Document ID: SEC-2009-0070-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-01-14T05:00Z

[Federal Register: January 14, 2009 (Volume 74, Number 9)]
[Notices]               
[Page 2147-2148]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14ja09-111]                         

[[Page 2147]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59216; File No. SR-FINRA-2008-065]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change To Extend a TRACE Pilot Program

January 8, 2009.
    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 December 18, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) (``FINRA'' or ``Exchange'') filed with the Securities and 
Exchange Commission (``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 extend the pilot program in FINRA Rule 
6730(e)(4) (formerly NASD Rule 6230(e)(4)) to January 7, 2011, and 
incorporate a reference to current New York Stock Exchange (``NYSE'') 
Rule 86.\4\ The pilot program exempts from reporting to Trade Reporting 
and Compliance Engine (``TRACE'') transactions in TRACE-eligible 
securities that are executed on a facility of the NYSE in accordance 
with NYSE Rules 1400 and 1401 and reported to NYSE in accordance with 
NYSE's applicable trade reporting rules and disseminated publicly by 
NYSE.
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    \4\ FINRA Rule 6730 became effective on December 15, 2008. See 
Regulatory Notice 08-57 (October 2008).
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)

* * * * *

6730. Transaction Reporting

    (a) through (d) No Change.

(e) Transactions Exempt From Reporting

    The following types of transactions shall not be reported:
    (1) through (3) No Change.
    (4) [For the duration of a two-year pilot program, effective upon 
the later of either: (1) approval of this Rule by the SEC, or (2) 
execution by FINRA and the New York Stock Exchange (``NYSE'') of a data 
sharing agreement addressing data related to transactions covered by 
this Rule,]Provided that a data sharing agreement between FINRA and 
NYSE related to transactions covered by this Rule remains in effect, 
for a pilot program expiring on January 7, 2011, transactions in TRACE-
eligible securities that are executed on a facility of NYSE in 
accordance with NYSE Rules 1400, [and]1401 and 86 and reported to NYSE 
in accordance with NYSE's applicable trade reporting rules and 
disseminated publicly by NYSE.
    (5) No Change.
    (f) No Change.
* * * * *

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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Pursuant to SR-NASD-2006-110, FINRA amended FINRA Rule 6730(e) 
(then NASD Rule 6230(e)) to exempt from TRACE reporting requirements, 
for a pilot period of two years, transactions in TRACE-eligible 
securities that are executed on a facility of the NYSE in accordance 
with NYSE Rules 1400 and 1401, reported to NYSE in accordance with 
NYSE's applicable trade reporting rules and disseminated publicly by 
NYSE. The exemption did not take effect until FINRA and NYSE entered 
into a data sharing agreement addressing data related to the 
transactions covered by FINRA Rule 6730(e)(4) (then NASD Rule 
6230(e)(4)). The Commission approved SR-NASD-2006-110 on an accelerated 
basis on November 16, 2006, and the two-year pilot period began on 
January 9, 2007. The pilot program is scheduled to expire on January 9, 
2009.
    FINRA is proposing to extend the pilot program for two years to 
continue to exempt members that execute transactions in TRACE-eligible 
securities on an NYSE facility (and as to which all the other 
conditions of the exemption are met) from the TRACE reporting 
requirements. The pilot will expire at 11:59:59 p.m. on January 7, 
2011. FINRA believes that a two-year extension will provide additional 
time to analyze the impact of the exemption. Without the extension, 
members would be subject to both FINRA's and NYSE's trade reporting 
requirements with respect to these securities.
    FINRA also proposes two technical changes to FINRA Rule 6730(e)(4). 
FINRA proposes to incorporate a reference to amended NYSE Rule 86 in 
FINRA Rule 6730(e)(4) to identify more clearly the scope of the pilot 
program. FINRA believes this is necessary because the NYSE recently 
established a new bond trading facility, which is not reflected in NYSE 
Rules 1400 or 1401 (i.e., the rules currently referenced in FINRA Rule 
6730(e)(4)). Rather, NYSE Rule 1400, which addresses eligibility 
requirements for unlisted debt securities to be traded on the NYSE, 
refers to ABS, the bond trading facility that is no longer in 
existence.\5\ FINRA's proposal

[[Page 2148]]

to reference NYSE Rule 86 in FINRA Rule 6730(e)(4) would clarify the 
scope of the pilot program currently in effect and proposed to be 
extended. The proposed rule change would not expand or otherwise change 
the pilot program.
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    \5\ On January 9, 2007, when FINRA Rule 6730(e)(4) (then NASD 
Rule 6230(e)(4)) became effective, the operation of NYSE's bond 
trading system, the ``Automated Bond System'' or ``ABS,'' was 
addressed in NYSE Rule 86 and identified by name in NYSE Rule 1400. 
In 2007, the NYSE replaced the ABS with a new bond trading facility, 
``New York Bonds.'' NYSE Rule 86 was amended to reflect the name and 
operation of New York Bonds. However, NYSE Rule 1400 continues to 
refer to ABS and does not reflect the establishment of New York 
Bonds. See Securities Exchange Act Release No. 55496 (March 20, 
2007); 72 FR 14631 (March 28, 2007) (SR-NYSE-2006-37) (Notice of 
Filing of Amendment No. 3 and Order Granting Accelerated Approval of 
Proposed Rule Change, as Amended, Relating to the Establishment of 
NYSE Bonds). In addition, a bond trading facility, which is ``based 
on NYSE Bonds,'' was recently established by an affiliate of the 
NYSE, NYSE Alternext US LLC (``NYSE Alternext''). See Securities 
Exchange Act Release No. 58839 (October 23, 2008); 73 FR 64645 
(October 30, 2008) (SR-NYSEALTR-2008-003) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Regarding Relocation 
of the Trading of Certain Debt Securities Conducted On or Through 
the Exchange's Legacy Trading Systems and Facilities to an Automated 
Bond Trading Platform Based on NYSE Bonds). FINRA's proposed 
amendment makes explicit that the pilot program is intended to 
include transactions executed on a facility of NYSE in accordance 
with NYSE Rules 1400, 1401 and 86, but would not extend to any 
transactions executed on the NYSE Alternext bond trading facility.
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    Also, the proposed rule change would amend FINRA Rule 6730(e)(4) to 
restate the requirement that the exemption is predicated on the data 
agreement between FINRA and NYSE to share data related to the 
transactions covered by the Rule remaining in effect. The success of 
the pilot program remains dependent on FINRA's ability to effectively 
continue to conduct surveillance on corporate debt trading in the over-
the-counter market.
    The effective date of the proposed rule change will be January 8, 
2009.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\6\ 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 extension of the exemptive 
provision protects investors and the public because transactions will 
be reported, price transparency will be maintained for these 
transactions, and NYSE's agreement to share data with FINRA allows 
FINRA to conduct surveillance in the corporate debt securities market.
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    \6\ 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

    FINRA represented that the proposed rule change qualifies for 
immediate effectiveness pursuant to Section 19(b)(3)(A) of the Act \7\ 
and Rule 19b-4(f)(6) thereunder \8\ because it: (i) Does not 
significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) by its terms, does not become operative for 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.\9\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file 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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    The Exchange has requested that the Commission waive the 30-day 
operative delay, so that the proposed rule change may become operative 
upon filing. The Commission hereby grants the Exchange's request and 
believes that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest.\10\ This will allow 
the existing pilot program to continue without interruption and thereby 
eliminate duplicative transaction reporting obligations of broker-
dealers engaging in transactions in TRACE-eligible debt securities on 
NYSE.
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    \10\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 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-FINRA-2008-065 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-2008-065. 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 the 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-2008-065 and should be 
submitted on or before February 4, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-612 Filed 1-13-09; 8:45 am]

BILLING CODE 8011-01-P