Document ID: SEC-2012-2126-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2012-12-26T05:00Z

[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76113-76116]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-30980]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68471; File No. SR-FINRA-2012-056]

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

December 19, 2012.
    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 12, 2012, Financial Industry Regulatory

[[Page 76114]]

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 extend the expiration date of FINRA Rule 0180 
(Application of Rules to Security-Based Swaps) to July 17, 2013. FINRA 
Rule 0180 temporarily limits, with certain exceptions, the application 
of FINRA rules with respect to security-based swaps.
    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
    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 
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. In general, 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. See also Securities 
Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48208 (August 
13, 2012) (Further Definition of ``Swap,'' ``Security-Based Swap,'' 
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based 
Swap Agreement Record-Keeping).
    \6\ See, e.g., Sections 712 and 763 of the Dodd-Frank Act.
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    Title VII of the Dodd-Frank Act 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 
SEC has taken a number of actions in connection with Title VII, 
including providing certain temporary exemptions \8\ to address the 
expansion, pursuant to Title VII, of the Act's definition of 
``security'' to expressly encompass security-based swaps \9\ and 
requesting public comment on the anticipated sequencing of the 
compliance dates of final rules to be adopted by the SEC pursuant to 
Title VII.\10\
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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 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 Securities Exchange Act Release No. 64795 (July 1, 
2011), 76 FR 39927 (July 7, 2011) (Order Granting Temporary 
Exemptions Under the Securities Exchange Act of 1934 in Connection 
With the Pending Revision of the Definition of ``Security'' To 
Encompass Security-Based Swaps) (the ``Exemptive Release'').
    \9\ See SEA Section 3(a)(10) (15 U.S.C. 78c(a)(10)), as revised 
by Section 761 of the Dodd-Frank Act.
    \10\ See Securities Exchange Act Release No. 67177 (June 11, 
2012), 77 FR 35625 (June 14, 2012) (Statement of General Policy on 
the Sequencing of the Compliance Dates for Final Rules Applicable to 
Security-Based Swaps Adopted Pursuant to the Securities Exchange Act 
of 1934 and the Dodd-Frank Wall Street Reform and Consumer 
Protection Act) (the ``Policy Statement'').
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    In its Exemptive Release, the SEC noted 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 SEC determined that it was 
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 SEC with any related requests for 
guidance or relief, along with the underlying analysis. Further, in the 
Policy Statement, the SEC noted that it has been considering how to 
implement the new requirements that will be applicable to security-
based swaps pursuant to the final rules to be adopted by the SEC 
pursuant to Title VII in a practical and efficient manner that avoids 
unnecessary disruption to the security-based swaps market.
    Because the Act's expanded definition of ``security'' has 
implications for numerous provisions under FINRA rules \11\ similar to 
those noted by the SEC in the Exemptive Release, and in the interest of 
avoiding unnecessary market disruption, 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''). 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. 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) 
(``FINRA Rule 0180 Notice of Filing''). On January 13, 2012, FINRA 
filed for immediate effectiveness a rule change to extend the 
implementation of FINRA Rule 0180 to January 17, 2013. See 
Securities Exchange Act Release No. 66156 (January 13, 2012), 77 FR 
3027 (January 20, 2012) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2012-004).
    \13\ In its Exemptive Release, the Commission noted that the 
relief is targeted and does not include, for instance, relief from 
the Act's antifraud and anti-manipulation provisions. FINRA 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 (Standards of Commercial 
Honor and Principles of Trade), 2020 (Use of Manipulative, Deceptive 
or Other Fraudulent Devices), 3310 (Anti-Money Laundering Compliance 
Program) and 4240 (Margin Requirements for Credit Default Swaps). 
See also paragraphs (b) and (c) of FINRA Rule 0180 (addressing the 
applicability of additional rules) and FINRA Rule 0180 Notice of 
Filing.
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    The CFTC's and the Commission's rulemaking with respect to swaps 
and security-based swaps pursuant to Title VII is ongoing. FINRA 
believes it is appropriate and in the public interest to extend FINRA 
Rule 0180 for a limited period, to July 17, 2013, pending the 
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

[[Page 76115]]

the definition of ``security'' under the Act. FINRA will amend the 
expiration date of Rule 0180 in subsequent filings as necessary such 
that the expiration date will coincide with the implementation of such 
rules and guidance.
    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule 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.
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 in the Exemptive Release and the Policy 
Statement, the proposed rule change will help to avoid undue market 
disruption resulting from the expiration of FINRA Rule 0180 before the 
implementation of new rules and guidance that would provide greater 
regulatory clarity in relation to security-based swap activities.
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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. FINRA believes that the 
proposed rule change would prevent undue market disruption that would 
otherwise result if security-based swaps were, by virtue of the 
expansion of the Act's definition of ``security'' to encompass 
security-based swaps, subject to the application of all FINRA rules 
before the implementation of new rules and guidance that would provide 
greater regulatory clarity in relation to security-based swap 
activities. FINRA believes that, by extending the expiration of FINRA 
Rule 0180, the proposed rule change will serve to promote regulatory 
clarity and consistency, thereby reducing burdens on the marketplace 
and facilitating investor protection.

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.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) 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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    \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 the Policy Statement and will help avoid 
undue market interruption resulting from the change to the definition 
of ``security'' under the Act. 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. 
Therefore the Commission 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-2012-056 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-2012-056. 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 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

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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-2012-056 
and should be submitted on or before January 16, 2013.

    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. 2012-30980 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P