Document ID: SEC-2013-0413-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2013-03-01T05:00Z

[Federal Register Volume 78, Number 41 (Friday, March 1, 2013)]
[Notices]
[Pages 13922-13924]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-04796]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68985; File No. SR-FINRA-2013-016]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Amend FINRA Rules in Accordance With the 
Regulation NMS Plan To Address Extraordinary Market Volatility

February 25, 2013.
    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 February 11, 2013, Financial Industry Regulatory 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 amend FINRA rules in accordance with the 
provisions of the Regulation NMS Plan to Address Extraordinary Market 
Volatility.
    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, on the 
Commission's Web site at http://www.sec.gov, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 31, 2012, the Commission approved a joint industry plan to 
address extraordinary market volatility (``Limit Up-Limit Down'' or the 
``Plan'') filed by FINRA and the other self-regulatory organizations 
(``Participants'') \4\ pursuant to Section 11A of the Act \5\ and Rule 
608 thereunder.\6\ The Limit Up-Limit Down mechanism is intended to 
address the type of sudden price movements that the market experienced 
on the afternoon of May 6, 2010 by generally prohibiting the display of 
offers at prices below the lower price band and bids above the upper 
price band and the execution of trades outside the price bands for NMS 
Stocks.\7\ The Plan combines the use of the Limit Up-Limit Down 
mechanism with trading pauses to accommodate more fundamental price 
moves (as opposed to erroneous trades or momentary gaps in liquidity). 
By its terms, the Plan will be implemented on a one-year pilot basis in 
two phases.\8\ Pursuant to the Plan, each Participant must adopt rules 
requiring compliance by its members with the provisions of the Plan.\9\
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    \4\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (Approval Order). A copy of the 
Plan is attached as Exhibit A to the Approval Order.
    The Plan was subsequently amended to, among other things, revise 
the implementation schedule, as discussed further below. See Letter 
dated January 17, 2013 from Janet McGinness, EVP & Corporate 
Secretary, General Counsel, NYSE Markets, to Elizabeth M. Murphy, 
Secretary, SEC, available at www.nyse.com/attachment/LULD_Plan_Amendment_No_2.pdf.
    \5\ 15 U.S.C. 78k-1.
    \6\ 17 CFR 242.608.
    \7\ The single plan processor responsible for the consolidation 
of information for an NMS Stock pursuant to Rule 603(b) of 
Regulation NMS under the Act shall calculate and disseminate to the 
public the lower and upper price bands for an NMS Stock during 
regular trading hours.
    \8\ Phase I of Plan implementation will begin on April 8, 2013 
in select Tier 1 NMS Stock symbols, with full Phase I implementation 
completed three months after the initial date of Plan operations (or 
such earlier date as may be announced by the Plan processor with at 
least 30 days notice). Phase II of the Plan will commence six months 
after the initial date of the Plan (or such earlier date as may be 
announced by the Plan processor with at least 30 days notice).
    \9\ See Section II(B) of the Plan.
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    To that end, in furtherance of its obligations under the Plan, 
FINRA is proposing to: (1) Adopt new Rule 6190 (Compliance with 
Regulation NMS Plan to Address Extraordinary Market

[[Page 13923]]

Volatility) and (2) amend Rules 5260 (Prohibition on Transactions, 
Publication of Quotations, or Publication of Indications of Interest 
During Trading Halts) and 6121 (Trading Halts Due to Extraordinary 
Market Volatility).
    Proposed Rule 6190 requires members that are trading centers in NMS 
Stocks to establish, maintain and enforce written policies and 
procedures that are reasonably designed to comply with the requirements 
of the Plan and specifically to prevent: (1) The execution of trades at 
prices that are below the lower price band or above the upper price 
band for an NMS Stock, except as permitted under the Plan; (2) the 
display of offers below the lower price band and bids above the upper 
price band for an NMS Stock; and (3) the execution of trades in an NMS 
Stock during a trading pause.\10\ Under the Plan, the term ``trading 
center'' has the meaning set forth in Regulation NMS under the Exchange 
Act.\11\
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    \10\ No trades in a paused NMS Stock may occur during the 
trading pause, but all bids and offers may be displayed. See Section 
VII(A) of the Plan.
    \11\ Specifically, Rule 600(b) of Regulation NMS defines 
``trading center'' as a national securities exchange or national 
securities association that operates an SRO trading facility, an 
alternative trading system, an exchange market maker, an OTC market 
maker, or any other broker or dealer that executes orders internally 
by trading as principal or crossing orders as agent. 17 CFR 
242.600(b).
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    FINRA is clarifying that the proposed rule applies to members to 
the extent that they are trading centers, as defined under the Plan, 
and are acting as such with respect to any given trade or quotation. 
For example, Firm A is an OTC market maker and also a trading center. 
Firm A, in its capacity as an OTC market maker, receives a customer 
order to sell and routes the order to an exchange or other trading 
center. In that instance, Firm A could rely on the exchange or other 
trading center to ensure compliance with the Plan, and for example, if 
the offer were displayed in violation of the Plan, FINRA would not deem 
Firm A to be in violation of proposed Rule 6190. This rule will be in 
effect during a pilot period to coincide with the pilot period for the 
Plan (including any extensions to the pilot period for the Plan).
    Rule 5260 generally prohibits members from directly or indirectly 
effecting any transaction or publishing any quotation during a trading 
halt, including a trading pause. Because the Plan permits all bids and 
offers in an NMS Stock to be displayed during a trading pause, FINRA is 
proposing to amend Rule 5260 to prohibit member quoting and trading 
activity during a trading halt, except as permitted under the Plan.
    In addition, FINRA is proposing to amend Rule 6121.01 to reflect 
the Plan's trading pause provisions and to clarify that if trading in 
an NMS Stock is permitted to resume after a trading pause under the 
Plan, then FINRA may permit the resumption of trading otherwise than on 
an exchange in such NMS Stock if trading has commenced on at least one 
other national securities exchange (i.e., when a transaction has been 
executed on an exchange, not merely when quoting has commenced on the 
exchange). This provision will be in effect during a pilot period to 
coincide with the pilot period for the Plan (including any extensions 
to the pilot period for the Plan).
    FINRA also is proposing to amend Rule 6121.01 to clarify that the 
current trading pause provisions will continue to apply to Tier 1 and 
Tier 2 NMS Stocks until the Plan is implemented for those securities. 
As noted above, Phase I of the Plan will begin on April 8, 2013 for 
certain Tier 1 NMS Stocks. As of that date, Rule 6121.01(b) will not 
apply to those Tier 1 NMS Stocks, but will continue to apply to all 
other Tier 1 and Tier 2 NMS Stocks. Upon full implementation of Phase 
I, this provision will apply only to Tier 2 NMS Stocks and will no 
longer be in effect upon full implementation of Phase II of the Plan.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change shall be 
the implementation date of the Regulation NMS Plan to Address 
Extraordinary Market Volatility, which currently is expected to be 
April 8, 2013.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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 also is designed to support 
the principles of Section 11A(a)(1) of the Act \13\ in that it seeks to 
assure fair competition among brokers and dealers and among exchange 
markets. FINRA believes that the proposed rule change meets these 
requirements in that it facilitates compliance with the Plan, which has 
been approved and found by the Commission to be reasonably designed to 
prevent potentially harmful price volatility, including severe 
volatility of the kind that occurred on May 6, 2010. Accordingly, FINRA 
believes that the proposed rules will further the goals of investor 
protection and fair and orderly markets.
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    \12\ 15 U.S.C. 78o-3(b)(6).
    \13\ 15 U.S.C. 78k-1(a)(1).
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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. As discussed above, the Plan 
requires that the Participants adopt rules requiring compliance by 
their members with the provisions of the Plan. FINRA believes that the 
other Participants will file similar proposals, and therefore, the 
proposed rule change will help to ensure consistent rules across the 
marketplace. In addition, FINRA does not believe that the Plan 
introduces terms that are unreasonably discriminatory for the purposes 
of Section 11A(c)(1)(D) of the Act.\14\
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    \14\ 15 U.S.C. 78k-1(c)(1)(D).
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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

    FINRA has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the 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 prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires FINRA to give the Commission written notice of FINRA's 
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 satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the

[[Page 13924]]

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 under Section 
19(b)(2)(B) of the Act \17\ to determine whether the proposed rule 
change should be approved or disapproved.
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    \17\ 15 U.S.C. 78s(b)(2)(B).
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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 email to rule-comments@sec.gov. Please include 
File No. SR-FINRA-2013-016 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 No. SR-FINRA-2013-016. 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 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-2013-016 and should be 
submitted on or before March 22, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-04796 Filed 2-28-13; 8:45 am]
BILLING CODE 8011-01-P