Document ID: SEC-2007-1545-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-11-14T05:00Z

[Federal Register: November 14, 2007 (Volume 72, Number 219)]
[Notices]               
[Page 64099-64101]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no07-87]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56752; File No. SR-NASD-2007-043]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc. 
(``FINRA''); Notice of Filing of Proposed Rule Change and Amendment No. 
1 Thereto To Amend NASD Rule 7001C To Increase Percentage of Market 
Data Revenue Shared With NASD/NSX TRF Participants

November 6, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 29, 2007, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by NASD. On October 29, 
2007, Financial Industry Regulatory Authority, Inc. (``FINRA'') filed 
Amendment No. 1 to the proposed rule change.\3\ 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\ Effective July 30, 2007, FINRA was formed through the 
consolidation of NASD and the member regulatory functions of NYSE 
Regulation. See Securities Exchange Act Release No. 56146 (July 26, 
2007), 72 FR 42190 (August 1, 2007). Accordingly, the NASD/NSX TRF 
is now doing business as the FINRA/NSX TRF. The formal name change 
of each of FINRA's Trade Reporting Facilities is pending and once 
completed, FINRA will file a separate proposed rule change to 
reflect those changes in the Manual. In Amendment No. 1, FINRA made 
certain changes to the original proposed rule change of June 29, 
2007, including to: (i) Propose to share 75%, rather than 100% as 
proposed in the original filing, of market data revenue with NASD/
NSX TRF participants, and (ii) revise the Self-Regulatory 
Organization's Statement on Burden on Competition.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA proposes to amend NASD Rule 7001C (Securities Transaction 
Credit) to increase the percentage of New York Stock Exchange (``Tape 
A''), American Stock Exchange (``Tape B'') and Nasdaq Exchange (``Tape 
C'') revenue shared with FINRA members reporting trades to the NASD/NSX 
Trade Reporting Facility (``NASD/NSX TRF''). The text of the proposed 
rule change is available at FINRA, http://www.finra.org, and the 

Commission's Public Reference Room.

[[Page 64100]]

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. 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
Background
    On November 6, 2006, the Commission approved the establishment of 
the NASD/NSX TRF,\4\ and the NASD/NSX TRF commenced operation on 
November 27, 2006. The NASD/NSX TRF provides FINRA members another 
mechanism for reporting locked-in transactions in exchange-listed 
securities effected otherwise than on an exchange. In connection with 
the establishment of the NASD/NSX TRF, FINRA and National Stock 
Exchange, Inc. (``NSX'') entered into the Limited Liability Company 
Agreement of NASD/NSX Trade Reporting Facility LLC (``Agreement''). 
Under the Agreement, FINRA, the ``SRO Member,'' has sole regulatory 
responsibility for the NASD/NSX TRF. NSX, the ``Business Member,'' is 
primarily responsible for the management of the NASD/NSX TRF's business 
affairs to the extent those activities are not inconsistent with the 
regulatory and oversight functions of FINRA. Additionally, the Business 
Member is obligated to pay the cost of regulation and is entitled to 
the profits and losses, if any, derived from the operation of the NASD/
NSX TRF.
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    \4\ See Securities Exchange Act Release No. 54715 (November 6, 
2006), 71 FR 66354 (November 14, 2006) (SR-NASD-2006-108) (approval 
order).
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    Pursuant to NASD Rule 7001C, FINRA members reporting trades in Tape 
A, Tape B and Tape C securities to the NASD/NSX TRF currently receive a 
50% pro rata credit on gross market data revenue earned by the NASD/NSX 
TRF. ``Gross revenue'' is the revenue received by the NASD/NSX TRF from 
the three tape associations after the tape associations deduct 
allocated support costs and unincorporated business costs.
Proposal To Increase Securities Transaction Credit
    FINRA proposes to amend Rule 7001C to increase from 50% to 75% the 
percentage of market data revenue shared with members under the 
securities transaction credit program. Thus, FINRA members reporting 
trades in Tape A, Tape B and Tape C stocks to the NASD/NSX TRF will 
receive a 75% pro rata credit on gross market data revenue earned by 
the NASD/NSX TRF.
    NSX, as the Business Member under the Agreement, has determined 
that the proposed increase in the percentage of market data revenue 
shared with NASD/NSX TRF participants is necessary for competitive 
reasons. NSX believes that, particularly in light of the fact that 
FINRA has filed a proposed rule change whereby the NASD/NYSE Trade 
Reporting Facility (``NASD/NYSE TRF'') would share 100% of market data 
revenue with its participants,\5\ competitive pricing is crucial to the 
NASD/NSX TRF's business. NSX has indicated that because there are 
currently no fees for reporting trades to the NASD/NSX TRF, NSX will 
fund regulatory costs associated with the NASD/NSX TRF from NSX general 
revenues.
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    \5\ See SR-NASD-2007-031 at http://www.finra.org/RulesRegulation/RuleFilings/2007RuleFilings/P019027
.

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    FINRA is proposing that the effective date of the proposed rule 
change shall be retroactive to April 1, 2007, the start of the second 
calendar quarter of 2007.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A of the Act,\6\ in general, and with section 
15A(b)(5) of the Act,\7\ in particular, which requires, among other 
things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA believes that the proposed rule change is a reasonable 
and equitable credit structure in that it will be applied uniformly 
among members that participate in the NASD/NSX TRF and NSX has 
indicated that all regulatory costs owed by NSX as the Business Member 
related to the NASD/NSX TRF will be funded by NSX general revenues.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 15 U.S.C. 78o-3(b)(5).
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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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 

File No. SR-ASD-2007-043 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASD-2007-043. 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

[[Page 64101]]

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 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-NASD-2007-043 and should be submitted on 
or before December 5, 2007.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-22162 Filed 11-13-07; 8:45 am]

BILLING CODE 8011-01-P