Document ID: SEC-2007-0694-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-05-17T04:00Z

[Federal Register: May 17, 2007 (Volume 72, Number 95)]
[Notices]               
[Page 27891-27893]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17my07-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55745; File No. SR-NASD-2007-030]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Trade Reporting Obligations for Transactions in 
Foreign Equity Securities

May 11, 2007.
    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 20, 2007, the 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 substantially prepared by NASD. 
NASD has designated the proposed rule change as ``constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule'' under Section 
19(b)(3)(A)(i) of the Act\3\ and Rule 19b-4(f)(1) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to adopt a new paragraph (g) to Rule 6620 to 
codify a member's trade reporting obligations with respect to 
transactions in foreign equity securities. Below is the text of the 
proposed rule change. Proposed new language is in italics; proposed 
deletions are in brackets.
* * * * *
6600. OVER-THE-COUNTER EQUITY SECURITIES
* * * * *
6620. Transaction Reporting
    (a) through (f) No change.
    (g) Transactions in Foreign Equity Securities
    (1) For purposes of this paragraph, the term ``foreign equity 
security'' means any OTC Equity Security that is issued by a 
corporation or other entity incorporated or organized under the laws of 
any foreign country.
    (2) Transactions in foreign equity securities shall be reported to 
the OTC Reporting Facility unless:
    (A) The transaction is executed on and reported to a foreign 
securities exchange; or
    (B) the transaction is executed over the counter in a foreign 
country and is reported to the regulator of securities markets for that 
country.
* * * * *

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

    In its filing with the Commission, NASD 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

[[Page 27892]]

may be examined at the places specified in Item IV below. NASD 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
    The purpose of the proposed rule change is to codify existing NASD 
guidance regarding an NASD member's trade reporting obligations in 
transactions involving foreign equity securities.
    NASD Rule 6620 requires members to transmit to the OTC Reporting 
Facility last sale reports of transactions in OTC Equity Securities. 
For purposes of a member's trade reporting obligations under Rule 6620, 
an OTC Equity Security is ``any non-exchange-listed security and 
certain exchange-listed securities that do not otherwise qualify for 
real-time trade reporting.''\5\ This broad definition of OTC Equity 
Security, by its terms, would include foreign equity securities that 
are not listed on a U.S. securities exchange and that trade exclusively 
in foreign markets.
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    \5\ See NASD Rule 6610(d).
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    The proposed rule filing would codify the long-held interpretive 
position taken by NASD that transactions in foreign equity 
securities\6\ are not subject to the trade reporting requirements if 
(1) the transaction is executed on and reported to a foreign securities 
exchange or (2) the transaction is executed over the counter in a 
foreign country and is reported to the regulator of securities markets 
for that country.\7\ Transactions in foreign equity securities that are 
not reported to a foreign securities exchange or, if executed over the 
counter in a foreign country, to a foreign securities regulator, must 
be reported to NASD.\8\ Although many members are aware of and continue 
to rely on this guidance, NASD recently has received a number of 
inquiries relating to foreign equity trade reporting requirements. To 
ensure that all members are aware of their trade reporting obligations 
regarding foreign equity securities, NASD is proposing to codify this 
guidance so that, going forward, the rules themselves specifically 
address foreign equity securities.\9\
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    \6\ The proposed rule change defines ``foreign equity security'' 
as any OTC Equity Security that is issued by a corporation or other 
entity incorporated or organized under the laws of any foreign 
country.
    \7\ This position was originally taken with respect to the end-
of-day reporting requirements of non-Nasdaq, over-the-counter 
securities under former Schedule H to NASD's By-Laws. See NASD 
Notice to Members 90-58 (September 1990). It was reaffirmed when 
end-of-day reporting was changed to 90-second transaction reporting. 
See OTC Bulletin Board Update (December 1993).
    \8\ It is important to note, however, that separate legs of a 
riskless principal transaction may be subject to different reporting 
requirements. For example, if a member executes a transaction in a 
foreign equity security for a customer on a foreign exchange on a 
riskless principal basis, with the initial leg reported by the 
foreign exchange, the member would not be required to report that 
leg of the riskless principal transaction to NASD. However, the 
second leg (i.e., the transaction between the member and the 
customer) would have to be reported to NASD on a non-tape basis.
    \9\ NASD also notes that trades reported in the U.S. must be 
reported in U.S. dollars, regardless of the currency in which the 
trade occurred. The methodology employed by the member for currency 
conversion is left to the NASD member; however, the member should 
document its practice and employ the same method consistently. See 
OTC Bulletin Board Update (December 1993) and Notice to Members 90-
58 (September 1990). See also Notice to Members 06-70, at note 5 
(December 2006) (noting that, for purposes of reporting to the Order 
Audit Trail System, members are ``permitted to use reasonable 
business practices for the [currency] conversion; however, members 
should document their practice regarding currency conversion and 
should be consistent in their methodology'').
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    NASD has filed the proposed rule change for immediate 
effectiveness. The effective date and the implementation date will be 
the date of filing, April 20, 2007.
2. Statutory Basis
    NASD 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 NASD 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. NASD believes that the proposed rule change provides 
needed clarification to NASD members regarding their trade reporting 
obligations with respect to foreign equity securities.
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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

    NASD 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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 thereunder\11\ 
because the proposed rule change constitutes a stated policy, practice, 
or interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of NASD. 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.
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    \11\ 17 CFR 240.19b-4.
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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-NASD-2007-030 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2007-030. 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

[[Page 27893]]

provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room. Copies of the filing 
also will be available for inspection and copying at the principal 
office of NASD. 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-
NASD-2007-030 and should be submitted on or before June 7, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E7-9471 Filed 5-16-07; 8:45 am]

BILLING CODE 8010-01-P