Document ID: SEC-2009-1744-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to Reporting of Trade Cancellations to FINRA
Posted Date: 2009-12-10T05:00Z

[Federal Register: December 10, 2009 (Volume 74, Number 236)]
[Notices]               
[Page 65578-65580]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10de09-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61105; File No. SR-FINRA-2009-082]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Reporting of Trade Cancellations to FINRA

December 3, 2009.
    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 November 24, 2009, 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, 
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 (1) amend FINRA trade reporting rules to 
permit members to report trade cancellations after 5:15 p.m. Eastern 
Time on trade date to the FINRA/Nasdaq Trade Reporting Facility 
(``FINRA/Nasdaq TRF'') and the OTC Reporting Facility (``ORF''); and 
(2) make certain conforming changes to the rules relating to the 
submission of trade cancellations to the Alternative Display Facility 
(``ADF''). The amendments proposed herein are identical to the current 
rules relating to the FINRA/NYSE Trade Reporting Facility (``FINRA/NYSE 
TRF'') and would make FINRA rules governing the submission of trade 
cancellations consistent across the ``FINRA Facilities.'' \3\
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    \3\ The ADF, FINRA/Nasdaq TRF, FINRA/NYSE TRF and ORF are 
collectively referred to herein as the ``FINRA Facilities.''
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    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

[[Page 65579]]

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 rules require members to report the cancellation of any over-
the-counter trade that was previously submitted to a FINRA Facility 
within certain prescribed time periods.\4\ For example, if a trade 
executed during normal market hours (i.e., 9:30 a.m. to 4 p.m. Eastern 
Time) is canceled during normal market hours on trade date, the 
cancellation must be reported to FINRA within 90 seconds.\5\
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    \4\ See Rules 6282(j), 6380A(g), 6380B(f) and 6622(f).
    \5\ See Rules 6380A(g)(2)(A), 6380B(f)(2)(A) and 6622(f)(2)(A).
     FINRA notes that currently, the ADF rules do not contain a 90-
second reporting requirement for trade cancellations. As described 
more fully below, FINRA is proposing to amend the ADF rules to 
conform to the rules for the other FINRA Facilities in this regard.
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    The rules governing the reporting of trade cancellations to the 
FINRA/Nasdaq TRF and ORF are based on the traditional 5:15 p.m. 
``media'' cut-off time (i.e., for the submission of trades for public 
dissemination purposes) and prohibit the reporting of trade 
cancellations after 5:15 p.m. on trade date.\6\ In other words, 
although the FINRA/Nasdaq TRF and ORF are open until 8 p.m., if a 
member does not report a trade cancellation by 5:15 p.m. on trade date, 
then the member must wait until the next day to report the 
cancellation. This means that trade cancellations are not submitted to 
the Securities Information Processors (``SIPs'') by the FINRA/Nasdaq 
TRF or to the Trade Data Dissemination Service (``TDDS'') feed by the 
ORF after 5:15 p.m. on trade date, and the high price/low price/last 
sale price calculations for the day are not updated after 5:15 p.m.\7\ 
By contrast, the rules relating to the ADF and FINRA/NYSE TRF do not 
include a 5:15 p.m. cut-off. Cancellations on trade date can be 
reported to these two facilities until the time they close (6:30 p.m. 
for the ADF and 8 p.m. for the FINRA/NYSE TRF),\8\ and the SIPs update 
the high/low/last calculations accordingly.
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    \6\ See Rules 6380A(g)(2) and 6622(f)(2).
    \7\ Market participants historically have relied on the high/
low/last calculations provided by the SIPs, e.g., some market data 
vendors would ``lock in'' high/low/last for the day in their data 
products at the 5:15 p.m. media cut-off time, and mutual fund 
companies would set their daily fund net asset values based on the 
last sale price as of the 5:15 p.m. media cut-off. FINRA does not 
believe that market participants today rely on the high/low/last 
calculations provided by the SIPs to the degree they once did. For 
example, today many market participants buy closing price data 
directly from the primary listing market for the issue. However, 
FINRA is requesting that the SEC specifically solicit comment on the 
industry's reliance on the high/low/last calculation provided by the 
SIPs and/or TDDS, and in turn, the relevance of the 5:15 p.m. media 
cut-off today.
    \8\ See Rules 6282(j)(2) and 6380B(f)(2).
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    FINRA is proposing to amend Rules 6380A(g)(2) and 6622(f)(2) 
relating to the FINRA/Nasdaq TRF and the ORF, respectively, to 
eliminate the 5:15 p.m. cut-off and to allow members to submit reports 
of trade cancellations on trade date until the close of the facilities 
at 8 p.m. As a result of the proposed rule change, reports of trade 
cancellations submitted to the FINRA/Nasdaq TRF and ORF until 8 p.m. on 
trade date will update the high/low/last calculations for the day. The 
text of the proposed amendments is identical to the text of current 
Rule 6380B(f)(2) relating to the FINRA/NYSE TRF.\9\
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    \9\ FINRA is proposing to make a technical change to Rule 
6380B(f)(2)(F) relating to the FINRA/NYSE TRF. Pursuant to SR-NASD-
2007-037, FINRA proposed to amend its trade reporting rules to 
extend the closing time of the FINRA/NYSE TRF from 6:30 p.m. to 8 
p.m. Eastern Time. See Securities Exchange Act Release No. 55916 
(June 15, 2007), 72 FR 34499 (June 22, 2007) (notice of filing and 
immediate effectiveness of SR-NASD-2007-037). However, FINRA 
inadvertently neglected to propose to replace a reference to 6:30 
p.m. with 8 p.m. in Rule 6380B(f)(2)(F) and is proposing to make 
that change in this filing.
    FINRA also is proposing technical changes, where necessary, to 
clarify that references to ``before 4 p.m.'' mean ``at or before 4 
p.m.'' and references to ``after 6:30 p.m.'' (or 8 p.m., as 
applicable) mean ``at or after 6:30 p.m.'' (or 8 p.m., as 
applicable) to close any inadvertent gaps in the rules.
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    FINRA also is proposing to amend Rule 6282(j)(2) relating to the 
ADF to conform to Rule 6380B(f)(2) relating to the FINRA/NYSE TRF. 
Among other changes, the proposed amendments to Rule 6282(j)(2) will 
provide that if a normal market hours trade is cancelled during market 
hours on trade date, the cancellation must be reported within 90 
seconds.\10\
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    \10\ FINRA recently filed a proposed rule change to reduce the 
90-second reporting requirement to 30 seconds. See Securities 
Exchange Act Release No. 60960 (November 6, 2009), 74 FR 59272 
(November 17, 2009) (notice of filing of SR-FINRA-2009-061). The 
proposed 30-second reporting requirement also would apply to trade 
cancellations. Depending on the timing of Commission approval of 
these filings, FINRA will file an amendment or separate filing, as 
necessary, to make conforming changes.
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    FINRA believes that the proposed rule change will promote more 
consistent trade reporting by members by conforming the reporting 
requirements applicable to trade cancellations across FINRA Facilities. 
Additionally, the proposed rule change will enhance market transparency 
by eliminating systematically imposed delays in the reporting of trade 
cancellations to the FINRA/Nasdaq TRF and ORF.\11\
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    \11\ FINRA notes that where a proposed rule change strictly 
proposes to make conforming changes to the rules applicable to one 
FINRA Facility that are identical to existing rules applicable to 
one or more other FINRA Facilities, FINRA typically would file such 
proposed rule change for immediate effectiveness under Section 
(b)(3)(A) of the Act. However, because the conforming changes 
proposed herein for the FINRA/Nasdaq TRF and ORF will impact the 
high/low/last calculations, FINRA is filing under Section (b)(2) of 
the Act to provide members and other interested parties an 
opportunity to comment.
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    FINRA will announce the effective date of the proposed rule change 
in a Regulatory Notice. FINRA is proposing that the implementation date 
will be between 45 and 90 days following the date of 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,\12\ which requires, among 
other things, that FINRA rules 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 
enhance market transparency and promote more consistent trade reporting 
by members.
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    \12\ 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

[[Page 65580]]

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-2009-082 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-2009-082. 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 publicly available. All 
submissions should refer to File Number SR-FINRA-2009-082 and should be 
submitted on or before December 31, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29390 Filed 12-9-09; 8:45 am]

BILLING CODE 8011-01-P