Document ID: SEC-2008-0206-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-02-07T05:00Z

[Federal Register: February 7, 2008 (Volume 73, Number 26)]
[Notices]               
[Page 7343-7345]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe08-105]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57252; File No. SR-FINRA-2007-025]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to Amendments to FINRA's NYSE Rules 421, 
440F, and 440G

February 1, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on December 4, 2007, 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 substantially 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,\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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a et seq.
    \3\ 17 CFR 240.19b-4.
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    FINRA is proposing to amend FINRA's NYSE Rules 421 (Periodic 
Reports), 440F (Public Short Sale Transactions Effected on the 
Exchange) and 440G (Transactions in Stock and Warrants for the Accounts 
of Members, Allied Members and Member Organizations) \5\ to conform 
such rules with the SEC's amendments to Rule 10a-1 \6\ (``SEC Rule 10a-
1'') and Regulation SHO \7\ under the Act.\8\ The proposed rule change 
makes conforming changes to FINRA's NYSE Rules 421, 440F and 440G, 
consistent with the proposed rule change by the New York Stock 
Exchange, LLC (``NYSE'') to its versions of Rules 421, 440F and 
440G.\9\
---------------------------------------------------------------------------

    \5\ FINRA has incorporated into its rulebook certain rules of 
NYSE, including NYSE Rules 421, 440F and 440G. These incorporated 
NYSE rules apply solely to those members of FINRA that also are 
members of NYSE on or after July 30, 2007 (``Dual Members''), until 
such time as FINRA adopts a consolidated rulebook applicable to all 
of its members. The incorporated NYSE rules apply to the same 
categories of persons to which they applied as of July 30, 2007. In 
applying the incorporated NYSE rules to Dual Members, FINRA also has 
incorporated the related interpretive positions set forth in the 
NYSE Rule Interpretations Handbook and NYSE Information Memos.
    \6\ 17 CFR 240.10a-1.
    \7\ 17 CFR 240.200-203.
    \8\ See Securities Exchange Act Release No. 55970 (June 28, 
2007), 72 FR 36348 (July 3, 2007).
    \9\ See File No. SR-NYSE-2007-62 (``NYSE's filing'').
---------------------------------------------------------------------------

    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
Rule 421. Periodic Reports
    No Change.
    * * * Supplementary Material:
    .10 Short positions.--Member organizations for which the Exchange 
is the designated examining authority are required to report ``short'' 
positions, including odd lots, in each stock or warrant listed on the 
Exchange, and in each other stock or warrant not listed on the Exchange 
which is not otherwise reported to another United States securities 
exchange or securities association, using such automated format and 
methods as prescribed by the Exchange. Such reports must include 
customer and proprietary positions and must be made at such times and 
covering such time period as may be designated by the Exchange.
    Member organizations for which the Exchange is not the designated 
examining authority must report ``short'' positions to the self-
regulatory organization which is its designated examining authority 
(``DEA'') if such DEA has a requirement for such reports. If the DEA 
does not have such a reporting requirement, then such member 
organization must comply with the provisions of Rule 421.
    The term ``designated examining authority'' means the self-
regulatory organization which has been assigned responsibility for 
examining a member organization for compliance with applicable 
financial responsibility rules. (See Rule 17d-1 under the Securities 
Exchange Act of 1934 (the ``Exchange Act'').)
    ``Short'' positions to be reported are those resulting from 
``short'' sales as defined in Rule 200(a) of the Securities and 
Exchange Commission's Regulation SHO, but excluding positions that meet 
the following requirements:
    (1) any sale by any person, for an account in which he has an 
interest, if such person owns the security sold and intends to deliver 
such security as soon as is possible without undue inconvenience or 
expense;
    (2) any sale of a security covered by a short sale rule on a 
national securities exchange (except a sale to a stabilizing bid 
complying with Rule 104 of Regulation M) effected with the approval of 
such exchange which is necessary to equalize the price of such security 
thereon with the current price of such security on another national 
securities exchange which is the principal exchange market for such 
security;
    (3) any sale of a security for a special arbitrage account by a 
person who then owns another security by virtue of which he is, or 
presently will be, entitled to acquire an equivalent number of 
securities of the same class as the securities sold; provided such 
sale, or the purchase which such sale offsets, is effected for the bona 
fide purpose of profiting from a current difference between the price 
of security sold and the security owned and that such right of 
acquisition was originally attached to or represented by another 
security or was issued to all the holders of any such class of 
securities of the issuer;
    (4) any sale of a security registered on, or admitted to unlisted 
trading privileges on, a national securities exchange effected for a 
special international arbitrage account for the bona fide purpose of 
profiting from a current difference between the price of such security 
on a securities market not within or subject to the jurisdiction of the 
United States and on a securities market subject to the jurisdiction of 
the United States; provided the seller at the time of such sale knows 
or, by virtue of information currently received, has

[[Page 7344]]

reasonable grounds to believe that an offer enabling him to cover such 
sale is then available to him in such foreign securities market and 
intends to accept such offer immediately; and
    (5) any sale by an underwriter, or any member of a syndicate or 
group participating in the distribution of a security, in connection 
with an over-allotment of securities, or any lay-off sale by such a 
person in connection with a distribution of securities through rights 
or a standby underwriting commitment.

[resulting from sales specified in clauses (1), (6), (7), (8), and (10) 
of paragraph (e) of Rule 10a-1 under the Exchange Act.] Also to be 
excluded are ``short'' positions carried for other member organizations 
reporting for themselves. Only one report should be made for each stock 
or warrant in which there is a short position. If more than one 
``account'' has a short position in the same stock or warrant, the 
combined aggregate should be reported.
    NOTE: A member organization which does not carry customers' margin 
accounts and does not clear its own transactions may obtain an 
exemption from reporting by notifying the Exchange in writing.
    .20-.50 No Change.
* * * * *
Rule 440F. Public Short Sale Transactions Effected on the Exchange
    * * * Supplementary Material:
Reports on Form SS20
    .10 Requirements for filing. No Change.
    General Instructions.--
    (1)-(2) No Change.
    (3) [Exclude short-exempt sales, except for short-exempt sales in 
securities subject to the SEC's Pilot Order (SEA Release No. 34-
50104)(July 28, 2004), as amended by the SEC's Second Pilot Order (SEA 
Release No. 34-50747)(November 29, 2004), and any subsequent orders.
    (4)] Exclude transactions in rights.
    [(5)](4) If there are no reportable transactions for a specific 
week, a form should be filed marked ``None''.
    [(6)](5) File this report with Credit Regulation Department, via 
the New York Stock Exchange's Electronic Filing Platform (``EFP''), as 
soon as possible, but not later than 12:00 noon on the Friday of the 
week following the week covered by the report.
    [(7)](6) Inquiries should be addressed to Credit Regulation 
Department, telephone 212-656-8572.
    [(8)](7) Reserved.
    Specific Instructions.--
    (1) No Change.
    (2) Short sales for hedging accounts and short sales executed as 
such for arbitrage accounts should be included. [Sales made on a 
``short-exempt'' basis for arbitrage accounts should not be included.]
    (3) No Change.
* * * * *
Rule 440G. Transactions in Stocks and Warrants for the Accounts of 
Members, Allied Members and Member Organizations
    * * * Supplementary Material:
    .10 Requirements for filing. No Change.
    Instructions.--
    (1)-(8) No Change.
    (9) [Short-exempt sales are to be included with total sales only. 
Solely for purposes of Rule 440G and Form 121, ``short-exempt sales'' 
in securities subject to the SEC's Pilot Order (SEA Release 34-
50104)(July 28, 2004), as amended by the SEC's Second Pilot Order (SEA 
Release 34-50747)(November 29, 2004), and any subsequent orders, are to 
be included with short sales on Form 121.
    (10)] Transactions are to be classified into one of the following 
three categories
    (a)-(c) No Change.
    [(11)](10) If a reporting member or member organization does not 
have reportable transactions during a given week, a Form 121 report 
should be filed marked ``No transactions''.
    [(12)](11) The Member Firm Regulation Division will consider 
written requests for exemption from filing REGULAR weekly reports on 
Form 121. Exemption may be granted for a period of time not to exceed 
one year, renewable annually if the applicant does not expect to have 
any, or expects to have only an occasional, reportable transaction 
during this time. THE EXEMPTION, WHEN GRANTED, IS FROM FILING REGULARLY 
EACH WEEK AND, IF DURING THE EXEMPTION PERIOD A REPORTABLE TRANSACTION 
IS EFFECTED, A FORM 121 REPORT, FOR THE WEEK IN WHICH THE 
TRANSACTION(S) TOOK PLACE, MUST BE FILED IMMEDIATELY.
    [(13)](12) File this report with the Credit Regulation Department, 
via the New York Stock Exchange's Electronic Filing Platform (``EFP'') 
as soon as possible but not later than 12:00 noon on the Friday 
following the week covered by the report.
    [(14)](13) Inquiries should be addressed to the Credit Regulation 
Department, telephone 212-656-8572.
    [(15)](14) No Change.
* * * * *

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
    FINRA is proposing changes to FINRA's NYSE Rules 421, 440F and 440G 
to conform these rules with the SEC's amendments to SEC Rule 10a-1 and 
Regulation SHO. The SEC's amendments, among other things, remove the 
short sale price test in SEC Rule 10a-1 and remove the ``short exempt'' 
marking requirements in Regulation SHO.
    In light of the SEC's amendments, the NYSE has proposed amending 
its Rules 421,\10\ 440F \11\ and 440G.\12\ As detailed in the NYSE's 
filing, the proposed amendments would remove: (1) The references to SEC 
Rule 10a-1 in NYSE Rule 421 and (2) the references to the ``short 
exempt'' marking requirements in NYSE Rules 440F and 440G. NYSE has 
proposed to make the changes effective upon filing.
---------------------------------------------------------------------------

    \10\ NYSE Rule 421 (Periodic Reports) contains the NYSE's short 
interest reporting requirements.
    \11\ NYSE Rule 440F requires members and member organizations to 
report round-lot short sale transactions for public customers.
    \12\ NYSE 440G requires members and member organizations to 
report round-lot short sale transactions for members, allied 
members, and member organizations.
---------------------------------------------------------------------------

    Given these changes, FINRA is proposing to make conforming changes 
to FINRA's NYSE Rules 421, 440F and 440G to ensure consistency with 
NYSE's versions of Rules 421, 440F and 440G.\13\
---------------------------------------------------------------------------

    \13\ Pursuant to Rule 17d-2 under the Exchange Act, NASD, NYSE, 
and NYSE Regulation, Inc. entered into an agreement (``Agreement'') 
to reduce regulatory duplication for firms that are Dual Members by 
allocating certain regulatory responsibilities for selected NYSE 
rules from NYSE Regulation to FINRA. The Agreement includes a list 
of all of those rules (``Common Rules'') for which FINRA has assumed 
examination, enforcement and surveillance responsibilities under the 
Agreement relating to compliance by Dual Members to the extent that 
such responsibilities involve member firm regulation. See Securities 
Exchange Act Release No. 56148 (July 26, 2007), 72 FR 42146 (August 
1, 2007) (Notice of Filing and Order Approving and Declaring 
Effective a Plan for the Allocation of Regulatory Responsibilities). 
The Common Rules are the same NYSE rules that FINRA has incorporated 
into its rulebook. See Securities Exchange Act Release No. 56147 
(July 26, 2007), 72 FR 42166 (August 1, 2007) (Notice of Filing and 
Order Granting Accelerated Approval of Proposed Rule Change to 
Incorporate Certain NYSE Rules Relating to Member Firm Conduct; File 
No. SR-NASD-2007-054). Paragraph 2(b) of the Agreement sets forth 
procedures regarding proposed changes by either NYSE or FINRA to the 
substance of any of the Common Rules.

---------------------------------------------------------------------------

[[Page 7345]]

2. Statutory Basis
    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. The proposed rule change is necessary and appropriate 
to comply with the amendments to SEC Rule 10a-1 and Regulation SHO and 
to maintain consistency with the NYSE's amendments to its Rules 421, 
440F and 440G.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    FINRA has requested that the Commission waive the five-day pre-
filing notice \17\ and the requirement that the rule change, by its 
terms, not become operative for 30 days after the date of the 
filing.\18\ FINRA has requested that the effective date of the proposed 
rule change be the same as the effective date of the NYSE's amendments 
to NYSE Rules 421, 440F and 440G to ensure that FINRA's NYSE Rules 421, 
440F and 440G maintain their status as Common Rules under the 
Agreement. The Commission believes that waiver of the five-day pre-
filing notice and the 30-day operative delay \19\ is consistent with 
the protection of investors and the public interest, given that the 
compliance date for the Commission's amendments to Rule 10a-1 was July 
6, 2007. In addition, waiver of these requirements will permit FINRA to 
implement its rule changes on the same date that proposed rule changes 
included in the NYSE's filing are implemented. For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.
---------------------------------------------------------------------------

    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ 17 CFR 240.19b-4(f)(6)(iii).
    \19\ 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).
---------------------------------------------------------------------------

    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-2007-025 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-2007-025. 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. to 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-2007-025 
and should be submitted on or before February 28, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-2184 Filed 2-6-08; 8:45 am]

BILLING CODE 8011-01-P