Document ID: SEC-2011-0889-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2011-06-27T04:00Z

[Federal Register Volume 76, Number 123 (Monday, June 27, 2011)]
[Notices]
[Pages 37384-37386]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15965]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64717; File No. SR-FINRA-2011-029]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to Exemptions from the Order Audit Trail 
System Recording and Reporting Requirements

 June 21, 2011.
    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 14, 2011, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission

[[Page 37385]]

(``SEC'' or ``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 amend FINRA Rule 7470 to extend for four 
years FINRA's ability to exempt certain members from the recording and 
reporting requirements of the Order Audit Trail System (``OATS'') Rules 
(``OATS Rules'') for manual orders received by the member.
    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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On September 28, 2005, the SEC approved amendments to the OATS 
Rules that, among other things, permitted FINRA to grant exemptive 
relief from the OATS reporting requirements for manual orders.\4\ In 
2006, FINRA's exemptive authority was expanded to include the authority 
to exempt manual orders received by members from the OATS recording 
requirements.\5\ At a minimum, under FINRA Rule 7470, members must meet 
the following criteria to be eligible to request an exemption from the 
OATS recording and reporting requirements for manual orders: (1) The 
member and current control affiliates and associated persons of the 
member have not been subject within the last five years to any final 
disciplinary action, and within the last ten years to any disciplinary 
action involving fraud; (2) the member has annual revenues of less than 
$2 million; (3) the member does not conduct any market making 
activities in any security subject to the OATS Rules; (4) the member 
does not execute principal transactions with its customers (with 
limited exceptions for principal transactions executed pursuant to 
error corrections); and (5) the member does not conduct clearing or 
carrying activities for other firms.\6\ An exemption granted by FINRA 
pursuant to Rule 7470 is for a maximum of two years; however, a member 
that continues to meet the criteria may request subsequent exemptions 
at or prior to the expiration of a grant of exemptive relief.\7\ 
Finally, Rule 7470 includes a sunset provision of five years from the 
original effective date of the rule, which was July 10, 2006. 
Consequently, Rule 7470 is set to expire as of July 10, 2011.
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    \4\ See Securities Exchange Act Release No. 52521 (September 28, 
2005), 70 FR 57909 (October 4, 2005).
    \5\ See Securities Exchange Act Release No. 53580 (March 30, 
2006), 71 FR 17529 (April 6, 2006). In 2006, the exemptive provision 
was also relocated from NASD Rule 6955(d) to NASD Rule 6958. As of 
December 15, 2008, NASD Rule 6958 was renumbered as FINRA Rule 7470. 
See FINRA Regulatory Notice 08-57 (October 2008).
    \6\ See FINRA Rule 7470(a).
    \7\ See FINRA Rule 7470(b).
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    FINRA adopted this exemptive authority so that it would have the 
ability to grant relief to members that meet certain criteria in 
situations where, for example, the reporting of order information would 
be unduly burdensome for the member or where temporary relief from the 
rules, in the form of additional time to achieve compliance, would 
permit the members to avoid unnecessary expense or hardship.\8\ FINRA 
believes that these concerns continue to be present for many firms and, 
consequently, proposes to extend the period for FINRA to grant 
exemptive relief for an additional four years. In addition, as part of 
the its recent proposal to create a consolidated audit trail across 
self-regulatory organizations, the SEC is evaluating, among other 
things, the impact of consolidated audit trail requirements on smaller 
member firms.\9\ FINRA believes it is appropriate to allow firms that 
have received an exemption from OATS to continue to rely on their 
current exemption (or request an additional two-year exemption) until 
the scope and application of the SEC's consolidated audit trail is 
determined.
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    \8\ See Securities Exchange Act Release No. 52521 (September 28, 
2005), 70 FR 57909 (October 4, 2005).
    \9\ See Securities Exchange Act Release No. 62174 (May 26, 
2010), 75 FR 32556 (June 8, 2010).
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    FINRA is not proposing any substantive changes to the criteria 
necessary for firms to qualify for an exemption because FINRA believes 
that the criteria continue to ensure that only those firms with limited 
revenue, no recent final disciplinary actions, and limited business 
models will be eligible for exemptions.\10\
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    \10\ FINRA notes that although many of the members relying on 
current exemptions pursuant to Rule 7470 also qualify for the 
exception from the definition of ``Reporting Member'' in Rule 
7410(o), some firms relying on exemptions route orders to multiple 
clearing firms or otherwise fail to meet the exception in Rule 
7410(o).
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date will be July 9, 2011.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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 will 
provide a continued way to exempt manual orders received by certain 
small firms from the OATS Rules and avoid imposing potentially 
unnecessary expense or hardship on those firms that qualify for the 
exemption.
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    \11\ 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

[[Page 37386]]

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 \12\ and Rule 19b-4(f)(6) thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). Among other things, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of 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. The Commission notes that FINRA has satisfied the 
pre-filing notice requirement.
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    FINRA has requested that the Commission waive the requirement that 
the rule change, by its terms, not become operative for 30 days after 
the date of the filing as set forth in Rule 19b-4(f)(6)(iii).\14\ FINRA 
believes that the proposed rule change should become operative on July 
9, 2011, to avoid any lapse in the application of the rule. The 
Commission agrees that it is consistent with the protection of 
investors and the public interest to allow FINRA's limited exemptive 
authority to grant relief to members that meet certain criteria from 
the OATS recording and reporting requirements to continue without a 
lapse. Therefore, the Commission hereby grants a waiver of the 30-day 
operative delay.\15\
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    \14\ 17 CFR 240.19b-4(f)(6)(iii).
    \15\ For the purposes only of waiving the operative delay of 
this proposal, 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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2011-029 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-2011-029. 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, 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-2011-029 
and should be submitted on or before July 18, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-15965 Filed 6-24-11; 8:45 am]
BILLING CODE 8011-01-P