Document ID: SEC-2009-0147-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc
Posted Date: 2009-02-02T05:00Z

[Federal Register: February 2, 2009 (Volume 74, Number 20)]
[Notices]               
[Page 5877-5878]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02fe09-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59274; File No. SR-FINRA-2009-001]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to the Exemptive Criteria in FINRA Rule 
7470

January 22, 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 January 7, 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 and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change pursuant to Section 19(b)(3)(A)(iii) of the Act,\3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
receipt of this filing by the Commission. On January 16, 2009, FINRA 
submitted Amendment No. 1 to the proposed rule change. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as amended, 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 is proposing to amend FINRA Rule 7470 to revise the criteria 
necessary to qualify for an exemption from the order recording and data 
transmission requirements in the Order Audit Trail System (``OATS'') 
Rules for manual orders.
    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 reading 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 September 28, 2005, the SEC approved amendments to the OATS 
Rules that, among other things, permitted FINRA to grant exemptive 
relief from the OATS reporting requirements for manual orders.\5\ The 
exemptive authority was broadened in 2006 to give FINRA the authority 
to exempt members from the OATS recording requirements, in addition to 
the reporting requirements.\6\ At a minimum, members must meet the 
following criteria to be eligible to request an exemption from the OATS 
recording and reporting requirements for manual orders: (1) The member 
and current control affiliates and associated persons of the member 
have not been subject within the last five years to any final 
disciplinary action, and within the last ten years to any disciplinary 
action involving fraud; (2) the member has annual revenues of less than 
$2 million; (3) the member does not conduct any market making 
activities in Nasdaq Stock Market equity securities; (4) the member 
does not execute principal transactions with its customers (with 
limited exceptions for principal transactions executed pursuant to 
error corrections); and (5) the member does not conduct clearing or 
carrying activities for other firms.
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    \5\ See Securities Exchange Act Release No. 52521 (September 28, 
2005), 70 FR 57909 (October 4, 2005).
    \6\ See Securities Exchange Act Release No. 53580 (March 30, 
2006), 71 FR 17529 (April 6, 2006). In 2006, the exemptive provision 
was also relocated from NASD Rule 6955(d) to NASD Rule 6958. As of 
December 15, 2008, NASD Rule 6958 was renumbered as FINRA Rule 7470. 
See FINRA Regulatory Notice 08-57 (October 2008).
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    In addition to the amendments to the exemptive provision in the 
OATS Rules in 2006, the SEC separately approved amendments to the OATS 
Rules to require members to record and report to OATS order information 
relating to OTC equity securities.\7\ The extension of the OATS 
requirements to OTC equity securities became effective on February 4, 
2008.\8\
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    \7\ See Securities Exchange Act Release No. 54585 (October 10, 
2006), 71 FR 61112 (October 17, 2006).
    \8\ See Securities Exchange Act Release No. 55440 (March 9, 
2007), 72 FR 12852 (March 19, 2007).
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    When the Commission approved the exemptive provision in the OATS 
Rules and the amendment extending FINRA's authority under that 
provision in 2006, the OATS Rules applied only to equity securities 
listed on the Nasdaq Stock Market. Consequently, at that time, one of 
the minimum criteria for a member to request an exemption from the OATS 
requirements, specifically the requirement that the member not conduct 
any market making activities, was limited to Nasdaq Stock Market equity 
securities. This requirement, similar to the other exemptive criteria 
such as the prohibition on principal transactions with customers and 
conducting clearing or carrying activities for other firms, reflects 
FINRA's conclusion that exemptive relief should only be available to 
members that conduct very limited types of trading activities.
    When the OATS recording and reporting requirements were extended to 
OTC equity securities, the exemptive provision was not similarly 
extended to account for market-making activities in OTC equity 
securities. The proposed rule change would amend the minimum

[[Page 5878]]

criteria to seek exemptive relief from the recording and reporting 
requirements of the OATS Rules for manual orders to require that a 
member not conduct any market making activities in OTC equity 
securities. The proposed rule change would make explicit that members 
that make a market in any security subject to the OATS Rules (Nasdaq 
Stock Market or OTC equity securities) are not eligible for exemptive 
relief under Rule 7470.\9\
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    \9\ The proposed rule change would not affect exemptions granted 
or renewed before the effective date of the proposed rule change. 
Any member seeking an exemption (or the renewal of an existing 
exemption) after the effectiveness of the proposed rule change would 
be required to meet the eligibility criteria as amended by the 
proposed rule change.
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    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 filing, such that FINRA can implement the proposed rule change 
immediately.
2. Statutory Basis
    FINRA believes that 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 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 is 
consistent with the original intent of limiting eligibility for an 
exemption and furthering the goals of the FINRA's OATS by codifying 
that members that conduct market-making activities in any security 
subject to the OATS Rules are not eligible for exemptive relief under 
Rule 7470.
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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

    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 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 \11\ and 
Rule 19b-4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, 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. FINRA has fulfilled this requirement.
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    FINRA has asked the Commission to waive the operative delay to 
permit the proposed rule change to become operative prior to the 30th 
day after filing. FINRA has stated that it believes that it is 
important to correct and conform the OATS exemptive provisions as soon 
as possible to eliminate any confusion as to the criteria to be 
eligible for exemptive relief under Rule 7470.
    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\13\ The Commission believes that the proposed rule should 
help ensure that the exemptive relief provided for in FINRA Rule 7470 
continues to be available only to members that conduct very limited 
types of trading activities. The Commission, therefore, designates the 
proposal operative upon filing.
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    \13\ For purposes only of waiving the 30-day operative delay, 
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 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 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-2009-001 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-2009-001. 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 No. SR-FINRA-2009-001 and should be 
submitted on or before February 23, 2009.

    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. E9-2122 Filed 1-30-09; 8:45 am]

BILLING CODE 8011-01-P