Document ID: SEC-2012-1191-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-07-23T04:00Z

[Federal Register Volume 77, Number 141 (Monday, July 23, 2012)]
[Notices]
[Pages 43128-43130]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17803]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67449; File No. SR-FINRA-2012-035]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Extend the Implementation of FINRA Rule 4240 
(Margin Requirements for Credit Default Swaps)

July 17, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on July 13, 2012, 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. FINRA has designated the proposed rule change as constituting a 
``non-controversial'' rule change under paragraph (f)(6) of Rule 19b-4 
under the Act,\3\ which renders the proposal effective upon filing with 
the Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend to July 17, 2013 the implementation of 
FINRA Rule 4240. FINRA Rule 4240 implements an interim pilot program 
with respect to margin requirements for certain transactions in credit 
default swaps that are security-based swaps.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 22, 2009, the Commission approved FINRA Rule 4240,\4\ which 
implements an interim pilot program (the ``Interim Pilot Program'') 
with respect to margin requirements for certain transactions in credit 
default swaps (``CDS'').\5\ On March 7, 2012, the SEC approved 
extending the implementation of Rule 4240 to July 17, 2012.\6\
---------------------------------------------------------------------------

    \4\ See Exchange Act Release No. 59955 (May 22, 2009), 74 FR 
25586 (May 28, 2009) (Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change; File No. SR-FINRA-
2009-012) (``Approval Order'').
    \5\ In March 2012, the SEC approved amendments to FINRA Rule 
4240 that, among other things, limit at this time the rule's 
application to credit default swaps that are security-based swaps. 
See Exchange Act Release No. 66527 (March 7, 2012), 77 FR 14850 
(March 13, 2012) (Notice of Filing and Order Granting Accelerated 
Approval of Proposed Rule Change; File No. SR-FINRA-2012-015).
    \6\ See Exchange Act Release No. 66528 (March 7, 2012), 77 FR 
14848 (March 13, 2012) (Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change; File No. SR-FINRA-
2012-014).
---------------------------------------------------------------------------

    As explained in the Approval Order, FINRA Rule 4240, coterminous 
with certain Commission actions, was intended to address concerns 
arising from systemic risk posed by CDS, including, among other things, 
risks to the financial system arising from the lack of a central 
clearing counterparty to clear and settle CDS.\7\ On July 21, 2010, 
President Obama signed into law the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act''),\8\ Title VII of which 
established a comprehensive new regulatory framework for swaps and

[[Page 43129]]

security-based swaps,\9\ including certain CDS. The new legislation was 
intended, among other things, to enhance the authority of regulators to 
implement new rules designed to reduce risk, increase transparency, and 
promote market integrity with respect to such products.
---------------------------------------------------------------------------

    \7\ See 74 FR at 25588-89.
    \8\ Public Law 111-203, 124 Stat. 1376 (2010).
    \9\ The terms ``swap'' and ``security-based swap'' are defined 
in Sections 721 and 761 of the Dodd-Frank Act. The Commodity Futures 
Trading Commission (``CFTC'') and the Commission jointly have 
approved rules to further define these terms. See SEC File No. S7-
16-11 (Joint Final Rule; Interpretations: Further Definition of 
``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap 
Agreement;'' Mixed Swaps; Security-Based Swap Agreement 
Recordkeeping), available at: http://www.sec.gov/news/press/2012/s71611-draft.pdf. See also Exchange Act Release No. 66868 (April 27, 
2012), 77 FR 30596 (May 23, 2012) (Joint Final Rule; Joint Interim 
Final Rule; Interpretations: Further Definition of ``Swap Dealer,'' 
``Security-Based Swap Dealer,'' ``Major Swap Participant,'' ``Major 
Security-Based Swap Participant'' and ``Eligible Contract 
Participant'').
---------------------------------------------------------------------------

    Pursuant to Title VII of the Dodd-Frank Act, the CFTC and the 
Commission are engaged in ongoing rulemaking with respect to swaps and 
security-based swaps.\10\ FINRA believes it is appropriate to extend 
the Interim Pilot Program for a limited period, to July 17, 2013, in 
light of the continuing development of the CDS business within the 
framework of the Dodd-Frank Act and pending the final implementation of 
new CFTC and SEC rules pursuant to Title VII of that legislation.
---------------------------------------------------------------------------

    \10\ See, e.g., supra note 9 and Exchange Act Release No. 67177 
(June 11, 2012), 77 FR 35625 (June 14, 2012) (Statement of General 
Policy on the Sequencing of the Compliance Dates for Final Rules 
Applicable to Security-Based Swap).
---------------------------------------------------------------------------

    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, such that FINRA can implement the proposed rule 
change immediately. The proposed rule change will expire on July 17, 
2013.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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 will 
further the purposes of the Act because, consistent with the goals set 
forth by the Commission when it adopted the interim final temporary 
rules with respect to the operation of central counterparties to clear 
and settle CDS, and pending the final implementation of new CFTC and 
SEC rules pursuant to Title VII of the Dodd-Frank Act, the margin 
requirements set forth by the proposed rule change will help to 
stabilize the financial markets.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    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 \12\ and Rule 19b-
4(f)(6) thereunder.\13\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    FINRA has requested that the Commission waive the five-day pre-
filing notice requirement specified in Rule 19b-4(f)(6)(iii) under the 
Act.\14\ FINRA proposes to make the proposed rule change operative on 
July 17, 2012.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6)(iii) requires 
a self-regulatory organization to submit to 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, or such shorter time as designated by the Commission. The 
Commission has waived the five-day pre-filing period in this case.
---------------------------------------------------------------------------

    FINRA has requested that the Commission waive the 30-day operative 
delay, so that the proposed rule change may become operative upon 
filing. The Commission hereby grants FINRA's request and believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest.\15\ This will allow the Interim 
Pilot Program to continue without interruption and extend the benefits 
of a pilot program that the Commission approved and previously 
extended. For these reasons, the Commission designates the proposed 
rule change as operative on July 17, 2012.
---------------------------------------------------------------------------

    \15\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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.

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-FINRA-2012-035 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-2012-035. 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

[[Page 43130]]

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 available publicly. All submissions should refer to File Number 
SR-FINRA-2012-035 and should be submitted on or before August 13, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17803 Filed 7-20-12; 8:45 am]
BILLING CODE 8011-01-P