Document ID: SEC-2008-1431-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-10-15T04:00Z

[Federal Register: October 15, 2008 (Volume 73, Number 200)]
[Notices]               
[Page 61177-61178]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15oc08-148]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58753; File No. SR-FINRA-2008-048]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change to Adopt FINRA Rule 6121 (Trading Halts Due to 
Extraordinary Market Volatility)

October 8, 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 October 7, 2008, the 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. FINRA has 
designated the proposed rule change as concerned solely with the 
administration of the self-regulatory organization under Section 
19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(3) 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).
    \4\ 17 CFR 240.19b-4(f)(3).
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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 FINRA Rule 6121 (Trading Halts Due to 
Extraordinary Market Volatility) to permit FINRA to halt over-the-
counter (``OTC'') trading in NMS stocks, as defined in Rule 600(b)(47) 
of SEC Regulation NMS, if other major U.S. securities markets initiate 
market-wide trading halts in response to extraordinary market 
conditions.
    Below is the text of the proposed rule change. Proposed new 
language is in italics.\5\
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    \5\ On September 25, 2008, the SEC approved proposed rule change 
SR-FINRA-2008-021, in which FINRA proposed, among other things, to 
adopt the NASD Marketplace Rules (the NASD Rule 4000 through 7000 
Series) as the FINRA Rule 6000 through 7000 Series in the 
Consolidated FINRA Rulebook. See Securities Exchange Act Release No. 
58643 (September 25, 2008), 73 FR 57174 (October 1, 2008) (order 
approving SR-FINRA-2008-021; SR-FINRA-2008-022; SR-FINRA-2008-026; 
SR-FINRA-2008-028 and SR-FINRA-2008-029). As part of that proposed 
rule change, FINRA adopted new FINRA Rule 6120 (Trading Halts), 
which consolidates its trading halt rules relating to OTC trading in 
NMS stocks (i.e., NASD Rules 4120A, 4633, 4633C and 4633E).
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* * * * *
6000. Quotation and Transaction Reporting Facilities
6100. Quoting and Trading in NMS Stocks
* * * * *

6121. Trading Halts Due to Extraordinary Market Volatility

    Pursuant to the procedures set forth in Rule 6120(b), FINRA shall 
halt all trading otherwise than on an exchange in any NMS stock, as 
defined in Rule 600(b)(47) of SEC Regulation NMS, if other major 
securities markets initiate market-wide trading halts in response to 
their rules or extraordinary market conditions or if otherwise directed 
by the Securities and Exchange Commission.
* * * * *

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
    In 1988, the SEC approved several rule proposals by the national 
securities exchanges, along with a policy statement by FINRA (then 
known as NASD),\6\ which provide trading halt authority in the event of 
severe market declines (referred to as ``circuit breakers''). These 
provisions were adopted in response to the severe market decline that 
occurred in October 1987. The provisions were intended to enable the 
self-regulatory organizations (``SROs'') to provide coordinated means 
to address potentially destabilizing market volatility.
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    \6\ FINRA's Policy Statement on Market Closings, which was 
adopted under FINRA's authority in Article VII, Section 3 of the By-
Laws, provided, among other things, that, when other major 
securities markets initiate market-wide trading halts in response to 
extraordinary market conditions, FINRA will, upon SEC request, halt 
domestic trading in all securities in equity and equity-related 
securities in the OTC market. As part of the approval order, the SEC 
requested that FINRA impose a trading halt as quickly as practicable 
whenever the NYSE and other equity markets have suspended trading. 
See Securities Exchange Act Release No. 26198 (October 19, 1988), 53 
FR 41637 (October 24, 1988) (order approving SR-NASD-88-46). The 
Policy Statement, which was adopted on a pilot basis and extended 
numerous times, expired on December 31, 1997. See Securities 
Exchange Act Release No. 36563 (December 7, 1995), 60 FR 64084 
(December 13, 1995) (order approving SR-NASD-95-57). FINRA has 
represented orally and in writing that it will continue to follow, 
upon SEC request, a trading halt during the triggering of 
intermarket circuit breakers. See Letter from Richard Ketchum, Chief 
Operating Officer and Executive Vice President, NASD, dated January 
23, 1998. The language in the Policy Statement was subsequently 
codified, on a pilot basis, in Interpretive Material (IM) 4120-3 
(later renumbered IM-4120-4). See Securities Exchange Act Release 
No. 39846 (April 9, 1998), 63 FR 18477 (April 15, 1998) (order 
approving SR-NASD-98-27). The IM-4120-3 pilot, which also was 
extended numerous times, expired on April 30, 2002.
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    National securities exchanges generally have circuit breaker rules 
whereby the trading in all exchange-listed securities is halted based 
on a one-day decline of 10%, 20% and 30% of the Dow Jones Industrial 
Average (``DJIA''), with the percentage value based on the average 
closing value of the DJIA for the month prior to the beginning of the 
quarter, or have other general authority to halt trading in response to 
similar extraordinary market conditions.\7\ Unlike the exchanges, FINRA 
does not have an express circuit

[[Page 61178]]

breaker rule; however, FINRA's Board has authority to act in certain 
emergency or extraordinary market conditions pursuant to Article VII, 
Section 3 of FINRA's By-Laws.
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    \7\ See, e.g., NYSE Rule 80B, NYSE Arca Equities Rule 7.12 and 
NASDAQ Exchange Rule 4121.
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    FINRA is proposing to adopt new FINRA Rule 6121, which would 
authorize FINRA to halt OTC trading of NMS stocks if other major U.S. 
securities markets initiate market-wide trading halts in response to 
their rules or extraordinary market conditions or if otherwise directed 
by the SEC. FINRA believes that such generalized authority is 
appropriate and necessary to provide adequate flexibility to deal with 
extraordinary market conditions. FINRA also believes the proposed rule 
change will further the goal of coordinated SRO action to address 
potentially destabilizing market volatility, consistent with the 
circuit breaker trading halt authority of the exchanges.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change is 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,\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 the proposed rule change is 
consistent with the circuit breaker rules of other SROs and will 
further the goal of investor protection by providing a coordinated 
means to address potentially destabilizing market volatility.
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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

    The proposed rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act \9\ and paragraph (f)(3) of Rule 19b-4 
thereunder,\10\ in that the proposed rule change is concerned solely 
with the administration of the self-regulatory organization. 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.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(3).
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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-2008-048 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2008-048. 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, 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-2008-048 and should be submitted on or before November 5, 
2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-24376 Filed 10-14-08; 8:45 am]

BILLING CODE 8011-01-P