Document ID: SEC-2011-0665-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-05-12T04:00Z

[Federal Register Volume 76, Number 92 (Thursday, May 12, 2011)]
[Notices]
[Pages 27707-27708]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11614]

[[Page 27707]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64424; File No. SR-FINRA-2011-023]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend 
FINRA Rule 6121 (Trading Halts Due to Extraordinary Market Volatility) 
and FINRA Rule 6272 (Character of Quotations) To Include all NMS Stocks

May 6, 2011.
    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 May 4, 2011, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') 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 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 6121 (Trading Halts Due to 
Extraordinary Market Volatility) to expand the scope of the trading 
pause pilot to include all NMS stocks covered by the trading pause 
pilot rules of a primary listing market and FINRA Rule 6272 (Character 
of Quotations) to conform the quotation requirements on the Alternative 
Display Facility (``ADF'') to those in place on the national securities 
exchanges.
    The text of the proposed rule changes 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    FINRA proposes to amend FINRA Rule 6121.01 to expand the scope of 
the trading pause pilot to include all NMS stocks covered by the 
trading pause pilot rules of a primary listing market.
    FINRA Rule 6121.01 provides that if a primary listing market has 
issued an individual stock trading pause under its rules, FINRA will 
halt trading otherwise than on an exchange in that security until 
trading has resumed on the primary listing market. The pilot was 
developed and implemented as a market-wide initiative by FINRA and 
other self-regulatory organizations (``SROs'') in consultation with 
Commission staff, and is currently only applicable to the S&P 
500[supreg] Index,\3\ the Russell 1000[supreg] Index and a pilot list 
of Exchange Traded Products (``ETPs'').\4\
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    \3\ See Securities Exchange Act Release No. 62251 (June 10, 
2010), 75 FR 34183 (June 16, 2010) (Order Approving File No. SR-
FINRA-2010-025).
    \4\ See Securities Exchange Act Release No. 62883 (September 10, 
2010), 75 FR 56608 (September 16, 2010) (Order Approving File No. 
SR-FINRA-2010-033).
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    FINRA, in coordination with other SROs, now is expanding the scope 
of the trading pause pilot to include all NMS stocks that are not 
already included therein. In particular, the proposed additional stocks 
are those not currently included in the S&P 500 Index, Russell 1000 
Index, or the pilot list of ETPs, and therefore are more likely to be 
less liquid securities or securities with lower trading volumes. 
Accordingly, consistent with the approach of the primary listing 
markets, broader threshold move percentages would be appropriate for 
these securities.\5\ Similarly, because leveraged ETPs trade at a ratio 
against the associated index, a broader threshold move percentage would 
also be appropriate for leveraged ETPs.
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    \5\ FINRA understands that the primary listing markets are 
proposing that these securities be subject to a 30% threshold when 
priced at or above $1, and a 50% threshold when priced below $1. The 
rationale for this differentiation is that lower-priced securities 
may tend to be more volatile, and price movements of lower-priced 
stocks equate to a higher percentage move than a similar price 
change for a higher-priced stock.
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    FINRA and the other SROs continue to assess the effect of the 
trading pause pilot on the marketplace, whether other initiatives 
should be adopted in lieu of the current pilot,\6\ and whether the 
parameters for invoking a trading pause continue to be appropriate and 
whether they should be modified.
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    \6\ On April 5, 2011, the SEC announced that national securities 
exchanges and FINRA filed a proposal to establish a new ``limit up-
limit down'' mechanism to address extraordinary market volatility in 
U.S. equity markets. Available at: http://www.sec.gov/news/press/2011/2011-84.htm.
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    In 2010, the SEC also approved amendments to FINRA Rule 6272 to 
ensure consistency in quotation requirements across markets by imposing 
the same limitations on a Registered Reporting ADF Market Maker's 
quotations on the ADF that apply to market makers on national 
securities exchanges.\7\ The amendments were intended to eliminate 
trade executions against market maker ``placeholder'' quotations that 
are priced far away from the inside market, commonly known as ``stub 
quotes.'' Under Rule 6272, limitations on permissible quotations are 
determined by the individual character of the security, the time of day 
in which the quote is entered, and any applicable stock trading pause 
triggers. FINRA is proposing amendments to the ADF quotation 
requirements in Rule 6272 to conform those requirements to the proposed 
amendments to the quotation requirements of the national securities 
exchanges.\8\
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    \7\ See Securities Exchange Act Release No. 63255 (November 5, 
2010), 75 FR 69484 (November 12, 2010).
    \8\ The proposed rule change is based on similar proposed rule 
changes being filed by numerous national securities exchanges.
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    FINRA has requested that the Commission approve the proposed rule 
change on an accelerated basis, so that it may become operative on a 
pilot basis as soon as possible.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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 meets 
these requirements in that it expands the scope of the pilot to cover 
all NMS stocks covered by the trading pause pilot rules of a primary 
listing market and promotes uniformity across markets concerning 
decisions to pause trading in a security when there are significant 
price movements. The proposed rule change also continues to ensure that 
market makers are subject to the same quotation requirements on the ADF 
that they would be subject to on a national securities exchange, thus 
ensuring

[[Page 27708]]

consistent quotation requirements across markets.
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    \9\ 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 or disapprove 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-2011-023 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-2011-023. 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 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 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 
should submit only information that you wish to make publicly 
available. All submissions should refer to File Number SR-FINRA-2011-
023 and should be submitted on or before June 2, 2011.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-11614 Filed 5-11-11; 8:45 am]
BILLING CODE 8011-01-P