Document ID: SEC-2007-1189-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc
Posted Date: 2007-08-24T04:00Z

[Federal Register: August 24, 2007 (Volume 72, Number 164)]
[Notices]               
[Page 48713-48715]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24au07-131]                         

[[Page 48713]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56279; File No. SR-NASD-2007-047]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Amendments to Certain Rules in Light of Amendments to SEC 
Rule 10a-1 and Regulation SHO

August 17, 2007.
    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 July 5, 2007, the National Association of Securities Dealers, Inc. 
(n/k/a 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 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,\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 certain rules and repeal Rule 5100 and 
IM-5100 in light of the elimination of SEC Rule 10a-1 of the Act and 
the amendments to Regulation SHO under the Act.
    The text of the proposed rule change is available at FINRA, the 
Commission's Public Reference Room, and http://www.finra.org.

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
Background and Discussion
    On June 13, 2007, the Commission voted to adopt certain amendments 
to SEC Rule 10a-1 and Regulation SHO under the Act. The amendments, 
among other things: (1) Eliminate the short sale price test contained 
in SEC Rule 10a-1; (2) add Rule 201(a) of Regulation SHO to provide 
that no price test, including any price test of any self-regulatory 
organization (``SRO''), shall apply to short sales in any security; (3) 
add Rule 201(b) of Regulation SHO to prohibit any SRO from having a 
price test; and (4) amend Rule 200(g) of Regulation SHO to remove the 
requirement that a broker-dealer mark a sell order of an equity 
security as ``short exempt'' if the seller is relying on an exception 
from the price test of Rule 10a-1, or any price test of any exchange or 
national securities association. The amendments to SEC Rule 10a-1 and 
Regulation SHO became effective on July 3, 2007.\4\ However, the 
compliance date of the amendments was July 6, 2007.
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    \4\ See Securities Exchange Act Release No. 55970 (June 28, 
2007), 72 FR 36348 (July 3, 2007).
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    The purpose of this proposed rule change is to make conforming 
changes to FINRA rules to reflect the elimination of SEC Rule 10a-1 and 
other amendments to Regulation SHO by: (1) Eliminating references to 
SEC Rule 10a-1 in FINRA rules; (2) repealing FINRA's short sale rule 
contained in Rule 5100 and IM-5100, as well as amending FINRA rules 
that reference Rule 5100 or IM-5100; and (3) removing any ``short 
exempt'' marking requirements in FINRA rules.
Elimination of References to SEC Rule 10a-1 in FINRA Rules
    Currently, Rule 3360 (Short-Interest Reporting) requires members to 
record and report short interest information to FINRA. Reportable short 
positions are those resulting from ``short sales'' as the term is 
defined in SEC Rule 200 of Regulation SHO, with the exception of 
positions that meet the requirements of subsections (e)(1), (6), (7), 
(8), and (10) of Rule 10a-1 of the Act.\5\ As a result of the repeal of 
SEC Rule 10a-1, these subsections will no longer exist. Therefore, 
FINRA is proposing a technical change to Rule 3360 to replace the 
references to these exceptions to SEC Rule 10a-1 with the underlying 
rule text of each provision.\6\ FINRA also is proposing to make 
conforming amendments to IM-6130, IM-6130C, IM-6130D, IM-6130E to 
remove references to SEC Rule 10a-1.
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    \5\ See Rule 3360(b)(1).
    \6\ As part of the Commission's approval of amendments to expand 
Rule 3360 to OTC equity securities, the Commission urged FINRA to 
review the exceptions to short interest reporting to determine 
whether further rulemaking is appropriate. See Securities Exchange 
Act Release No. 53224 (February 3, 2006), 71 FR 7101 (February 10, 
2006) (order approving SR-NASD-2005-112). Additionally, as part of 
the Commission's approval of rule changes by FINRA, Amex, and the 
NYSE to increase the frequency of short interest reporting to twice 
per month, the Commission instructed FINRA, among other SROs, to 
review the exceptions to short interest reporting to determine 
whether further rulemaking is appropriate. FINRA, together with the 
other SROs, is currently conducting such a review. If, based on this 
review, a determination is made that further rulemaking is 
warranted, FINRA will file a separate rule change with the 
Commission. See Securities Exchange Act Release No. 55406 (March 6, 
2007), 72 FR 11071 (March 12, 2007) (order approving SR-NASD-2006-
131; SR-NYSE-2006-111; SR-Amex-2007-05).
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Repeal of FINRA's Short Sale Rule
    As noted above, the Commission has removed the restrictions on the 
execution prices of short sales and prohibited SROs from having price 
tests. Rule 5100 governs short sales of over-the-counter (``OTC'') 
transactions reported to the Alternative Display Facility or a Trade 
Reporting Facility. More specifically, Rule 5100 generally prohibits a 
member from effecting short sales in NASDAQ Global Market securities 
otherwise than on an exchange for a customer account, or the member's 
own account, at or below the current national best (inside) bid, when 
the current national best (inside) bid is below the preceding national 
best (inside) bid. As an SRO, FINRA now is prohibited from having such 
a short sale price test under newly adopted SEC Rule 201.
    Accordingly, FINRA is proposing to repeal its short sale rule 
contained in Rule 5100 and the related interpretive material in IM-5100 
and is proposing conforming changes to IM-6130, IM-6130C, IM-6130D, IM-
6130E and Rule 9610 to delete references to Rule 5100 in such rules.
Removal of Short Exempt Marking Requirements
    Currently, Rule 200(g)(2) of Regulation SHO provides that a short 
sale order must be marked short exempt if relying on an exception from 
the short sale price test in SEC Rule 10a-1 or any short sale price 
test of an exchange or national securities association.

[[Page 48714]]

Likewise, certain FINRA rules require members to indicate on their 
transaction reports whether a transaction is a short exempt 
transaction, in conformance with SEC Rule 200(g)(2). In light of the 
Commission's recent amendments to delete the short exempt marking 
requirement from its rule, FINRA is proposing conforming changes to 
delete any references to that requirement in its rules. As such, FINRA 
proposes to amend Rules 4632, 4632A, 4632C, 4632D, 4632E, 6130, 6130C, 
6130D, 6130E, and IM-6130, IM-6130C, IM-6130D, IM-6130E to remove the 
short exempt marking requirements.
Technical Changes
    FINRA also is proposing to make certain technical changes to the 
text of Rule 3360. Specifically, Rule 3360(b) provides that, subject to 
certain limited exceptions, short positions required to be reported 
under the rule are those resulting from short sales as the term is 
defined in Rule 200 of Regulation SHO. The term ``short sale'' is 
actually defined in Rule 200(a) of Regulation SHO. Therefore, FINRA is 
proposing to amend the text of Rule 3360 to reference Rule 200(a) of 
Regulation SHO, not Rule 200 of Regulation SHO to eliminate any 
confusion.
    Additionally, FINRA is proposing to amend the definition of ``OTC 
equity security'' in Rule 3360 to delete the specific reference to The 
Nasdaq Stock Market, Inc. as it is now covered under the term 
``national securities exchange.''
Implementation
    As noted above, FINRA has filed the proposed rule change for 
immediate effectiveness. FINRA proposes July 6, 2007 as the compliance 
date of the proposed rule change, to coincide with the compliance date 
of the amendments to SEC Rule 10a-1 and Regulation SHO. However, with 
respect to the repeal of the short sale exempt marking requirements, 
firms are permitted to continue to mark transactions as ``short 
exempt'' for a ninety-day transitional period after the July 6, 2007 
compliance date in accordance with the SEC No-Action relief relating to 
the ``short exempt'' marking requirement of Rule 200(g) of Regulation 
SHO.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\7\ 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 
necessary and appropriate to comply with the amendments to SEC Rule 
10a-1 and Regulation SHO.
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    \7\ 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) \8\ of the Act and Rule 19b-
4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    FINRA has asked the Commission to waive the 30-day operative delay. 
The Commission believes such waiver is consistent with the protection 
of investors and the public interest because it would allow the 
proposed rule change to be effective on July 6, 2007, the compliance 
date for the amendments to Rule 10a-1 and Regulation SHO.\10\ For this 
reason, the Commission designates the proposal to be operative upon 
filing with the Commission.
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    \10\ For purposes only of waiving the 30-day pre-operative 
period, the Commission has considered the proposed rule change's 
impact on efficiency, competition and capital formation. 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-NASD-2007-047 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-NASD-2007-047. 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 Number SR-NASD-2007-047 and should be 
submitted on or before September 14, 2007.

[[Page 48715]]

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E7-16758 Filed 8-23-07; 8:45 am]

BILLING CODE 8010-01-P