Document ID: SEC-2008-0984-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-07-16T04:00Z

[Federal Register: July 16, 2008 (Volume 73, Number 137)]
[Notices]               
[Page 40892-40893]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jy08-108]                         

[[Page 40892]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58134; File No. SR-FINRA-2008-025]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to 
the Adoption of NASD Rule 2790 as FINRA Rule 5130 (Restrictions on the 
Purchase and Sale of Initial Equity Public Offerings) in the 
Consolidated FINRA Rulebook

July 10, 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 June 12, 2008, 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 substantially prepared by 
FINRA. 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.
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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 NASD Rule 2790 (Restrictions on the 
Purchase and Sale of Initial Equity Public Offerings) (``Rule'') as 
FINRA Rule 5130 in the consolidated FINRA rulebook, with only minor 
changes.
    The text of the proposed rule change is available at FINRA, on 
FINRA's Web site at http://www.finra.org, and in 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As part of the process of developing the new consolidated rulebook 
(the ``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt 
NASD Rule 2790 as FINRA Rule 5130 in the Consolidated FINRA Rulebook, 
with only minor changes as described below.
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    \3\ The current FINRA rulebook consists of two sets of rules: 
(1) NASD rules and (2) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together referred to as the ``Transitional 
Rulebook''). The Incorporated NYSE Rules apply only to those members 
of FINRA that are also members of the NYSE (``Dual Members''). Dual 
Members also must comply with NASD rules. For more information 
regarding the rulebook consolidation process, see FINRA Information 
Notice March 12, 2008 (Rulebook Consolidation Process).
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    NASD Rule 2790 protects the integrity of the initial public 
offering (``IPO'') process by ensuring that: (1) Firms make bona fide 
public offerings of securities at the offering price; (2) firms do not 
withhold securities in a public offering for their own benefit or use 
such securities to reward persons who are in a position to direct 
future business to firms; and (3) industry insiders, including firms 
and their associated persons, do not take advantage of their insider 
position to purchase new issues for their own benefit at the expense of 
public customers. NASD Rule 2790 plays an important part in maintaining 
investor confidence in the capital raising and IPO process.
    NASD Rule 2790 was adopted, effective March 23, 2004, replacing 
NASD IM-2110-1 (the Free-Riding and Withholding Interpretation) in its 
entirety.\4\ The Rule was subject to extensive input from the industry 
and other interested persons during a four-year rulemaking process, and 
FINRA believes that there is broad support for it. NASD Rule 2790 
provides necessary predictability and certainty in support of capital 
formation. Based on FINRA's experience, NASD Rule 2790 is achieving its 
purpose and is significantly easier than NASD IM-2110-1 for member 
firms and the investing public to understand and follow. Among other 
things, FINRA has seen a significant reduction in the number of 
interpretive and exemptive issues that have arisen with respect to the 
IPO allocation process since the Rule became effective. There is no 
Incorporated NYSE Rule equivalent to NASD Rule 2790.
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    \4\ See Securities Exchange Act Release No. 48701 (October 24, 
2003), 68 FR 62126 (October 31, 2003) (Order Approving File No. SR-
NASD-99-60); see also NASD Notice to Members 03-79 (December 2003) 
(SEC Approves New Rule 2790 (Restrictions on the Purchase and Sale 
of IPOs of Equity Securities); Replaces Free-Riding and Withholding 
Interpretation).
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    For the reasons discussed above, FINRA is proposing to transfer 
NASD Rule 2790 to the Consolidated FINRA Rulebook in substantially the 
same form. As part of this transfer, FINRA is proposing minor changes 
to the Rule to reflect the registration of The NASDAQ Stock Market LLC 
(``NASDAQ'') as a national securities exchange. The Rule currently 
refers to the NASDAQ Global Market because at the time the Rule was 
adopted, references to the listing standards of a national securities 
exchange did not include NASDAQ's Global Market. Since NASDAQ completed 
its registration as a national securities exchange, the references to 
the NASDAQ Global Market in the Rule are no longer necessary. In 
addition, FINRA is proposing certain minor, technical changes to the 
Rule.
    Within 60 days following Commission approval of the proposed rule 
change, FINRA will publish a Regulatory Notice setting forth the 
implementation date of the proposed rule change.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\5\ 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 Rule being adopted as part of the Consolidated 
FINRA Rulebook previously has been found to meet the statutory 
requirements, and FINRA believes the Rule has since proven effective in 
achieving the statutory mandates.
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    \5\ 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.

[[Page 40893]]

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 Number SR-FINRA-2008-025 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-2008-025. 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. 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-FINRA-2008-025 and should be 
submitted on or before August 6, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Florence E. Harmon,
Acting Secretary.
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    \6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-16232 Filed 7-15-08; 8:45 am]

BILLING CODE 8010-01-P