Document ID: SEC-2009-0810-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-06-17T04:00Z

[Federal Register Volume 74, Number 115 (Wednesday, June 17, 2009)]
[Notices]
[Pages 28741-28743]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-14147]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60085; File No. SR-FINRA-2009-030]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 
6440 To Require Members To Create a Contemporaneous Record of Certain 
Customer and Order Information

June 10, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``SEA'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on May 22, 2009 Financial Industry Regulatory

[[Page 28742]]

Authority, Inc. (``FINRA'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 Rules 6440 and 6540 to, among other 
things, require members to create a contemporaneous record of certain 
customer and order information demonstrating eligibility for the 
unsolicited customer order exception of SEA Rule 15c2-11 when the 
member is relying on such exception.
    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

    SEA Rule 15c2-11 sets forth the information review and maintenance 
requirements for broker-dealers that publish quotations \3\ in a 
quotation medium \4\ for certain over-the-counter equity securities 
(e.g., OTC Bulletin Board and Pink Sheets securities). Specifically, 
SEA Rule 15c2-11 prohibits a broker-dealer from publishing (or 
submitting for publication) a quotation for a covered OTC equity 
security unless it has obtained and reviewed current information about 
the issuer whose security is the subject of the quotation that the 
broker-dealer believes is accurate and obtained from a reliable source. 
There are several exceptions to SEA Rule 15c2-11, including paragraph 
(f)(2) of the Rule, which excepts quotations that represent a 
customer's unsolicited order or indication of interest (unsolicited 
customer order exception).
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    \3\ SEA Rule 15c2-11 defines ``quotation'' as any bid or offer 
at a specified price with respect to a security, or any indication 
of interest by a broker or dealer in receiving bids or offers from 
others for a security, or any indication by a broker or dealer that 
advertises its general interest in buying or selling a particular 
security.
    \4\ ``Quotation medium'' means any ``inter-dealer quotation 
system'' or any publication or electronic communications network or 
other device that is used by brokers or dealers to make known to 
others their interest in transactions in any security, including 
offers to buy or sell at a stated price or otherwise, or invitations 
of offers to buy or sell. ``Inter-dealer quotation system'' means 
any system of general circulation to brokers or dealers that 
regularly disseminates the quotations of identified brokers or 
dealers.
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    Rule 6440 sets forth the standards applicable to member firms for 
demonstrating compliance with SEA Rule 15c2-11, unless an exception 
applies. FINRA has found that member firms maintain varying levels of 
documentation for demonstrating eligibility for the unsolicited 
customer order exception and, in some cases, are unable to produce any 
proof that a quote in fact represented a customer's unsolicited order 
or indication of interest (``IOI''). While a member relying on this or 
any exception should be able to proffer evidence of its eligibility for 
and compliance with the exception, FINRA believes that providing 
specific recordkeeping requirements for demonstrating eligibility for 
the SEA Rule 15c2-11(f)(2) exception is appropriate and will promote 
more uniform recordkeeping and compliance with this exception.
    Specifically, contemporaneous with the receipt of any unsolicited 
customer order or IOI, members would be required to record the 
following details: the identity of the associated person who receives 
the order or IOI directly from the customer, if applicable; \5\ the 
identity of the customer; the date and time the order or IOI was 
received; and the terms of the order or IOI that is the subject of the 
quotation (e.g., security name and symbol, size, side of the market, 
the duration (if specified) and, if priced, the price). To the extent a 
member is displaying a quote representing an unsolicited customer order 
or IOI that was received from another broker-dealer, the member is 
still required to create a contemporaneous record of the identity of 
the person from whom information regarding the unsolicited customer 
order or IOI was received, if applicable; the date and time the 
unsolicited customer order or IOI was received by the member displaying 
the quotation; and the terms of the order that is the subject of the 
quotation.\6\ The member displaying the quotation may rely on the 
information provided by the routing firm if the member has a reasonable 
basis for believing that the information is valid.
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    \5\ In cases where a member is displaying a quote representing 
an unsolicited customer order or IOI that was received 
electronically, it is understood that there may not be a ``person'' 
associated with the receipt or submission of such unsolicited 
customer order or IOI. Thus, with respect to the requirement that 
members record (1) the identity of the associated person who 
received the unsolicited customer order or IOI; or (2) the identity 
of the person from whom information regarding the unsolicited 
customer order or IOI was received where the order or IOI is 
received from another broker-dealer, members are only required to 
record such information if applicable.
    \6\ It is critical that the member receiving an order be advised 
of and understand the terms of the order that are relevant to the 
exception so that the receiving member may reasonably and accurately 
rely on the unsolicited customer order exception. For example, if 
the customer order is a ``day'' order, the receiving member must be 
advised of that fact so that it can withdraw the quote upon the 
expiration of the order. Similarly, to the extent that the terms of 
the order change or other significant information is received by the 
firm routing the order (e.g., a ``good-till-cancelled'' order is 
cancelled or there is a change in the terms of the order), the firm 
routing such order must promptly update the member displaying the 
quote as to the change in the terms of the order. To the extent the 
firm routing the order is not a member, the member should make 
periodic inquiry as to whether the terms of the order have changed. 
Members may not rely on the unsolicited customer order exception 
where a displayed quote no longer accurately represents current 
unsolicited customer interest.
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    In addition, FINRA is amending Rule 6540 (Requirements Applicable 
to Market Makers) to delete footnote 1. Footnote 1 
sets forth a summary of exemptive relief granted by the SEC from the 
requirements of SEA Rule 15c2-11 (subject to certain conditions). 
However, given that the SEC has since granted additional exemptive 
requests from the requirements of SEA Rule 15c2-11 that are not 
included in footnote 1 (and may continue to grant further 
requests in the future), FINRA is proposing to delete footnote 
1 in its entirety and specify in Rule 6540 that members must 
demonstrate compliance with (or qualify for an exception or exemption 
from) SEC Rule 15c2-11.\7\
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    \7\ SEA Rule 15c2-11(h) sets forth the SEC's exemptive authority 
with respect to the requirements of SEA Rule 15c2-11 and provides 
that SEA Rule 15c2-11 shall not prohibit any publication or 
submission of any quotation if the SEC, upon written request or upon 
its own motion, exempts such quotation either unconditionally or on 
specified terms and conditions, as not constituting a fraudulent, 
manipulative or deceptive practice comprehended within the purpose 
of the rule.
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice to be published no

[[Page 28743]]

later than 60 days following Commission approval. The effective date 
will be 30 days following publication of the Regulatory Notice 
announcing 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,\8\ 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 
promote more uniform recordkeeping and compliance with SEA Rule 15c2-
11's unsolicited customer order exception.
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    \8\ 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 35 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-2009-030 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-2009-030. 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 inspection 
and copying 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 available publicly. All 
submissions should refer to File Number SR-FINRA-2009-030 and should be 
submitted on or before July 8, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14147 Filed 6-16-09; 8:45 am]
BILLING CODE 8010-01-P