Document ID: SEC-2009-1306-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rules 5210 (Publication of Transactions and Quotations) and 5220 (Offers at Stated Prices) Into the Consolidated Rulebook
Posted Date: 2009-09-11T04:00Z

[Federal Register: September 11, 2009 (Volume 74, Number 175)]
[Notices]               
[Page 46814-46816]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11se09-91]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60613; File No. SR-FINRA-2009-055]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt 
FINRA Rules 5210 (Publication of Transactions and Quotations) and 5220 
(Offers at Stated Prices) Into the Consolidated Rulebook

September 2, 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 August 18, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 adopt NASD Rule 3310 (Publication of 
Transactions and Quotations), NASD Rule 3320 (Offers at Stated Prices), 
IM-3310 (Manipulative and Deceptive Quotations) and IM-3320 (firmness 
of Quotations) as FINRA rules in the consolidated FINRA rulebook 
without material changes. The proposed rule change would combine NASD 
Rule 3310 and IM-3310 into FINRA Rule 5210 and would combine NASD Rule 
3320 and IM-3320 into FINRA Rule 5220 in the consolidated FINRA 
rulebook.
    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

[[Page 46815]]

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
    As part of the process of developing a new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt NASD 
Rule 3310 (Publication of Transactions and Quotations), NASD Rule 3320 
(Offers at Stated Prices), IM-3310 (Manipulative and Deceptive 
Quotations) and IM-3320 (firmness of Quotations) with minor changes as 
FINRA rules in the Consolidated FINRA Rulebook.
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    \3\ 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).
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Proposed FINRA Rule 5210

    NASD Rule 3310 prohibits members from publishing or circulating, or 
causing to be published or circulated, any communication that purports 
to report any transaction as a purchase or sale of any security unless 
such member believes that such transaction was a bona fide purchase or 
sale of such security. The rule also prohibits members from publishing 
or circulating, or causing to be published or circulated, any 
communication that purports to quote the bid price or asked price for 
any security, unless such member believes that such quotation 
represents a bona fide bid for, or offer of, such security.
    IM-3310 provides that it would be inconsistent with NASD Rules 2110 
(Standards of Commercial Honor and Principles of Trade),\4\ 3310 
(Publications of Transactions and Quotations), and 2120 (Use of 
Manipulative, Deceptive or Other Fraudulent Devices) \5\ for a member 
to: (1) Publish or circulate or cause to be published or circulated, by 
any means whatsoever, any report of any securities transaction or of 
any purchase or sale of any security unless such member knows or has 
reason to believe that such transaction was a bona fide transaction, 
purchase or sale, or (2) to publish or circulate or to cause to be 
published or circulated, by any means whatsoever, any quotation for any 
security without having reasonable cause to believe that such quotation 
is a bona fide quotation, is not fictitious and is not published or 
circulated or caused to be published or circulated for any fraudulent, 
deceptive or manipulative purpose.
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    \4\ NASD Rule 2110 has been transferred into the Consolidated 
FINRA Rulebook as FINRA Rule 2010.
    \5\ NASD Rule 2120 has been transferred into the Consolidated 
FINRA Rulebook as FINRA Rule 2020.
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    NASD Rule 3310 was adopted on June 6, 1939, and there have been no 
subsequent amendments to the rule. IM-3310 was adopted in 1960 and also 
has not been amended since adoption. More recently, FINRA reminded 
members that directly enter (or that permit customers or non-members to 
enter) orders into trading systems that they are required to take steps 
to ensure that such orders are free of errors and are representative of 
bona fide transaction and quotation activity consistent with their 
obligations under NASD Rule 3310 and IM-3310.\6\ Therefore, members 
have been reminded that they must have in place a supervisory system 
and written supervisory procedures reasonably designed to ensure that 
orders are not entered in error or in a manner inconsistent with FINRA 
rules, including NASD Rule 3310 and IM-3310.
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    \6\ See Notice to Members 04-66 (NASD Reminds Member Firms of 
Their Obligations to Ensure the Accuracy and Integrity of 
Information Entered into Order-Routing and Execution Systems) 
(September 2004).
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    FINRA is proposing to adopt the requirements set forth in NASD Rule 
3310 and IM-3310 as FINRA Rule 5210 with minor changes to update the 
content and cross-references. Specifically, FINRA is proposing minor 
changes to delete the exception for nominal quotations that are clearly 
identified as such because, under current practice, nominal quotations 
are not published and a modifier does not exist to identify nominal 
quotations. In addition, FINRA is proposing to incorporate the 
substance of IM-3310 as Supplementary Material to FINRA Rule 5210 with 
minor changes to simplify and update the cross-references within the 
rule.\7\
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    \7\ As stated in SR-FINRA-2008-021, with the exception of the 
Arbitration Code, the Consolidated FINRA Rulebook will no longer 
contain Interpretive Materials (``IMs''); rather, the IMs either 
will become stand alone rules or will be integrated into existing 
rule text or moved to a ``Supplementary Material'' section at the 
end of a rule. (In some instances, an IM also may be eliminated as 
outdated or otherwise unnecessary.) The ``Supplementary Material'' 
will set forth the same type of legally binding guidance and 
additional information that IMs provide today and will be filed with 
the SEC. See Securities Exchange Act Release No. 58176 (July 16, 
2008); 73 FR 42845 (July 23, 2008).
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Proposed FINRA Rule 5220

    NASD Rule 3320 provides that no member shall make an offer to buy 
from or sell to any person any security at a stated price unless such 
member is prepared to purchase or sell, as the case may be, at such 
price and under such conditions as are stated at the time of such offer 
to buy or sell. NASD Rule 3320 was adopted on June 6, 1939. There have 
been no subsequent amendments to the rule.
    As adopted in 1965, related IM-3320 restricts ``backing away'' from 
quotations, which disrupts the normal operation of the over-the-counter 
market. IM-3320 provides that it shall be deemed conduct inconsistent 
with high standards of commercial honor and just and equitable 
principles of trade if a member ``backs away'' from its quotation.
    In addition, the interpretive material provides that, in order to 
ensure the integrity of quotations, every member has an obligation to 
correctly identify the nature of its quotations when they are supplied 
to others. Further, each member furnishing quotations must ensure that 
it is adequately staffed to respond to inquiries during the normal 
business hours of such member. IM-3320 recognizes that members change 
inter-dealer quotations constantly in the course of trading, but 
further states that, under normal circumstances where the member is 
making a firm trading market in any security, it is expected at least 
to buy or sell a normal unit of trading in the quoted stock at its then 
prevailing quotations unless clearly designated as ``not firm'' or 
``firm for less than a normal unit of trading'' when supplied by the 
member. In addition, IM-3320 recognizes that a member's quote may not 
be firm at times where contemporaneous transactions or substantial 
changes in inventory might require dealers to quote a ``subject 
market'' temporarily.
    FINRA proposes to adopt NASD Rule 3320, without change, into the 
Consolidated FINRA Rulebook as FINRA Rule 5220 and to incorporate the 
substance of IM-3320, with minor changes, as Supplementary Material to 
FINRA Rule 5220. The minor changes to IM-3320 will: (1) Update 
terminology (e.g., references to ``wire quotations'' and the ``National 
Quotation Bureau Sheets'') to reflect technological advancements and 
current practice

[[Page 46816]]

since the rule's enactment, and (2) update the ``subject market'' 
language to make it consistent with the language used in the SEC's Firm 
Quote Rule (Rule 602 of Regulation NMS), specifically that, if at the 
time an order for the purchase or sale of the quoted security is 
presented the member is in the process of effecting a transaction and 
immediately after the completion of such transaction communicates a 
revised quotation size, such member shall not be obligated to purchase 
or sell the quoted security in an amount greater than such revised 
quotation size.
    FINRA will announce the implementation date of the proposed rule 
change in a Regulatory Notice to be published no later than 90 days 
following 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 adopting the proposed rules as 
part of the Consolidated FINRA Rulebook will continue to enhance market 
quality by providing for increased reliability and usefulness of 
quotation information. FINRA notes that the proposed rules have been in 
operation for numerous decades and believes that they have since proven 
effective in achieving the statutory mandates.
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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-2009-055 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-2009-055. 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 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-2009-055 and should be 
submitted on or before October 2, 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. E9-21883 Filed 9-10-09; 8:45 am]

BILLING CODE 8010-01-P