Document ID: SEC-2012-0089-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-01-20T05:00Z

[Federal Register Volume 77, Number 13 (Friday, January 20, 2012)]
[Notices]
[Pages 3027-3029]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1036]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66156; File No. SR-FINRA-2012-004]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Extend to January 17, 2013 the Implementation 
of FINRA Rule 0180 (Application of Rules to Security-Based Swaps)

January 13, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on January 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 substantially 
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 receipt of this filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend to January 17, 2013 the implementation 
of FINRA Rule 0180 (Application of Rules to Security-Based Swaps). 
FINRA Rule 0180, filed for immediate effectiveness by FINRA on July 8, 
2011, will expire on January 17, 2012. FINRA Rule 0180 temporarily 
limits, with certain exceptions, the application of FINRA rules with 
respect to security-based swaps.

[[Page 3028]]

    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. 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 July 21, 2010, President Obama signed into law the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank 
Act''),\4\ Title VII of which established a comprehensive new 
regulatory framework for swaps and security-based swaps. 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. Generally, the Dodd-Frank Act provides that the Commodity 
Futures Trading Commission (``CFTC'') will regulate ``swaps'' and the 
SEC will regulate ``security-based swaps.'' \5\ The Dodd-Frank Act 
contemplates certain self-regulatory organization responsibilities in 
this area as well.\6\
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    \4\ Public Law 111-203, 124 Stat. 1376 (2010).
    \5\ The terms ``swap'' and ``security-based swap'' are defined 
in Sections 721 and 761 of the Dodd-Frank Act. The Commission and 
the CFTC jointly have proposed to further define these terms. See 
Securities Exchange Act Release No. 64372 (Apr. 29, 2011), 76 FR 
29818 (May 23, 2011) (Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping); Securities Exchange 
Act Release No. 63452 (Dec. 7, 2010), 75 FR 80174 (Dec. 21, 2010) 
(Further Definition of ``Swap Dealer,'' ``Security-Based Swap 
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap 
Participant'' and ``Eligible Contract Participant'').
    \6\ See, e.g., Sections 712 and 763 of the Dodd-Frank Act.
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    Title VII of the Dodd-Frank Act generally became effective on July 
16, 2011 (360 days after the enactment of the Dodd-Frank Act, i.e. the 
``Effective Date''), unless a provision requires a rulemaking.\7\ The 
Commission has taken a number of actions in furtherance of Title VII, 
including the issuance of a release to provide guidance in connection 
with the effectiveness of Exchange Act provisions related to security-
based swaps added by subtitle B of Title VII (which generally creates, 
and relates to, the regulatory regime for security-based swaps), and to 
provide temporary exemptions in connection with certain of those 
provisions.\8\ Among these actions, the Commission has provided certain 
temporary exemptions \9\ to address the expansion, pursuant to Title 
VII, of the Act's definition of ``security'' to expressly encompass 
security-based swaps.\10\ FINRA noted that in this Exemptive Release, 
the Commission stated that the expansion of the Act's definition of 
``security'' raises certain complex issues of interpretation, including 
issues as to the application of those provisions to registered broker-
dealers. The Commission further stated that, absent additional time to 
analyze those issues, and to consider whether to provide interpretive 
or operational guidance, these changes may lead to unnecessary market 
uncertainty. The Commission also determined that it is appropriate to 
provide market participants with additional time to consider the 
potential impact on their businesses and the interpretive questions 
raised, and to provide the Commission with any related requests for 
guidance or relief, along with the underlying analysis.
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    \7\ The Dodd-Frank Act provides that if a Title VII provision 
requires a rulemaking, the provision will go into effect ``not less 
than'' 60 days after the publication of the related final rule or on 
July 16, 2011, whichever is later. See Sections 754 and 774 of the 
Dodd-Frank Act.
    \8\ See, e.g., Securities Exchange Act Release No. 64678 (June 
15, 2011), 76 FR 36287 (June 22, 2011).
    \9\ See Securities Exchange Act Release No. 64795 (July 1, 2011) 
(Order Granting Temporary Exemptions) (the ``Exemptive Release'').
    \10\ See Exchange Act Section 3(a)(10) (15 U.S.C. 78c(a)(10)), 
as revised by Section 761 of the Dodd-Frank Act.
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    Because the Act's expanded definition of ``security'' has similar 
implications for numerous provisions under FINRA rules,\11\ on July 8, 
2011, FINRA filed for immediate effectiveness FINRA Rule 0180,\12\ 
which, with certain exceptions, is intended to temporarily limit the 
application of FINRA rules with respect to security-based swaps.\13\
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    \11\ The current FINRA rulebook consists of: (1) FINRA Rules; 
(2) NASD Rules; and (3) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules 
are referred to as the ``Transitional Rulebook''). While the NASD 
Rules generally apply to all FINRA members, the Incorporated NYSE 
Rules apply only to those members of FINRA that are also members of 
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA 
members, unless such rules have a more limited application by their 
terms. For more information about the rulebook consolidation 
process, see Information Notice, March 12, 2008 (Rulebook 
Consolidation Process).
    \12\ See Securities Exchange Act Release No. 64884 (July 14, 
2011), 76 FR 42755 (July 19, 2011) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2011-033).
    \13\ FINRA noted that in the Exemptive Release, the Commission 
stated that the relief it is granting is targeted and does not 
include, for instance, relief from the Act's antifraud and anti-
manipulation provisions. FINRA also has noted that FINRA Rule 0180 
is similarly targeted. For instance, paragraph (a) of FINRA Rule 
0180 provides that FINRA rules shall not apply to members' 
activities and positions with respect to security-based swaps, 
except for FINRA Rules 2010, 2020, 3310 and 4240. See also 
paragraphs (b) and (c) of FINRA Rule 0180 (addressing the 
applicability of additional rules) and SR-FINRA-2011-033.
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    FINRA believes it is appropriate to extend FINRA Rule 0180 for a 
limited period, to January 17, 2013, pending the final implementation 
of new rules and guidance that would provide greater regulatory clarity 
in relation to security-based swap activities, so as to provide relief 
from certain FINRA requirements and thereby help avoid undue market 
disruptions resulting from the change to the definition of ``security'' 
under the Act.
    As noted in Item 2 of this filing, FINRA has filed the proposed 
rule change for immediate effectiveness and has requested that the SEC 
waive both the requirement that the proposed rule be filed at least 
five (5) days in advance and the requirement that any change not become 
operative for 30 days after the date of the filing, such that FINRA can 
implement the proposed rule change immediately and prevent FINRA Rule 
0180 from lapsing. The proposed rule change will expire on January 17, 
2013. FINRA will amend the expiration date of FINRA Rule 0180 in 
subsequent filings as necessary such that the expiration date will be 
coterminous with the termination of relevant provisions of the SEC's 
Exemptive Release.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\14\ 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 would 
further the purposes of the Act because, consistent with the goals set 
forth by the Commission when it issued the Exemptive Release, the 
proposed rule

[[Page 3029]]

change will help to avoid undue market disruption resulting from the 
change to the definition of ``security'' under the Act.
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    \14\ 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

    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 \15\ and Rule 19b-
4(f)(6) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
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    A proposed rule change filed under Rule 19b-4(f)(6)\16\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
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    FINRA has requested that the Commission waive both the 5-day 
advance filing requirement \18\ and the 30-day operative delay 
requirement so that the proposal may become operative upon filing. The 
Commission hereby grants both of those requests. The proposed rule is 
consistent with the goals set forth by the Commission when it issued 
the Exemptive Release and will help avoid undue market interruption 
resulting from the change to the definition of ``security'' under the 
Act, and it is consistent with the protection of investors and the 
public interest. Therefore, the Commission believes it is consistent 
with the protection of investors and the public interest to waive both 
the requirement that the proposed rule be filed at least five (5) days 
in advance and the 30-day operative delay requirement and designates 
the proposal as operative upon filing.\19\
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    \18\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires a 
self-regulatory organization to provide the Commission with 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.
    \19\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition and capital formation. See 15 U.S.C. 
78c(f).
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    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-2012-004 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-2012-004. 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 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-2012-004 
and should be submitted on or before February 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1036 Filed 1-19-12; 8:45 am]
BILLING CODE 8011-01-P