Document ID: SEC-2014-0683-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2014-04-25T04:00Z

[Federal Register Volume 79, Number 80 (Friday, April 25, 2014)]
[Notices]
[Pages 23034-23035]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09395]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71981; File No. SR-FINRA-2014-019]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to Amending the Security Futures Risk 
Disclosure Statement

April 21, 2014.
    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 April 8, 2014, 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, 
II, and III 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 the security futures risk disclosure 
statement (``Statement'').
    Below is the text of the proposed supplement to the Statement 
reflecting amendments to the current Section 5.2 (Settlement by 
Physical Delivery). The text of the proposed supplement is new.
* * * * *

April 2014 Supplement to the Security Futures Risk Disclosure Statement

    The October 2002 Security Futures Risk Disclosure Statement is 
amended as provided below.
    The first paragraph under Section 5.2 (Settlement by Physical 
Delivery) is replaced with the following paragraph:
    Settlement by physical delivery is carried out by clearing brokers 
or their agents with National Securities Clearing Corporation (NSCC), 
an SEC-regulated securities clearing agency. Such settlements are made 
in much the same way as they are for purchases and sales of the 
underlying security. Promptly after the last day of trading, the 
regulated exchange's clearing organization will report a purchase and 
sale of the underlying stock at the previous day's settlement price 
(also referred to as the ``invoice price'') to NSCC. In general, if 
NSCC does not reject the transaction by a time specified in its rules, 
settlement is effected pursuant to the rules of the exchange and NSCC's 
Rules and Procedures within the normal clearance and settlement cycle 
for securities transactions, which currently is three business days. 
However, settlement may be effected on a shorter timeframe based on the 
rules of the exchange and subject to NSCC's Rules and Procedures.
* * * * *

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
    In 2002, FINRA developed sales practice rules governing security 
futures.\4\ Among those rules' requirements is the obligation of a 
member to deliver the current Statement to each customer at or prior to 
the time such customer's account is approved for trading security 
futures.\5\ Thereafter, the member must distribute each new or revised 
Statement to each customer having an account approved for such trading 
or, in the alternative, not later than the time a confirmation of a 
transaction is delivered to each customer that enters into a security 
futures transaction.\6\ FINRA guidance provides that firms may 
separately distribute new supplements to such customers; firms are not 
required to redistribute the entire Statement or earlier 
supplements.\7\
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    \4\ See Securities Exchange Act Release No. 46663 (October 15, 
2002), 67 FR 64944 (October 22, 2002) (Order Approving File No. SR-
NASD-2002-040).
    \5\ FINRA Rule 2370(b)(11).
    \6\ Id.
    \7\ See FINRA Information Notice, September 7, 2010 (August 2010 
Supplement to the Security Futures Risk Disclosure Statement).
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    The original Statement was approved by the SEC in 2002,\8\ and the 
first supplement to the Statement was added in 2010.\9\ FINRA is 
proposing a second supplement to the Statement (``proposed 
supplement'') to accommodate proposed changes by OneChicago, LLC, to 
list a product with a physical delivery settlement cycle shorter than 
three business days. The proposed supplement discloses that settlement 
by physical delivery may be effected on a timeframe shorter than three 
business days based on the rules of the exchange and subject to NSCC's 
Rules and Procedures. As with the previous supplement to the Statement, 
the proposed supplement is intended to be read in conjunction with the 
Statement.
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    \8\ See Securities Exchange Act Release No. 46612 (October 7, 
2002), 67 FR 64151 (October 17, 2002) (Notice of Filing and Summary 
Effectiveness of File No. SR-NASD-2002-128).
    \9\ The amendment added a supplement to the Statement to 
accommodate changes by OneChicago, LLC, to list a class of security 
futures for which adjustments are made for ordinary dividends. See 
Securities Exchange Act Release No. 62787 (August 27, 2010), 75 FR 
53998 (September 2, 2010) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2010-045).
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    FINRA will announce the implementation date of the proposed rule 
change in a Regulatory Notice to be published no later than 60 days 
following Commission notice of the filing of the rule change for 
immediate effectiveness. The implementation date will be no later than 
90 days after the date of the filing.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative

[[Page 23035]]

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 supplement, by updating the security futures 
risk disclosure statement, will help to accurately inform customers of 
the characteristics and risks of security futures. The proposed 
supplement discloses that settlement by physical delivery may be 
effected on a timeframe shorter than three business days based on the 
rules of the exchange and subject to NSCC's Rules and Procedures.
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    \10\ 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. While FINRA recognizes that 
there may be a burden associated with the distribution of the proposed 
supplement to the Statement, FINRA believes that any such burden would 
be outweighed by the benefit to customers of accurately disclosing the 
characteristics and risks of security futures. FINRA also believes that 
any burden will be minimal because firms would only be required to 
distribute the proposed supplement and would not be required to 
redistribute the Statement and initial supplement if they have already 
provided those documents to customers. In addition, firms may 
electronically transmit documents that they are required to furnish to 
customers under FINRA rules, including the proposed supplement, 
provided firms adhere to the standards contained in the Commission's 
May 1996 and October 1995 releases on electronic delivery,\11\ and as 
discussed in Notice to Members 98-3.\12\ Firms also may transmit the 
proposed supplement to customers through the use of a hyperlink, 
provided that customers have consented to electronic delivery.\13\ 
Moreover, FINRA Rule 2370(b)(11) provides flexibility on when each 
revised Statement (e.g., a new supplement) must be delivered after a 
customer's account is approved for trading security futures. Instead of 
having to automatically and immediately distribute a new supplement to 
every customer having an account approved for trading security futures, 
a firm may distribute a new supplement no later than the time a 
confirmation of a transaction is delivered to each customer who enters 
into a security futures transaction. Accordingly, firms would not be 
required to distribute the proposed supplement to customers who have 
accounts approved for trading security futures but do not engage in any 
new security futures transactions.
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    \11\ See Securities Act Release No. 7288 (May 9, 1996), 61 FR 
24644 (May 15, 1996) and Securities Act Release No. 7233 (October 6, 
1995), 60 FR 53458 (October 13, 1995).
    \12\ See Notice to Members 98-3 (January 1998).
    \13\ See FINRA Information Notice, September 7, 2010 (August 
2010 Supplement to the Security Futures Risk Disclosure Statement).
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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

    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) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), FINRA provided the Commission with written notice of 
its intention to file the proposed rule change at least five 
business days prior to filing the proposal with the Commission or 
such shorter period as designated by the Commission.
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    At any time within 60 days 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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2014-019 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-2014-019. 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 
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-2014-019 and should be 
submitted on or before May 16, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09395 Filed 4-24-14; 8:45 am]
BILLING CODE 8011-01-P