Document ID: SEC-2010-1191-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2010-08-06T04:00Z

[Federal Register: August 6, 2010 (Volume 75, Number 151)]
[Notices]               
[Page 47661-47662]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06au10-143]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62608; File No. SR-FINRA-2010-038]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to a Stated Interpretation of the 
Meaning, Administration, and Enforcement of FINRA Rule 11892 and 
Supplementary Material .01

July 30, 2010.
    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 July 29, 2010, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission (the 
``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 stated policy, practice, 
or interpretation with respect to the meaning, administration, or 
enforcement of an existing rule'' under Section 19(b)(3)(A)(i) of the 
Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing a stated interpretation of the meaning, 
administration, and enforcement of FINRA Rule 11892 and Supplementary 
Material .01.
    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 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
    In light of recent market events, some exchanges have adopted 
interpretations to their clearly erroneous rules regarding (1) the 
range of transactions subject to review and potential nullification and 
(2) the date by which clearly erroneous determinations must be made.\5\ 
FINRA is filing the proposed rule change to make clear that it will 
defer to an exchange's interpretation of its clearly erroneous 
authority in deciding which over-the-counter trades in exchange-listed 
securities are subject to nullification under FINRA Rule 11892.
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    \5\ See SR-NYSE-2010-55.
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    FINRA Rule 11892(a)(1) provides that, in the event of a 
determination by a national securities exchange to nullify one or more 
transactions in a security traded on such national securities exchange, 
certain FINRA staff may review any similarly situated transaction(s) 
reported through a FINRA system in such security and declare the 
transaction(s) null and void. Supplementary Material .01 to FINRA Rule 
11892 states that ``FINRA will generally follow the determination of a 
national securities exchange to break a trade(s) when [the] national 
securities exchange has broken a trade(s) at or near the price range in 
question at or near the time in question * * * such that FINRA breaking 
such trade(s) would be consistent with market integrity and investor 
protection.'' These provisions were adopted to ensure consistent and 
transparent determinations of clearly erroneous transactions.\6\ To 
promote consistency among self-regulatory organizations, FINRA believes 
it is necessary to defer to exchanges' interpretations of their clearly 
erroneous rules when FINRA makes determinations of whether to cancel 
similarly situated over-the-counter transactions in exchange-listed 
securities under FINRA Rule 11892(a)(1). Consequently, when making 
clearly erroneous determinations under FINRA Rule 11892(a)(1) and 
Supplementary Material .01, FINRA will follow the interpretations of 
exchanges regarding the range of transactions subject to review, and 
potential nullification, as clearly erroneous and the date by which 
determinations must be made.
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    \6\ See Securities Exchange Act Release No. 61080 (December 1, 
2009), 74 FR 64117 (December 7, 2009) (order approving SR-FINRA-
2009-068).
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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 stated interpretation 
clarifies that FINRA will exercise its authority to declare over-the-
counter transactions in exchange-listed securities null and void under 
FINRA Rule 11892 and Supplementary Material .01 consistent with 
decisions made by the exchange(s) trading such securities. FINRA 
believes that such an interpretation promotes just and equitable 
principles of trade because it ensures consistent application of 
clearly erroneous determinations across markets.
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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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) \8\ of the Act and Rule 19b-4(f)(1) \9\ thereunder. At any 
time within the 60-day period beginning on the date

[[Page 47662]]

of the filing of the proposed rule change, the 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.
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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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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-2010-038 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 Number SR-FINRA-2010-038. 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 Web site 
viewing and printing in the Commission's Public Reference Room, on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of the filing also will be available for inspection and copying at 
FINRA's principal office. 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-2010-038 and should be submitted on or before August 27, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary
[FR Doc. 2010-19331 Filed 8-5-10; 8:45 am]
BILLING CODE 8010-01-P