Document ID: SEC-2013-1707-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-10-02T04:00Z

[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60952-60954]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24007]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70516; File No. SR-FINRA-2013-041]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change to Extend the Clearly Erroneous Pilot Period and 
to Remove Certain References to Individual Stock Trading Pauses in 
FINRA Rule 11892

September 26, 2013.
    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 September 24, 2013, 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 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 amend FINRA Rule 11892 (Clearly Erroneous 
Transactions in Exchange-Listed Securities) to extend the effective 
date of the clearly erroneous pilot, which currently is scheduled to 
expire on September 30, 2013. FINRA also proposes to remove certain 
references to individual stock trading pauses contained in Rule 11892. 
FINRA has designated this proposal as non-controversial and provided 
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under 
the Act.\4\
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    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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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 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 11892 (Clearly Erroneous 
Transactions in Exchange-Listed Securities) to extend the effective 
date of the amendments set forth in File No. SR-FINRA-2010-032 (the 
``clearly erroneous pilot''). Portions of Rule 11892, explained in 
further detail below, currently are operating as a pilot set to expire 
on September 30, 2013.\5\ FINRA proposes to extend the clearly 
erroneous pilot until April 8, 2014. FINRA also proposes to remove 
references to individual stock trading pauses described in Rule 
11892(b)(4).
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    \5\ See Securities Exchange Act Release No. 68808 (February 1, 
2013), 78 FR 9083 (February 7, 2013) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Extend the Clearly 
Erroneous Pilot Period and To Adopt a New Provision in Connection 
With the Limit Up-Limit Down Plan) (``File No. SR-FINRA-2013-012'').
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    On September 10, 2010, the Commission approved, on a pilot basis, 
changes to FINRA Rule 11892 to provide for uniform treatment: (1) Of 
clearly erroneous execution reviews in multi-stock events involving 
twenty or more securities, and (2) in the event transactions occur that 
result in the issuance of an individual stock trading pause by the 
primary listing market and subsequent transactions that occur before 
the trading pause is in effect.\6\ FINRA also adopted additional 
changes to Rule 11892 that reduced the ability of FINRA to deviate from 
the objective standards set forth in Rule 11892,\7\ and in 2013, 
adopted a provision designed to address the operation of the clearly 
erroneous rules and the Plan to Address Extraordinary Market Volatility

[[Page 60953]]

Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').\8\ FINRA believes the benefits to 
market participants from the more objective clearly erroneous 
executions rule should continue on a pilot basis through April 8, 2014, 
which is one year following the commencement of operations of the Plan. 
FINRA believes that continuing the pilot during this time will protect 
against any unanticipated consequences. Thus, FINRA believes that the 
protections of the clearly erroneous rule should continue while the 
industry gains further experience with the operation of the Limit Up-
Limit Down Plan.
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    \6\ See Securities Exchange Act Release No. 62885 (September 10, 
2010), 75 FR 56641 (September 16, 2010) (Order Granting Approval of 
Proposed Rule Change Relating to Clearly Erroneous Transactions) 
(``File No. SR-FINRA-2010-032'').
    \7\ See File No. SR-FINRA-2010-032.
    \8\ See File No. SR-FINRA-2013-012.
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    FINRA also proposes to eliminate all references in Rule 11892 to 
individual stock trading pauses issued by a primary listing market. 
Specifically, Rule 11892(b)(4) provides specific rules that apply to 
the review of an execution as potentially clearly erroneous in the 
context of an individual stock trading pause issued for that security 
where the security is included in the S&P 500[supreg] Index, the 
Russell 1000[supreg] Index, or a pilot list of Exchange Traded Products 
(``Subject Securities''). The trading pauses described in Rule 
11892(b)(4) are being phased out as securities become subject to the 
Plan pursuant to a phased implementation schedule. The Plan already is 
operational with respect to all Subject Securities, and thus, FINRA 
believes that all references to individual stock trading pauses should 
be removed, including all cross-references to Rule 11892(b)(4) 
contained in other portions of Rule 11892.\9\
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    \9\ FINRA notes that certain Exchange Traded Products (``ETPs'') 
are not yet subject to the Limit Up-Limit Down Plan. Because such 
ETPs are not on the pilot list of securities, such ETPs are not 
subject to Rule 11892(b)(4). Accordingly, the proposed rule change 
does not change the status quo with respect to such ETPs. As 
amended, all securities, including ETPs not subject to the Limit Up-
Limit Down Plan, will continue to be subject to Rule 11892(b)(1) 
through (3). See Securities Exchange Act Release No. 65101 (August 
11, 2011), 76 FR 51097 (August 17, 2011) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change To Amend FINRA Rule 
11892) (SR-FINRA-2011-039).
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The effective date of the proposed rule change will be 
the date of filing.
2. Statutory Basis
    FINRA believes that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities association and, in particular, 
with the requirements of Section 15A of the Act.\10\ In particular, the 
proposal is consistent with Section 15A(b)(6) \11\ because it is 
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.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(6).
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    FINRA believes that the clearly erroneous pilot promotes just and 
equitable principles of trade in that it promotes transparency and 
uniformity across markets concerning review of transactions as clearly 
erroneous. More specifically, FINRA believes that the extension of the 
clearly erroneous pilot would help assure that the determination of 
whether a clearly erroneous trade has occurred will be based on clear 
and objective criteria, and that the resolution of the incident will 
occur promptly through a transparent process.
    The proposed rule change also would help assure consistent results 
in handling erroneous trades across the U.S. markets, thus furthering 
fair and orderly markets, the protection of investors and the public 
interest. Although the Limit Up-Limit Down Plan will become fully 
operational during the same time period as the proposed extended 
clearly erroneous pilot, FINRA believes that maintaining the pilot will 
help to protect against unanticipated consequences. To that end, the 
extension will allow FINRA to determine whether the pilot provisions of 
Rule 11892 are appropriate once the Plan is fully operational and, if 
so, whether improvements can be made. Finally, the elimination of 
references to individual stock trading pauses will help to avoid 
confusion amongst market participants, which is consistent with the 
protection of investors and the public interest and therefore 
consistent with the Act. As described above, individual stock trading 
pauses have been replaced by the Limit Up-Limit Down Plan with respect 
to all Subject Securities.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change implicates any 
competitive issues. FINRA believes that the other self-regulatory 
organizations also are filing similar proposals, and thus, that the 
proposal will help to ensure consistency across the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    FINRA has not solicited, and does not intend to solicit, comments 
on this proposed rule change. FINRA has not received any written 
comments from members or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the 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 if consistent with the protection of investors 
and the public interest, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), FINRA provided the Commission with written notice of 
its intent to file the proposed rule change, along with a brief 
description and the 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.
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    FINRA has asked the Commission to waive the 30-day operative delay 
so that the proposal may become operative immediately upon filing. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest, as 
it will allow the pilot program to continue uninterrupted, thereby 
avoiding investor confusion that could result from a temporary 
interruption in the pilot program. For this reason, the Commission 
designates the proposed rule change to be operative upon filing.\14\
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    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has also 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.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 60954]]

including whether the proposal 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-2013-041 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-2013-041. 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 
10:00 a.m. and 3:00 p.m. Copies of the 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-2013-041 and should be 
submitted on or before October 23, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24007 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P