Document ID: SEC-2010-1723-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-11-12T05:00Z

[Federal Register Volume 75, Number 218 (Friday, November 12, 2010)]
[Notices]
[Pages 69503-69505]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-28462]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63256; File No. SR-FINRA-2010-055]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend 
FINRA Rule 6140 (Other Trading Practices)

November 5, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 29, 2010, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (the 
``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rule 6140 to eliminate the 
provisions regarding the handling of stop orders, delete definitions 
relating to stop stock transactions and to relocate the definition of 
``initial public offering.''
    The text of the proposed rule change is available on FINRA's Web 
site at http://www.finra.org, at the principal office of FINRA 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, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA Rule 6140(h) (the ``Rule'') addresses the handling of stop 
orders in

[[Page 69504]]

NMS stocks, as defined in Rule 600(b)(47) of SEC Regulation NMS.\3\ 
Specifically, the Rule provides that members may, but are not obligated 
to, accept stop orders. The Rule further provides that a stop order 
becomes a market order (or a stop limit order becomes a limit order) 
when a transaction takes place at or above the stop price (in the case 
of a buy stop order) or at or below the stop price (in the case of a 
sell stop order). Thus, as defined in the Rule, a stop order cannot be 
triggered by the publication of a quotation at the stop price (only by 
a transaction). However, members have stated that they believe 
quotations may be a better indicator of the current price of a security 
than transactions, and requested that FINRA provide members the 
flexibility to determine whether the trigger of a stop order will be 
based on transactions or quotations in the subject security at the stop 
price.
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    \3\ Stop buy orders generally are entered by investors with 
short positions to limit losses should the stock price increase. 
Stop sell orders generally are entered in a stock whose price has 
increased substantially in order to protect the investor's profits 
should the stock price decline.
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    FINRA rules do not typically define the parameters of the various 
order types that members may accept and we agree that members should 
have the ability to define the triggering event for stop orders as well 
as to design their systems consistent with such determination.\4\ 
Therefore, FINRA is proposing to delete Rule 6140(h). FINRA is also 
deleting Rule 6140(i), which defines the terms ``stop stock price'' and 
``stop stock transaction.''
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    \4\ These requirements were initially adopted by NASD (and the 
national securities exchanges) in 1975. See Notice to Members 75-42 
(June 10, 1975) (Rules Governing Reporting of Transactions to 
Consolidated Tape).
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    Members that also are members of another self-regulatory 
organization (``SRO'') will continue to be subject to any applicable 
provisions adopted by such other SRO with respect to the handling of 
stop orders. FINRA expects that, irrespective of whether a transaction 
or quotation is used as the trigger for a customer stop order, each 
member will apply the approach consistently firm-wide to all customer 
orders and fully disclose its practice to its customers.
    FINRA also is proposing to move the definition of ``initial public 
offering'' from Rule 6220 (Definitions) to Rule 6130 (Transactions 
Related to Initial Public Offerings).\5\ FINRA is not proposing 
substantive changes to the definition of ``initial public offering.'' 
FINRA believes that Rule 6130 is the more appropriate location for the 
definition of ``initial public offering'' and that relocating this 
definition, as proposed, will reduce confusion for members.
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    \5\ For the purposes of Rule 6130(a), ``initial public 
offering'' means: (1) The offering of the security is registered 
under the Securities Act; and (2) the issuer of the security, 
immediately prior to filing the registration statement with respect 
to such offering, was not subject to the reporting requirements of 
Section 13 or 15(d) of the Act.
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    FINRA will announce the implementation date of the proposed rule 
change no later than 30 days following Commission approval. The 
implementation date will be no more 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,\6\ 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 adopting the proposed rule change 
will provide members with the flexibility to determine whether the 
execution of stop orders will be triggered by transactions or 
quotations in the subject security without compromising investor 
protection. In addition, FINRA believes that relocating the definition 
of ``initial public offering'' to Rule 6130 is appropriate and will 
reduce member confusion.
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    \6\ 15 U.S.C. 78o-3(b)(6).
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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 45 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2010-055 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090

.All submissions should refer to File Number SR-FINRA-2010-055. 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,\7\ 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, 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

[[Page 69505]]

you wish to make available publicly. All submissions should refer to 
File Number SR-FINRA-2010-055 and should be submitted on or before 
December 3, 2010.
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    \7\ The text of the proposed rule change is available on the 
Commission's Web site at http://www.sec.gov/rules/sro.shtml.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28462 Filed 11-10-10; 8:45 am]
BILLING CODE 8011-01-P