Document ID: SEC-2009-1784-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2009-12-21T05:00Z

[Federal Register: December 21, 2009 (Volume 74, Number 243)]
[Notices]               
[Page 67938-67939]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21de09-100]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61165; File No. SR-FINRA-2009-085]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating to Order Reporting Requirements on the 
Alternative Display Facility

December 15, 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 2, 2009, the 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 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 6250 to allow end-of-day 
order reporting and require that participants on the Alternative 
Display Facility (``ADF'') provide order information to FINRA 
immediately upon request.
    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
    In 2002, FINRA created the ADF to ensure that any FINRA member, 
including alternative trading systems, seeking to display quotations 
for NMS stocks in the over-the-counter (``OTC'') market, rather than 
through an exchange platform, has an alternative venue through which to 
post its OTC quotations and report trades.\4\ Pursuant to FINRA Rule 
6250(b), any ADF Trading Center that displays quotations on the ADF 
must record certain order and order response information and report the 
information to FINRA within ten seconds of receipt of the order or of 
any response to or action taken regarding an order, respectively. These 
requirements were originally included in the ADF rules to allow FINRA 
to ensure that ADF participants were complying with certain trading 
rules, including honoring their quotations displayed on the ADF and not 
``backing away'' from orders received against such displayed 
quotations.\5\
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    \4\ Initially, the ADF was limited to quotations and trade 
reports in Nasdaq securities. See Securities Exchange Act Release 
No. 46249 (July 24, 2002), 67 FR 49822 (July 31, 2002). In 2006, the 
ADF was expanded to include all NMS stocks. See Securities Exchange 
Act Release No. 54537 (September 28, 2006), 71 FR 59173 (October 6, 
2006).
    \5\ See Securities Exchange Act Release No. 46249 (July 24, 
2002), 67 FR 49822 (July 31, 2002). Consistent with Rule 602(b)(2) 
of SEC Regulation NMS, quotations on the ADF must be ``firm.'' See 
17 CFR 242.602(b)(2); FINRA Rule 6272(b).
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    FINRA has found that receiving ADF order reporting data real-time 
has been of minimal value due to the very limited instances of 
``backing away'' on the ADF and that real-time order reporting poses a 
significant strain on the ADF's real-time systems capacity. To the 
latter point, because of capacity issues, LavaFlow, Inc. 
(``LavaFlow''), currently the sole ADF participant, requested that 
FINRA consider amending Rule 6250 to

[[Page 67939]]

permit end-of-day order reporting rather than require ten-second order 
reporting. LavaFlow stated that it believed that such an amendment 
would address strains on the ADF's capacity while still providing FINRA 
with accurate and timely order information.
    Accordingly, FINRA is proposing to replace the current ten-second 
order reporting requirement with an end-of-day order reporting 
requirement; however, to ensure that FINRA has prompt access to this 
regulatory information if necessary (e.g., a ``backing-away'' complaint 
is made against an ADF Trading Center), the proposed rule change also 
requires ADF Trading Centers to provide order information to FINRA 
immediately upon request. Thus, the proposed rule change will improve 
the systems supporting the ADF and its functionality by reducing the 
amount of real-time reporting that must flow through ADF systems, while 
still providing FINRA with order information on a timely basis.\6\
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    \6\ ADF Trading Centers would transmit the same information in 
the same format as currently required. Consequently, the sole effect 
of the proposed rule change is to provide ADF Trading Centers with 
additional time to report order information.
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, such that FINRA can implement the proposed rule 
change immediately.
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 rule change will 
enhance the ADF's functionality and decrease the likelihood of systems 
issues while continuing to ensure that FINRA has necessary regulatory 
information sufficient to monitor for compliance with applicable rules.
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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

    A copy of a letter submitted by LavaFlow requesting amendments to 
the ADF order reporting rule was attached to the proposed rule change.

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, if 
consistent with the protection of investors and the public interest, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and 
Rule 19b-4(f)(6) thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to 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 Exchange 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
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-085 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-2009-085. 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 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 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-2009-085 and should be submitted on or before 
January 11, 2010.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30240 Filed 12-18-09; 8:45 am]

BILLING CODE 8011-01-P