Document ID: SEC-2007-1476-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-10-24T04:00Z

[Federal Register: October 24, 2007 (Volume 72, Number 205)]
[Notices]               
[Page 60398-60400]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc07-141]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56669; File No. SR-FINRA-2007-017]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend Rules Relating to Reporting of Odd-Lot 
Transactions to FINRA

October 17, 2007.
    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 October 10, 2007, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a the National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by FINRA. 
FINRA has designated the proposed rule change as constituting a ``non-
controversial'' rule change under Section 19(b)(3)(A)(iii) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with 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\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).

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[[Page 60399]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend its trade reporting rules to change the 
manner in which members are required to report odd-lot transactions\5\ 
to a FINRA Trade Reporting Facility (``TRF''),\6\ the Alternative 
Display Facility (``ADF''), and the OTC Reporting Facility (``ORF'') 
(referred to herein as the ``FINRA Facilities''). Specifically, FINRA 
is proposing to: (1) Eliminate the requirement that members use the 
special ``.RO'' trade report modifier to indicate that an odd-lot 
transaction is reported in accordance with Section 3 of Schedule A to 
the By-Laws (``Section 3''); and (2) require members to report odd-lot 
transactions ``for publication,'' i.e., mark reports of odd lots as 
``tape eligible,'' as applicable.
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    \5\ For purposes of the trade reporting rules, an odd lot is 
less than a ``normal unit of trading,'' which is defined as ``100 
shares of a security unless, with respect to a particular security, 
NASD determines that a normal unit of trading shall constitute other 
than 100 shares.'' See NASD Rules 4200, 4200A, 4200C, and 4200E.
    \6\ Effective July 30, 2007, FINRA was formed through the 
consolidation of NASD and the member regulatory functions of NYSE 
Regulation. Accordingly, the TRFs are now doing business as the 
FINRA TRFs (i.e., the FINRA/Nasdaq TRF, the FINRA/NSX TRF, and the 
FINRA/NYSE TRF). The formal name change of each TRF is pending, and 
once completed FINRA will file a separate proposed rule change to 
reflect those changes in the Manual.
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    The text of the proposed rule change is available at FINRA's 
principal office, from the Commission's Public Reference Room, and on 
FINRA's Web site (http://www.finra.org).

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
    On June 12, 2006, the Commission approved SR-NASD-2006-055,\7\ 
which requires members to report to FINRA in an automated manner all 
transactions, including odd-lot transactions, that must be reported to 
FINRA and that are subject to a regulatory transaction fee pursuant to 
Section 3.\8\ Today, with the exception of OTC Equity Securities, odd-
lot transactions are not reported for purposes of public 
dissemination;\9\ members report such transactions to FINRA for 
regulatory purposes only. In this regard, members are required to 
include a special ``.RO'' trade report modifier on reports of odd lots 
to denote that the transaction is reported in accordance with Section 3 
(the ``.RO Modifier''). FINRA uses the .RO Modifier to identify odd-lot 
transactions that are required to be included in FINRA's calculation of 
its Section 31 obligation to the Commission.
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    \7\ See Securities Exchange Act Release No. 53977 (June 12, 
2006), 71 FR 34976 (June 16, 2006) (order approving SR-NASD-2006-
055).
    \8\ Pursuant to Section 31 of the Act, FINRA and the national 
securities exchanges are required to pay transaction fees and 
assessments to the Commission that are designed to recover the costs 
related to the government's supervision and regulation of the 
securities markets and securities professionals. FINRA obtains funds 
to pay its Section 31 fees and assessments from its membership, in 
accordance with Section 3.
    \9\ See NASD Rules 4632(e) (relating to the NASD/Nasdaq TRF), 
4632A(i) (relating to the ADF), 4632C(e) (relating to the NASD/NSX 
TRF), and 4632E(f) (relating to the NASD/NYSE TRF). Pursuant to 
current NASD Rule 6620, odd-lot transactions in OTC Equity 
Securities, as defined in NASD Rule 6110, are required to be 
reported to FINRA for purposes of publication.
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    With the implementation of Regulation NMS and a new trade report 
messaging format, members are required to include the .RO Modifier on 
trade reports of odd-lot transactions in the same information level (or 
byte) as other regulatory modifiers. Thus, in certain instances, 
members may be faced with prioritizing and determining which modifier 
should be included in the trade report submitted to FINRA. This can 
lead to confusion, inaccuracies, and inconsistencies in trade reporting 
which, in turn, can impair FINRA staff's ability to produce a complete 
and accurate audit trail and properly assess transaction-related 
fees.\10\ FINRA staff has determined that the .RO Modifier can be 
eliminated because the FINRA Facilities can systematically identify 
odd-lot transactions from the number of reported shares.
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    \10\ FINRA rules require members to use special trade report 
modifiers to indicate that away-from-the-market sales (the ``.RA'' 
modifier) and exercises of OTC options (the ``.RX'' modifier) are 
reported in accordance with Section 3. Unlike the .RO Modifier, 
these modifiers do not compete with other trade report modifiers. 
Accordingly, FINRA is not proposing to eliminate the .RA and .RX 
modifiers.
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    Accordingly, FINRA is proposing to amend its trade reporting rules 
\11\ to eliminate the requirement that members use the .RO Modifier on 
reports of odd-lot transactions. FINRA also is proposing to amend its 
trade reporting rules \12\ to require that members report odd-lot 
transactions ``for publication'' or as ``tape eligible,'' as 
applicable. Thus, members will report odd-lot transactions in the same 
manner that they report round-lot transactions today. Although odd-lot 
transactions will be marked ``tape eligible'' pursuant to the proposed 
rule change, the FINRA Facilities will suppress such transactions from 
public dissemination. Today, with the exception of certain OTC Equity 
Securities, odd-lot transactions are not publicly disseminated by FINRA 
or the appropriate Securities Information Processor.\13\
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    \11\ NASD Rules 6130(g) (relating to the NASD/Nasdaq TRF and 
ORF), 6130A(c) (relating to the ADF), 6130C(f) (relating to the 
NASD/NSX TRF), and 6130E(f) (relating to the NASD/NYSE TRF).
    \12\ NASD Rules 4632(e) (relating to the NASD/Nasdaq TRF), 
4632A(i) (relating to the ADF), 4632C(e) (relating to the NASD/NSX 
TRF), and 4632E(f) (relating to the NASD/NYSE TRF).
    \13\ FINRA currently disseminates trade information relating to 
transactions of fewer than 100 shares in certain high-priced OTC 
Equity Securities. In some cases, trades in certain high-priced 
issues are almost exclusively for fewer than 100 shares and 
therefore, without this dissemination policy, trading data for such 
issues would be effectively unavailable to market participants. The 
proposed rule change does not amend this dissemination policy.
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    The proposed rule change will ensure consistency in FINRA's trade 
reporting rules applicable to over-the-counter transactions in NMS 
stocks and OTC Equity Securities, promote a more complete and accurate 
audit trail, and enable FINRA to properly assess applicable 
transaction-related fees. FINRA notes that the proposed rule change 
will not impose a new requirement that members report odd-lot 
transactions, but merely will change the manner in which such 
transactions are reported to the FINRA Facilities.\14\
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    \14\ Members should continue to report the offsetting 
``riskless'' leg of an odd-lot riskless principal transaction as 
they do today, i.e., by submitting a non-tape (or clearing-only) 
report, as applicable. See NASD Rules 4632(d)(3)(B) (relating to the 
NASD/Nasdaq TRF), 4632A(e)(1)(C)(ii) (relating to the ADF), 
4632C(d)(3)(B) (relating to the NASD/NSX TRF), 4632E(e)(3)(B) 
(relating to the NASD/NYSE TRF), and 6620(d)(3)(B) (relating to the 
ORF).
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    Finally, FINRA also is proposing certain technical, non-substantive 
changes to NASD Rules 6130A(c), 6130C(f), and 6130E(f) to maintain 
consistency in the trade reporting rules relating to the FINRA 
Facilities to the extent practicable.
    FINRA is filing the proposed rule change for immediate 
effectiveness. FINRA will announce the operative date of the proposed 
rule change on its Web site. In recognition of the systems changes that 
the proposed rule change

[[Page 60400]]

will require, the operative date will be at least 90 days after the 
date of filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\15\ 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 
promote a more complete and accurate audit trail and enable FINRA to 
properly assess applicable transaction-related fees.
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    \15\ 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 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 after the date of filing, 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 \16\ and subparagraph (f)(6) of Rule 
19b-4 thereunder.\17\ FINRA believes that the filing is appropriately 
designated as ``non-controversial'' because the proposed rule change is 
not imposing a new requirement on members to report odd-lot 
transactions, but merely is changing the manner in which members must 
report such transactions to the FINRA Facilities. In accordance with 
Rule 19b-4(f)(6)(iii),\18\ FINRA submitted 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.\19\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
    \18\ 17 CFR 210.19b-4(f)(6)(iii).
    \19\ See e-mail dated August 13, 2007 from Lisa C. Horrigan, 
Associate General Counsel, FINRA to Katherine A. England, Assistant 
Director, Division of Market Regulation, Commission.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate 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 the 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, 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-2007-017 on the subject line.

Paper comments:

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2007-017. 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-2007-017 and should be 
submitted on or before November 14, 2007.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20899 Filed 10-23-07; 8:45 am]

BILLING CODE 8011-01-P