61674 Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 

11 15 U.S.C. 78f(b)(8). 

12 15 U.S.C. 78s(b)(3)(a)(ii). 

13 17 CFR 240.19b–4(f)(6). 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

to utilize the Algo Test Facility at no 

cost in addition to the current NTF 

Subscription fees set forth in Rule 

7030(d)(1)(C). Moreover, the Exchange’s 

fees for this service are equitably 

allocated and non-discriminatory in that 

all NTF Subscribers will receive the 

service free of cost. Non-NTF 

Subscribers would be required to 

become NTF Subscribers and incur the 

fees borne by these customers today in 

order to receive the Algo Test Facility 

services at no additional cost. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange 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, as 

amended.11 The Exchange does not 

intend to assess fees to NTF Subscribers 

at this time to utilize the Algo Test 

Facility. While non-NTF Subscribers 

would be required to become NTF 

Subscribers in order to receive this 

service, the Exchange does not believe 

this requirement imposes an undue 

burden on competition because NTF 

Subscribers today pay costs for the 

service they receive and the hand-offs 

are necessary for use of the Algo Test 

Facility. All customers are being treated 

in the same manner and the Exchange 

is offering the Algo Test Facility for free 

to those NTF Subscribers incurring costs 

today. Also, while there is a limit on the 

number simulations per day for this 

product, this limitation on the number 

of simulations applies equally to all 

users per day. Therefore, the Exchange 

believes that the proposed rule change 

enhances, rather than burdens, 

competition by providing customers an 

opportunity to utilize the product for 

free. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 12 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.13

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. The 

Exchange has provided the Commission 

written notice of its intent to file the 

proposed rule change, along with a brief 

description and text of the proposed 

rule change, at least five business days 

prior to the date of filing of the 

proposed rule change. 

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 email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2014–097 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2014–097. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml.) Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

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 Number SR– 

NASDAQ–2014–097 and should be 

submitted on or before November 4, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24304 Filed 10–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73311; File No. SR–Phlx– 

2014–65] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Rule 705 (Fidelity Bonds) 

October 7, 2014. 

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 

September 25, 2014, NASDAQ OMX 

PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II, below, which Items 

have been prepared by the Exchange. 

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 

The Exchange proposes to delete 

certain extraneous language from 

Exchange Rule 705 to amend an 

inadvertent error in the rule text. 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 61675 

3See Securities Exchange Act Release No. 66362 

(February 9, 2012), 77 FR 8931 (February 15, 2012) 

(SR–Phlx–2012–13). See also Securities Exchange 

Act Release No. 66407 (February 16, 2012), 77 FR 

10787 (February 23, 2012) (SR–Phlx–2012–21). See 

also Securities Exchange Act Release No. 66411 

(February 16, 2012), 77 FR 10788 (February 23, 

2012) (SR–NYSE–2012–04) (an immediately 

effective filing which incorporated the FINRA rule 

by merely noting the text would be the same as the 

FINRA rule). See also Securities Exchange Act 

Release No. 66412 (February 16, 2012), 77 FR 10791 

(February 23, 2012) (SR–NYSEAmex–2012–08) (an 

immediately effective filing which incorporated the 

FINRA rule by merely noting the text would be the 

same as the FINRA rule). 

4See FINRA Rule 4360 ‘‘Fidelity Bonds.’’ 

5See Securities Exchange Act Release No. 66362 

(February 9, 2012), 77 FR 8931 (February 15, 2012) 

(SR–Phlx–2012–13). 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqomxphlx.

cchwallstreet.com/, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange 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 

The purpose of the proposed rule 

change is to correct the text of Exchange 

Rule 705, entitled ‘‘Fidelity Bonds,’’ by 

deleting certain text which was not 

deleted when the Exchange filed to 

replace Rule 705 3 with a rule in 

substantially the same form as that of 

the Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’).4 Exchange 

Rule 705 was replaced by a new Rule 

705 as of April 2, 2012, in order to 

harmonize the Phlx Rules with FINRA 

rules. The title of Exchange Rule 705 

was changed from ‘‘Members Must 

Carry’’ to ‘‘Fidelity Bonds.’’ The 

Exchange intended to delete Rule 705 in 

its entirety and rename the rule and 

replace the text with new text similar to 

that in FINRA Rule 4360. The Exchange 

inadvertently did not include all of the 

Supplementary Material section of the 

Rule in the original filing so that it 

could be deleted. The Exchange 

proposes to delete the current 

Supplementary Material .03 to Exchange 

Rule 705 in accordance with the intent 

of the original rule proposal. 

The purpose of a fidelity bond is to 

protect a member organization against 

certain types of losses, including, but 

not limited to, those caused by the 

malfeasance of its officers and 

employees, and the effect of such losses 

on the member organization’s capital. At 

this time the Exchange is seeking to 

delete rule text which covers Employee 

Blanket Bond Coverage in 

Supplementary Material .03. The rule 

text that the Exchange proposes to 

delete states that member organizations 

subject to minimum net capital under 

Rule 15c3–1 are required to have 

Brokers Blanket Bond Coverage with 

respect to employees (including officers, 

regardless of their duties) in amounts 

not less than the minimums prescribed 

above which apply both to partner 

coverage and employee blanket bond 

coverage. In addition to this basic 

Brokers Blanket Bond Coverage, 

‘‘member organizations are required to 

include the following minimum specific 

coverages with respect to: 

MISPLACEMENT, FRAUDULENT 

TRADING, CHECK FORGERY and 

SECURITIES FORGERY, ON PREMISES 

AND IN TRANSIT.’’ Further, all 

employee Fidelity coverage shall be on 

the Standard Form 14 Stock Brokers’ 

Bond, Federal Insurance Company’s 

Form B Bond or Lloyd’s form if it is the 

full equivalent. With respect to 

Misplacement, Check Forgery, On 

Premises and In Transit, at least the 

amount of the basic bond minimum 

requirement shall be carried. With 

respect to Fraudulent Trading, at least 

$50,000 or 50% of the basic bond 

minimum requirement, whichever is 

greater, with a top minimum of 

$500,000 shall be carried. With respect 

to Securities Forgery, at least $50,000 or 

25% of the basic bond minimum 

requirement, whichever is greater, with 

a top minimum of $250,000 shall be 

carried. 

The rule text the Exchange is 

proposing to delete further goes on to 

note that a ‘‘review for adequacy of 

coverage shall be made at least annually 

as of the anniversary date of the 

issuance of the bond and minimum 

requirements for the next twelve months 

shall be established by reference to the 

highest net capital requirement in the 

preceding twelve months. Each member 

organization will be expected to review 

carefully any need for coverage greater 

than that provided by the required 

minimums. Where experience or the 

nature of the business warrants 

additional coverage the Exchange 

expects the member organization to 

acquire it.’’ 

Each member and member 

organization, according to the rule text 

the Exchange is proposing to delete, is 

required to carry certain forms of 

insurance and advise the Exchange if 

such insurance is entirely or partially 

cancelled. Members and member 

organizations are required to provide 

details in writing within 10 days of 

cancellation. ‘‘A member organization 

which becomes eligible to elect and 

does elect to compute its minimum 

required net capital under the 

alternative net capital requirement set 

forth in paragraph (f) of Rule 15c3–1, 

instead of under the requirements set 

forth in paragraph (a) in the deleted rule 

text, shall determine its minimum 

required coverage in the same manner 

as specified in sections .02(b) and .03 

hereof.’’ 

Finally, the rule states that each 

member organization ‘‘may self-insure 

to the extent of $5,000 or 10% of its 

minimum insurance requirement as 

fixed by the Exchange, whichever is 

greater, for each type of coverage 

required by the rule. The excess of any 

such amount self-insured over the 

maximum permissible self-insurance 

must be deducted from the member 

organization’s net worth in the 

calculation of net capital for purposes of 

Rule 15c3–1.’’ 

The Exchange notes that at the time 

of the filing it sought to replace the 

current rule in its entirety and adopt the 

FINRA rule as noted in the original 

filing.5 FINRA Rule 4360 requires a 

member (including a firm that signs a 

multi-year insurance policy), annually 

as of the yearly anniversary date of the 

issuance of the fidelity bond, to review 

the adequacy of its fidelity bond 

coverage and make any required 

adjustments to its coverage, as set forth 

in the rule. Under FINRA Rule 4360(d), 

a member’s highest net capital 

requirement during the preceding 12- 

month period, based on the applicable 

method of computing net capital (dollar 

minimum, aggregate indebtedness or 

alternative standard), is used as the 

basis for determining the member’s 

minimum required fidelity bond 

coverage for the succeeding 12-month 

period. The ‘‘preceding 12-month 

period’’ includes the 12-month period 

that ends 60 days before the yearly 

anniversary date of a member’s fidelity 

bond. This would give a firm time to 

determine its required fidelity bond 

coverage by the anniversary date of the 

bond. 

mstockstill on DSK4VPTVN1PROD with NOTICES

61676 Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 

6 15 U.S.C. 78f(b). 

7 15 U.S.C. 78f(b)(5). 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

10 17 CFR 240.19b–4(f)(6)(iii). 

11 Id. 

12For purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

13 15 U.S.C. 78s(b)(3)(C). 

14 Id. 

Further, FINRA Rule 4360 allows a 

member that has only been in business 

for one year and elected the aggregate 

indebtedness ratio for calculating its net 

capital requirement to use, solely for the 

purpose of determining the adequacy of 

its fidelity bond coverage for its second 

year, the 15 to 1 ratio of aggregate 

indebtedness to net capital in lieu of the 

8 to 1 ratio (required for broker-dealers 

in their first year of business) to 

calculate its net capital requirement. 

Notwithstanding the above, such 

member would not be permitted to carry 

less minimum fidelity bond coverage in 

its second year than it carried in its first 

year. 

FINRA Rule 4360 exempts from the 

fidelity bond requirements members in 

good standing with a national securities 

exchange that maintain a fidelity bond 

subject to the requirements of such 

exchange that are equal to or greater 

than the requirements set forth in Rule 

4360. Additionally, FINRA Rule 4360 

continues to exempt from the fidelity 

bond requirements any firm that acts 

solely as a Designated Market Maker, 

floor broker or registered floor trader 

and does not conduct business with the 

public. 

The Exchange intended to adopt the 

FINRA rule instead. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act 6 in general, and furthers the 

objectives of Section 6(b)(5) of the Act 7

in particular, in that it is designed to 

promote just and equitable principles of 

trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general to protect 

investors and the public interest, by 

correcting an error in the Exchange’s 

rules in order that the Rule properly 

reflect the correct text. An accurate and 

up-to-date Rulebook will avoid 

confusion for market participants. This 

proposal is not substantive, rather, the 

proposal seeks to update the rules to 

reflect the current operation of the 

Exchange. The Exchange believes that 

the requirements of FINRA Rule 4360, 

including, but not limited to, requiring 

each member that is required to join the 

Securities Investor Protection 

Corporation to maintain blanket fidelity 

bond coverage, increasing the minimum 

requirement fidelity bond coverage and 

maintaining a fidelity bond that 

provides for per loss coverage without 

an aggregate limit of liability promotes 

investor protection by protecting firms 

from unforeseen losses. The proposed 

amendments will conform Phlx’s rule to 

a corresponding FINRA rule, to promote 

application of consistent regulatory 

standards. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange is merely seeking to correct an 

inadvertent error in the rule text. The 

Exchange’s original intent was to adopt 

the FINRA rule and the changes 

proposed herein further that intent and 

conform the Phlx rule to the FINRA rule 

to promote application of consistent 

regulatory standards. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 8 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.9

A proposed rule change filed under 

Rule 19b–4(f)(6) normally does not 

become operative prior to 30 days after 

the date of filing.10 Rule 19b–4(f)(6)(iii), 

however, permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest.11 The 

Exchange has requested that the 

Commission waive the 30-day operative 

delay so that the Exchange can quickly 

correct the inadvertent error and avoid 

inconsistency in its rules. 

The Commission believes that the 

waiver of the 30-day operative delay is 

consistent with the protection of 

investors and the public interest 

because accurate rules are important to 

the function of the Exchange. The 

proposed amendments reflect the 

Exchange’s intent in a prior filing. 

Furthermore, the proposed rule change 

is not substantive but merely seeks to 

properly amend rules to reflect the 

current operation of the Exchange. 

Therefore, the Commission designates 

the proposal operative upon filing.12

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act.13

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved.14

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 email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2014–65 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–Phlx–2014–65. This file 

number should be included on the 

subject line if email 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 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 79, No. 198 / Tuesday, October 14, 2014 / Notices 61677 

15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 72575 

(July 9, 2014), 79 FR 41339 (‘‘Notice’’). On August 

8, 2014, FINRA consented to extending the time 

period for the Commission to either approve or 

disapprove the proposed rule change, or to institute 

proceedings to determine whether to approve or 

disapprove the proposed rule change, to October 10, 

2014. 

4See Letter from Daniel Zinn, General Counsel, 

OTC Markets Group Inc., dated August 5, 2014 

(‘‘OTC Markets Letter’’). 

5 15 U.S.C. 78s(b)(2)(B). 

6FINRA Rule 6420(f) defines ‘‘OTC equity 

security’’ as any equity security that is not an ‘‘NMS 

stock’’ as that term is defined in Rule 600(b)(47) of 

SEC Regulation NMS; provided, however, that the 

term ‘‘OTC equity security’’ shall not include any 

Restricted Equity Security. 

7FINRA Rule 6420(c) defines ‘‘inter-dealer 

quotation system’’ as any system of general 

circulation to brokers or dealers which regularly 

disseminates quotations of identified brokers or 

dealers. 

8See 15 U.S.C. 78o–3. 

9Section 15A(b)(11) of the Act provides: ‘‘The 

rules of the association include provisions 

governing the form and content of quotations 

relating to securities sold otherwise than on a 

national securities exchange which may be 

distributed or published by any member or person 

associated with a member, and the persons to 

whom such quotations may be supplied. Such rules 

relating to quotations shall be designed to produce 

fair and informative quotations, to prevent fictitious 

or misleading quotations, and to promote orderly 

procedures for collecting, distributing, and 

publishing quotations.’’ See 15 U.S.C. 78o–3(b)(11). 

10See 17 CFR 240.15c2–11. 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

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 

Number SR–Phlx–2014–65 and should 

be submitted on or before November 4, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24301 Filed 10–10–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73313; File No. SR–FINRA– 

2014–030) 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change Relating to Quotation 

Requirements for Unlisted Equity 

Securities and Deletion of the Rules 

Related to the OTC Bulletin Board 

Service 

October 7, 2014. 

I. Introduction 

On June 27, 2014, 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 

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

19b–4 thereunder,2 a proposed rule 

change to adopt rules relating to 

quotation requirements for over-thecounter (‘‘OTC’’) equity securities and to 

delete the rules relating to the OTC 

Bulletin Board Service (‘‘OTCBB’’ or 

‘‘Service’’) and thus cease its operation. 

The proposed rule change was 

published for comment in the Federal 

Register on July 15, 2014.3 The 

Commission received one comment 

letter on the proposed rule change.4

This order institutes proceedings under 

Section 19(b)(2)(B) of the Act 5 to 

determine whether to approve or 

disapprove the proposed rule change. 

Institution of proceedings does not 

indicate that the Commission has 

reached any conclusions with respect to 

the proposed rule change, nor does it 

mean that the Commission will 

ultimately disapprove the proposed rule 

change. Rather, as discussed below, the 

Commission seeks additional input from 

interested parties on the proposed rule 

change. 

II. Description of the Proposed Rule 

Change 

As described more fully in the Notice, 

FINRA proposed to adopt rules: (1) 

Governing the treatment of quotations in 

OTC equity securities 6 by member 

inter-dealer quotation systems,7 and 

addressing fair and non-discriminatory 

access to such systems; (2) requiring 

member inter-dealer quotation systems 

to provide FINRA with a written 

description of quotation-related data 

products offered and related pricing 

information, including fees, rebates, 

discounts and cross-product pricing 

incentives; (3) expanding the reporting 

requirements related to quotation 

information in OTC equity securities; 

and (4) deleting the Rule 6500 Series 

and related rules and thereby ceasing 

operation of the OTCBB. 

A. Current Regulatory Framework for 

Governing Quotations 

FINRA, under the statutory mandate 

of Section 15A of the Act,8 has 

previously adopted rules governing the 

form and content of quotations relating 

to securities sold OTC, including rules 

designed to: (1) Produce fair and 

informative quotations; (2) prevent 

fictitious or misleading quotations; and 

(3) promote orderly procedures for 

collecting, distributing, and publishing 

quotations.9 FINRA’s Rule 6400 Series 

(Quoting and Trading in OTC Equity 

Securities), among other things, 

provides a regulatory framework 

governing the form and content of 

quotations in OTC equity securities and, 

together with other FINRA rules, 

including rules in the Rule 5200 Series 

(Quotation and Trading Obligations and 

Practices), specifies provisions directed 

toward the mandate set forth in Section 

15A(b)(11) of the Act (collectively 

referred to as the ‘‘Quotation 

Governance Rules’’). FINRA also 

operates the OTCBB and has established 

the Rule 6500 Series, which governs the 

operation and use of the OTCBB. 

FINRA’s Quotation Governance Rules 

generally prescribe limitations around 

the conduct of members that publish 

quotations in OTC equity securities, 

including quotations displayed on interdealer quotation systems. While these 

rules apply to member quotation 

activities, they generally do not include 

rules specifically directed to the 

member inter-dealer quotation systems 

on or through which such quotation 

activity may take place. For example, 

FINRA Rule 6432 (Compliance with the 

Information Requirements of Exchange 

Act Rule 15c2–11) generally provides 

that members may not initiate or resume 

quotations in any quotation medium 

unless the member files Form 211 with 

FINRA and complies with Exchange Act 

Rule 15c2–11 (Initiation or resumption 

of quotations without specific 

information).10

In 2010, the Commission approved 

four FINRA rules governing quotation 

activity generally by prescribing 

additional requirements for members 

entering quotations on inter-dealer 

quotation systems in OTC equity 

securities: (1) Rule 6434 (Minimum 

Pricing Increment for OTC Equity 

Securities); (2) Rule 6437 (Prohibition 

mstockstill on DSK4VPTVN1PROD with NOTICES