Document ID: SEC-2008-1737-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-12-30T05:00Z

[Federal Register: December 30, 2008 (Volume 73, Number 250)]
[Notices]               
[Page 79948-79952]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de08-144]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59126; File No. SR-FINRA-2008-060]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to Trade Reporting of Transfers of 
Securities Subject to an Asset Purchase Agreement

December 19, 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 December 11, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as constituting a ``non-
controversial'' rule change under Section 19(b)(3)(A) of the Act \3\ 
and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with 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).
    \4\ 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 trade reporting rules to codify 
the circumstances under which transfers of securities made pursuant to 
an asset purchase agreement are not subject to the reporting 
requirements applicable to over-the-counter transactions in debt and 
equity securities.
    Below is the text of the proposed rule change.\5\ Proposed new 
language is in italics; proposed deletions are in brackets.
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    \5\ On September 25, 2008, the SEC approved proposed rule change 
SR-FINRA-2008-021, which adopts the NASD Marketplace Rules (the NASD 
Rule 4000 through 7000 Series) as the FINRA Rule 6000 through 7000 
Series in the Consolidated FINRA Rulebook. See Securities Exchange 
Act Release No. 58643 (September 25, 2008), 73 FR 57174 (October 1, 
2008) (Order Approving SR-FINRA-2008-021; SR-FINRA-2008-022; SR-
FINRA-2008-026; SR-FINRA-2008-028; and SR-FINRA-2008-029). SR-FINRA-
2008-021 was implemented on December 15, 2008. See Regulatory Notice 
08-57 (October 2008). This Exhibit 5 reflects the underlying text of 
the FINRA Rules as adopted pursuant to SR-FINRA-2008-021.
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* * * * *

6200. Alternative Display Facility

* * * * *

6282. Transactions Reported by Members to TRACS

    (a) Through (h) No Change.
    (i) [Transactions Not To Be Reported To FINRA For Publication 
Purposes] Reporting Requirements For Certain Transactions and Transfers 
of Securities
    (1) The following [types of transactions effected by FINRA members] 
shall not be reported to TRACS [for publication purposes]:
    ([1]A) Transactions that are part of a primary distribution by an 
issuer or of a registered secondary distribution (other than ``shelf 
distributions'') or of an unregistered secondary distribution;
    ([2]B) Transactions made in reliance on Section 4(2) of the 
Securities Act;
    [(3) Transactions where the buyer and seller have agreed to trade 
at a price substantially unrelated to the current market for the 
security, e.g., to enable the seller to make a gift;]
    [(4) Purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market;]
    ([5]C) Transactions reported on or through an exchange;

[[Page 79949]]

    ([6]D) The acquisition of securities by a member as principal in 
anticipation of making an immediate exchange distribution or exchange 
offering on an exchange; [and]
    ([7]E) Purchases of securities off the floor of an exchange 
pursuant to a tender offer[.]; and
    (F) Transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (2) The following shall not be reported to TRACS for publication 
purposes, but shall be reported for regulatory transaction fee 
assessment purposes under Rule 7130(c):
    (A) Transactions where the buyer and seller have agreed to trade at 
a price substantially unrelated to the current market for the security, 
e.g., to enable the seller to make a gift; and
    (B) Purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.
    (j) No Change.

6300. Trade Reporting Facilities

6300A. FINRA/Nasdaq Trade Reporting Facility

* * * * *

6380A. Transaction Reporting

    (a) through (d) No Change.
    (e) [Transactions Not To Be Reported For Publication Purposes] 
Reporting Requirements For Certain Transactions and Transfers of 
Securities
    (1) The following [types of transactions] shall not be reported to 
the FINRA/Nasdaq Trade Reporting Facility [for publication purposes]:
    ([1]A) Transactions that are part of a primary distribution by an 
issuer or of a registered secondary distribution (other than ``shelf 
distributions'') or of an unregistered secondary distribution;
    ([2]B) Transactions made in reliance on Section 4(2) of the 
Securities Act;
    [(3) Transactions where the buyer and seller have agreed to trade 
at a price substantially unrelated to the current market for the 
security, e.g., to enable the seller to make a gift;]
    [(4) Purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market;]
    ([5]C) Transactions reported on or through an exchange;
    ([6]D) The acquisition of securities by a member as principal in 
anticipation of making an immediate exchange distribution or exchange 
offering on an exchange; [and]
    ([7]E) purchases of securities off the floor of an exchange 
pursuant to a tender offer[.]; and
    (F) transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (2) The following shall not be reported to the FINRA/Nasdaq Trade 
Reporting Facility for publication purposes, but shall be reported for 
regulatory transaction fee assessment purposes under Rule 7230A(g):
    (A) transactions where the buyer and seller have agreed to trade at 
a price substantially unrelated to the current market for the security, 
e.g., to enable the seller to make a gift; and
    (B) purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.
    (f) through (h) No Change.

6300B. FINRA/NSX Trade Reporting Facility

* * * * *

6380B. Transaction Reporting

    (a) through (d) No Change.
    (e) [Transactions Not To Be Reported For Publication Purposes] 
Reporting Requirements For Certain Transactions and Transfers of 
Securities
    (1) The following [types of transactions] shall not be reported to 
the FINRA/NSX Trade Reporting Facility [for publication purposes]:
    ([1]A) transactions that are part of a primary distribution by an 
issuer or of a registered secondary distribution (other than ``shelf 
distributions'') or of an unregistered secondary distribution;
    ([2]B) transactions made in reliance on Section 4(2) of the 
Securities Act;
    [(3) transactions where the buyer and seller have agreed to trade 
at a price substantially unrelated to the current market for the 
security, e.g., to enable the seller to make a gift;]
    [(4) purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market;]
    ([5]C) transactions reported on or through an exchange;
    ([6]D) the acquisition of securities by a member as principal in 
anticipation of making an immediate exchange distribution or exchange 
offering on an exchange; [and]
    ([7]E) purchases of securities off the floor of an exchange 
pursuant to a tender offer[.]; and
    (F) transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (2) The following shall not be reported to the FINRA/NSX Trade 
Reporting Facility for publication purposes, but shall be reported for 
regulatory transaction fee assessment purposes under Rule 7230B(f):
    (A) transactions where the buyer and seller have agreed to trade at 
a price substantially unrelated to the current market for the security, 
e.g., to enable the seller to make a gift; and
    (B) purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.
    (f) through (h) No Change.

6300C. FINRA/NYSE Trade Reporting Facility

* * * * *

6380C. Transaction Reporting

    (a) through (d) No Change.
    (e) [Transactions Not To Be Reported For Publication Purposes] 
Reporting Requirements For Certain Transactions and Transfers of 
Securities
    (1) The following [types of transactions] shall not be reported to 
the FINRA/NYSE Trade Reporting Facility [for publication purposes]:
    ([1]A) transactions that are part of a primary distribution by an 
issuer or of a registered secondary distribution (other than ``shelf 
distributions'') or of an unregistered secondary distribution;

[[Page 79950]]

    ([2]B) transactions made in reliance on Section 4(2) of the 
Securities Act;
    [(3) transactions where the buyer and seller have agreed to trade 
at a price substantially unrelated to the current market for the 
security, e.g., to enable the seller to make a gift;]
    [(4) purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market;]
    ([5]C) transactions reported on or through an exchange;
    ([6]D) the acquisition of securities by a member as principal in 
anticipation of making an immediate exchange distribution or exchange 
offering on an exchange; [and]
    ([7]E) purchases of securities off the floor of an exchange 
pursuant to a tender offer[.]; and
    (F) transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (2) The following shall not be reported to the FINRA/NYSE Trade 
Reporting Facility for publication purposes, but shall be reported for 
regulatory transaction fee assessment purposes under Rule 7230C(f):
    (A) transactions where the buyer and seller have agreed to trade at 
a price substantially unrelated to the current market for the security, 
e.g., to enable the seller to make a gift; and
    (B) purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.
    (f) through (h) No Change.
* * * * *

6600. OTC REPORTING FACILITY

* * * * *

6620. Reporting Transactions in OTC Equity Securities

* * * * *

6622. Transaction Reporting

    (a) through (d) No Change.
    (e) [Transactions Not To Be Reported For Publication Purposes] 
Reporting Requirements For Certain Transactions and Transfers of 
Securities
    (1) The following [types of transactions] shall not be reported 
[for publication purposes] to the OTC Reporting Facility:
    ([1]A) Transactions that are part of a primary distribution by an 
issuer or a registered secondary distribution (other than ``shelf 
distributions'') or of an unregistered secondary distribution;
    ([2]B) Transactions made in reliance on Section 4(2) of the 
Securities Act; and
    [(3) Transactions where the buyer and seller have agreed to trade 
at a price substantially unrelated to the current market for the 
security;]
    [(4) Purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.]
    (C) transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (2) The following shall not be reported to the OTC Reporting 
Facility for publication purposes, but shall be reported for regulatory 
transaction fee assessment purposes under Rule 7330(g):
    (A) Transactions where the buyer and seller have agreed to trade at 
a price substantially unrelated to the current market for the security; 
and
    (B) Purchases or sales of securities effected upon the exercise of 
an option pursuant to the terms thereof or the exercise of any other 
right to acquire securities at a pre-established consideration 
unrelated to the current market.
    (f) through (g) No Change.
* * * * *

6630. Reporting Transactions in PORTAL[supreg] Securities

* * * * *

6633. Reporting Debt and Equity Transactions in PORTAL Securities

    (a) Subject to Rule 6622(e)(1), [T]transactions in a PORTAL equity 
security shall be reported to the OTC Reporting Facility in accordance 
with this Rule. Each PORTAL transaction report on a PORTAL equity 
security shall:
    (1) through (3) No Change.
    (b) through (d) No Change.
* * * * *

6640. Reporting Transactions in Direct Participation Program Securities

* * * * *

6643. Transaction Reporting

    (a) through (d) No Change.
    (e) Transactions Not Required To Be Reported
    The following [transactions] are not required to be reported under 
the foregoing procedures:
    (1) through (3) No Change.
    (4) Transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.

6700. TRADE REPORTING AND COMPLIANCE ENGINE (TRACE)

* * * * *

6730. Transaction Reporting

    (a) through (d) No Change.
    (e) [Transactions Exempt From Reporting] Reporting Requirements For 
Certain Transactions and Transfers of Securities
    The following [types of transactions] shall not be reported:
    (1) through (5) No Change.
    (6) Transfers of securities made pursuant to an asset purchase 
agreement (APA) that is subject to the jurisdiction and approval of a 
court of competent jurisdiction in insolvency matters, provided that 
the purchase price under the APA is not based on, and cannot be 
adjusted to reflect, the current market prices of the securities on or 
following the effective date of the APA.
    (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

[[Page 79951]]

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
    FINRA trade reporting rules require that over-the-counter 
transactions in debt and equity securities be reported to FINRA unless 
they qualify for an express exception under the rules.\6\ FINRA is 
proposing to amend the trade reporting rules to clarify that in the 
limited circumstance where securities are transferred pursuant to an 
asset purchase agreement (``APA''), such transfer does not have to be 
reported if (1) the APA is subject to the jurisdiction and approval of 
a court of competent jurisdiction in insolvency matters; and (2) the 
purchase price under the APA is not based on, and cannot be adjusted to 
reflect, the current market prices of the securities on or following 
the effective date of the APA.\7\
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    \6\ See FINRA Rules 6282 (formerly NASD Rule 4632A); 6380A 
(formerly NASD Rule 4632); 6380B (formerly NASD Rule 4632C); 6380C 
(formerly NASD Rule 4632E); 6622 (formerly NASD Rule 6620); 6633 
(formerly NASD Rule 6732); 6643 (formerly NASD Rule 6920); and 6730 
(formerly NASD Rule 6230).
    \7\ Generally, an APA addresses both the assets and liabilities 
to be transferred, which include both securities and non-securities 
assets and liabilities. In such instance, the purchase price under 
the APA would not be based solely on the securities positions, but 
on the basket of assets and liabilities as a whole. FINRA notes that 
where securities are the only asset being transferred pursuant to an 
APA, such transfer may nonetheless qualify under the proposed rule 
change where the APA is approved by the court and the purchase price 
is not based on current or future market prices.
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    FINRA believes that transfers effected pursuant to an APA under 
these circumstances are not trade reportable events and that reporting 
and dissemination of these transfers would not provide meaningful price 
discovery information to the market. By contrast, a transfer of 
securities pursuant to an APA where the terms of the APA dictate that 
the securities be transferred based on market prices that are current 
either on or following the effective date of the APA would be subject 
to the trade reporting rules. Thus, for example, if under the terms of 
the APA, the purchase price can be adjusted based on a change in the 
market price of the securities between the agreement date and the 
transfer date, the transfer of securities would be required to be 
reported.
    Additionally, FINRA is proposing technical, non-substantive 
amendments to reorganize certain of the trade reporting rules to 
clarify that, as is the case today, the transactions and transfers 
enumerated in new subparagraph (1) of the Rules are not to be reported 
to FINRA, while the transactions enumerated in new subparagraph (2) of 
the Rules are not to be reported to FINRA for publication purposes, but 
must be reported for regulatory transaction fee assessment purposes.\8\
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    \8\ See FINRA Rules 6282(i) (formerly NASD Rule 4632A); 6380A(e) 
(formerly NASD Rule 4632); 6380B(e) (formerly NASD Rule 4632C); 
6380C(e) (formerly NASD Rule 4632E); and 6622(e) (formerly NASD Rule 
6620).
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    FINRA rules have never required members to report the transactions 
enumerated in new subparagraph (1) (e.g., transactions reported on or 
through an exchange) to FINRA for either publication or regulatory 
purposes. By contrast, members historically have been required to 
report the transactions enumerated in new subparagraph (2) (i.e., away 
from the market sales and transactions effected upon the exercise of an 
over-the-counter option) to FINRA for purposes of regulatory 
transaction fees under Section 3 of Schedule A to the By-Laws 
(``Section 3''). Prior to 2006, these transactions were reported 
manually and not through one of FINRA's automated reporting facilities. 
In 2006, FINRA amended its rules and bylaws to require members to 
report on an automated basis all transactions that are subject to a 
regulatory transaction fee, but did not explicitly distinguish the two 
categories of transactions (i.e., transactions that do not get reported 
to FINRA at all and transactions that do not get reported for 
publication purposes, but do get reported for regulatory transaction 
fee assessment purposes) within the exceptions to the trade reporting 
rules.\9\ The technical amendments that FINRA is proposing herein 
merely seek to clarify that distinction. They will not change members' 
reporting obligations or limit the transaction-related information that 
FINRA receives.
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    \9\ See Securities Exchange Act Release No. 53977 (June 12, 
2006), 71 FR 34976 (June 16, 2006) (order approving SR-NASD-2006-
055).
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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,\10\ 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 
clarify members' trade reporting obligations and enhance market 
transparency.
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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 impose 
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 Exchange represented that the proposed rule change qualifies 
for immediate effectiveness pursuant to Section 19(b)(3)(A) of the 
Exchange Act \11\ and Rule 19b-4(f)(6) thereunder \12\ 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.\13\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 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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    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

[[Page 79952]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2008-060 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-2008-060. 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 the Exchange. 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-2008-060 and should be 
submitted on or before January 20, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-30857 Filed 12-29-08; 8:45 am]

BILLING CODE 8011-01-P