 (Feb. 1, 2008), 
73 FR 7343 (Feb. 7, 2008).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-FINRA-2008-033), as modified 
by Amendment No. 1 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. E8-20964 Filed 9-9-08; 8:45 am]
BILLING CODE 8010-01-P