Document ID: SEC-2008-0102-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-01-22T05:00Z

[Federal Register: January 22, 2008 (Volume 73, Number 14)]
[Notices]               
[Page 3783-3785]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ja08-106]                         

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-57143; File No. SR-FINRA-2007-034]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Dissemination of Trade Reports for OTC 
Equity Securities Transactions of Fewer Than 100 Shares

 January 14, 2008.
    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 December 19, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by FINRA. FINRA 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders it 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA's proposed rule change relates to the dissemination of last 
sale information for transactions of fewer than 100 shares in OTC 
Equity Securities.\5\ Specifically, FINRA is proposing that for OTC 
Equity Securities that traded at or above $175.00 per share during the 
fourth calendar quarter of 2007, FINRA will change the ``unit of 
trade'' from 100 shares to one share (such that transactions in these 
securities will no longer be considered ``odd-lot transactions'' for 
dissemination purposes) and will disseminate last sale information for 
all reported transactions of one or more shares in these securities. 
The proposed rule change amends FINRA's trade report dissemination 
policy and does not require amendments to any rules.
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    \5\ NASD Rule 6610(d) defines OTC Equity Security as ``any non-
exchange-listed security and certain exchange-listed securities that 
do not otherwise qualify for real-time trade reporting.''
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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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Only reports of transactions that meet the ``unit of trade'' test 
pursuant to FINRA's dissemination protocols are publicly disseminated. 
As a general matter, OTC Equity Securities have a unit of trade of 100 
shares. While

[[Page 3784]]

transactions of fewer than 100 shares (commonly referred to as ``odd-
lot transactions'') in such securities are reported to FINRA,\6\ they 
are not publicly disseminated. FINRA believes that, consistent with the 
dissemination protocols for NMS stocks, disseminating last sale 
information for odd-lot transactions would provide minimal market 
value, particularly with respect to low-priced OTC Equity Securities. 
However, with respect to high-priced OTC Equity Securities, many (if 
not all) transactions may be for fewer than the standard unit of trade 
of 100 shares. Thus, information regarding trades at these levels is 
more valuable to the market and investors. In fact, trading data for 
such securities could effectively be unavailable to market participants 
if only trades of 100 or more shares were disseminated.
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    \6\ See NASD Rule 6620.
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    Accordingly, FINRA disseminates last sale information for 
transactions of fewer than 100 shares in a limited number of high-
priced OTC Equity Securities today. For these OTC Equity Securities, 
the unit of trade has been designated as one share, such that any 
transaction of one or more shares will meet the unit of trade test for 
that security and be disseminated. For example, if OTC Equity Security 
ABCD has a unit of trade of one share, a transaction of 25 shares of 
ABCD would meet the unit of trade test for that security and last sale 
information for the transaction would be disseminated. Under past 
practice, the unit of trade of OTC Equity Securities was changed on a 
case-by-case basis upon request from a market participant (e.g., a 
market maker or issuer) to facilitate the dissemination of trades of 
fewer than 100 shares. Typically, such changes were made in connection 
with securities trading above $200.00 per share.
    FINRA is proposing to adopt a more uniform policy regarding the 
dissemination of OTC Equity Securities and will publish a Notice 
informing members, investors and other interested parties of the new 
policy.\7\ Specifically, for all OTC Equity Securities that traded at 
or above $175.00 per share during the fourth calendar quarter of 2007, 
FINRA will designate the unit of trade as one (such that transactions 
in these securities will no longer be considered odd-lot transactions 
for dissemination purposes) and will disseminate last sale information 
for all transactions of one or more shares in such securities. FINRA 
will publish a list of the OTC Equity Securities that meet the stated 
dissemination criteria in the proposed Notice and will also make this 
list available on the OTC Bulletin Board Web site (http://www.otcbb.com
).\8\ FINRA staff anticipates that the unit of trade for 

the vast majority of OTC Equity Securities will remain 100 shares.
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    \7\ With the exception of NASD Rule 6250, which applies to 
dissemination of transaction information for TRACE-eligible 
securities, dissemination of trade reports is typically not governed 
by FINRA's rules, but rather by its protocols. Thus, FINRA is not 
proposing to amend any rules to effectuate the change discussed 
herein.
    \8\ FINRA notes that all OTC Equity Securities for which the 
unit of trade is currently designated as one will be included in 
this list and will remain on this list regardless of whether they 
meet the stated dissemination criteria.
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    Additionally, using the above criteria, FINRA will update the list 
of OTC Equity Securities at the end of each calendar quarter based on 
that quarter's trading activity. While OTC Equity Securities may be 
added to the list, they generally will not be removed.\9\ FINRA staff 
believes that retaining OTC Equity Securities on the list, rather than 
re-evaluating each security's eligibility every calendar quarter, will 
achieve greater transparency and consistency with respect to trade data 
dissemination.
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    \9\ FINRA may determine that an OTC Equity Security should be 
removed from the list if, e.g., there has been a significant 
corporate action, such as a stock split, that has changed the 
pricing in the security such that a unit of trade of one is no 
longer appropriate, or if the OTC Equity Security was erroneously 
included on the list as a result of inaccurate prices included in 
the trade report(s) that qualified the security for dissemination of 
last sale transaction information. Telephone conversation between 
Lisa Horrigan, Associate General Counsel, FINRA, and Ronesha Butler, 
Special Counsel, Division of Trading and Markets, Commission, on 
January 14, 2008.
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    FINRA believes that the proposed rule change will enhance 
transparency and the amount of information available to market 
participants with respect to transactions in OTC Equity Securities.
    FINRA is filing the proposed rule change for immediate 
effectiveness. FINRA will publish a Notice announcing the operative 
date of the new dissemination policy, which date will be at least 30 
days after the date of filing.
2. Statutory Basis
    The proposed rule change is consistent with the provisions of 
Section 15A(b)(6) of the Act,\10\ 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 transparency and 
the amount of information available to market participants with respect 
to transactions in OTC Equity Securities.
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    \10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will not 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: (1) 
Significantly affect the protection of investors or the public 
interest; (2) impose any significant burden on competition; and (3) 
become operative for thirty 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) \12\ thereunder.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ FINRA has given the Commission 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 on which it filed the proposed rule change. See 17 CFR 
240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such 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-2007-034 on the subject line.

[[Page 3785]]

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-2007-034. 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-2007-034 and should be 
submitted on or before February 12, 2008. 

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-992 Filed 1-18-08; 8:45 am]

BILLING CODE 8011-01-P