54190 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Notices 

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

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release No. 58302 

(August 4, 2008), 73 FR 46657 (August 11, 2008) 

(SR–FINRA–2008–039). 

4The 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). 

5NASD 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.’’ 

6See Securities Exchange Act Release No. 38067 

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

7 17 CFR 242.100, definition of ‘‘restricted 

period.’’ 

8 17 CFR 242.100, definitions of ‘‘stabilizing,’’ 

‘‘syndicate covering transaction,’’ and ‘‘penalty 

bid.’’ 

9See Securities Exchange Act Release No. 56206 

(August 6, 2007), 72 FR 45094 (August 10, 2007). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58514; File No. SR–FINRA– 

2008–039] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving the 

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 

September 11, 2008. 

I. Introduction 

On July 16, 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 

(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 

19b–4 thereunder,2 a proposal to adopt 

most of NASD Rule 2710 (Corporate 

Financing Rule) as FINRA Rule 5110 in 

the consolidated FINRA rulebook, 

consolidating the rules in FINRA’s 

jurisdiction relating to Regulation M as 

new Rules 5190 and 6470 in the 

consolidated FINRA rulebook, and make 

conforming changes to the rules related 

to Regulation M applicable to the 

Alternative Display Facility (‘‘ADF’’). 

This proposal was published for 

comment in the Federal Register on 

August 11, 2008.3 The Commission 

received no comments on the proposal. 

This order approves this proposed rule 

change. 

II. Description of the Proposed Rule 

Change 

As part of the process of developing 

the new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),4

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 Over-the-counter 

(‘‘OTC’’) Bulletin Board (‘‘OTCBB’’) 

rules and would apply to all OTC Equity 

Securities; 5 and (4) make conforming 

amendments to the Regulation Mrelated rules applicable to the ADF. 

A. Corporate Financing Rule 

NASD Rule 2710, except paragraphs 

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

below), regulates the underwriting terms 

and arrangements of most public 

offerings (including shelf offerings) of 

securities sold through FINRA members. 

NASD Rule 2710 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 proposed 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 proposed to make only technical 

non-substantive changes to Rule 2710 

such as replacing references to ‘‘NASD’’ 

or ‘‘the Association’’ with ‘‘FINRA’’ and 

certain conforming changes to 

references in Rule 2710 to, e.g., the 

Exchange Act, SEA Rules, the Securities 

Act and Securities Act Rules. 

B. Regulation M-Related Requirements 

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.6 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.7 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) 8 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).9

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’ OTC trading and quoting 

activity for prohibited purchases and/or 

bids during the applicable restricted 

period and short sales during the fiveday 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. 

1. Existing FINRA Rules 

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 


dwashington3 on PRODPC61 with NOTICES
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Notices 54191 

10See NASD Rule 6540(d)(1)(D)(iii). 11See NASD Rule 6540(d)(1)(D)(ii). 12See NASD Rule 6540(d)(1)(D)(i). 13See NASD Rule 6540(d)(1)(D)(iv). 14See NASD Rule 6540(d)(1)(D)(ii). 15See NASD Rule 4619A(f). 16See NASD Rule 4619A(f)(1). 17See NASD Rule 4619A(f)(3). 

18 17 CFR 242.100, definition of ‘‘covered 

securities.’’ 

19While 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 represented that it 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 

represented that it would require that the member 

demonstrate the basis for that determination. 

20 In most instances, FINRA represented it 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-by-case 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). 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. 

(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 

Commission, 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 bids 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.10

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,11 and provide notice to 

FINRA’s Operations Department prior to 

pricing.12 The member must also 

provide notice to the Market Regulation 

Department upon the pricing of the 

distribution.13 Additionally, members 

are prohibited from entering stabilizing 

bids pursuant to Rule 104 of Regulation 

M in the OTCBB.14

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.15 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.16

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.17

2. Proposed New FINRA Rule 5190 

FINRA proposed to consolidate and 

house all of its 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. FINRA believes that 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’’ 

subject to a restricted period under Rule 

101 or 102 of Regulation M.18

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 member’s 

determination and the basis for such 

determination.19 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.20 FINRA notes that 

where the principal market closes early, 

for example for a holiday, the shortened 

session would constitute a complete 


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54192 Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Notices 

21FINRA represented that it 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. 

22The rule text for Proposed Rule 5190(d)(1) 

states that members must make a determination that 

‘‘no restricted period applies under Rule 101.’’ The 

Commission notes, however, that although 

distribution participants may rely on the activelytraded securities exception of Rule 101(c)(1) if 

applicable, a restricted period would otherwise 

apply. For example, the actively-traded securities 

exception is not available in Rule 102. 23FINRA represented 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). 

24Members would be required to update the 

notice required under proposed Rule 5190, as 

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

where distribution participants are added after 

commencement of the restricted period). 

trading session for purposes of proposed 

Rule 5190. 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).21

The proposed rule change also would 

eliminate the requirement in NASD 

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

copy of the registration statement. 

FINRA represented that 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: 

(1) The security name and symbol; (2) 

the type of security; (3) the number of 

shares offered; (4) the offering price; (5) 

the last sale before the distribution; (6) 

the pricing basis (e.g., the prior day 

closing price, a negotiated price, last 

sale, etc.); (7) the SEC effective date and 

time; (8) the trade date; and (9) 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, FINRA 

represented that current practice is for 

most members to provide immediate 

notice of pricing. FINRA believes that, 

in addition to being consistent 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. 

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. FINRA believes that 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.22 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) as 

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.23

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).24

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 


dwashington3 on PRODPC61 with NOTICES
Federal Register / Vol. 73, No. 182 / Thursday, September 18, 2008 / Notices 54193 

25 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

26 15 U.S.C. 78o–3(b)(6). 

27See, e.g., Securities Exchange Act Release No. 

48989 (December 23, 2003), 68 FR 75684 (December 

31, 2003). 

28 15 U.S.C. 78s(b)(2). 

29 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

in the first syndicate covering 

transaction, as well as other pertinent 

information, such as identification of 

the security, 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). 

FINRA believes that 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 OTCBBeligible securities. 

In light of the foregoing, FINRA 

proposed to delete paragraphs (b)(10) 

and (11) from NASD Rule 2710 and 

Incorporated NYSE Rule 392 in its 

entirety. FINRA represented that 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 did not propose that these 

requirements become part of the 

Consolidated FINRA Rulebook. 

3. Proposed Amendments to 

Marketplace Rules 

FINRA also proposed to clarify the 

scope and application of the Regulation 

M-related requirements that are in the 

current OTCBB and ADF marketplace 

rules. FINRA proposed 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. FINRA represented that 

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. 

FINRA also proposed to make certain 

conforming changes to the Regulation 

M-related rules applicable to the ADF. 

Specifically, FINRA proposed to amend 

NASD Rule 4619A(f) to conform to the 

language and structure of proposed Rule 

6470. Thus, a Registered Reporting ADF 

Market 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 further 

proposed 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. 

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.25 In 

particular, the Commission believes that 

the proposed rule change is consistent 

with the provisions of Section 15A(b)(6) 

of the Act,26 which requires, among 

other things, that FINRA rules 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 believes that moving the 

Regulation M-related provisions of the 

rules under FINRA’s jurisdiction in the 

manner proposed will provide greater 

clarity to members and aid in 

compliance. The Commission also notes 

that it has previously approved the 

portions of NASD Rule 2710 to be 

adopted as FINRA Rule 5110,27 and the 

proposal merely moves that portion of 

Rule 2710 nearly verbatim from the 

NASD rulebook to the Consolidated 

FINRA Rulebook. The Commission 

believes that this move is primarily 

ministerial and only aids FINRA 

members in complying with existing 

obligations. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,28 that the 

proposed rule change (File No. SR– 

FINRA–2008–039) be, and hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.29

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–21760 Filed 9–17–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58520; File No. SR–FINRA– 

2008–040] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change To Eliminate 

the Requirement To Report Yield to 

TRACE and for FINRA To Calculate 

and Disseminate a Standard Yield 

September 11, 2008. 

I. Introduction 

On July 17, 2008, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) 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 

proposal to eliminate the requirement 

for members to report yield to the Trade 

Reporting and Compliance Engine 

(‘‘TRACE’’) in connection with a 

transaction in a TRACE-eligible 

security, and instead for TRACE to 

calculate and disseminate a ‘‘standard 


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