Document ID: SEC-2009-0770-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to the Reporting of Over-the-Counter Transactions in Equity Securities Executed Outside Normal Market Hours
Posted Date: 2009-06-09T04:00Z

[Federal Register: June 9, 2009 (Volume 74, Number 109)]
[Notices]
[Page 27361-27364]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09jn09-148]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60022; File No. SR-FINRA-2009-031]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change Relating to
the Reporting of Over-the-Counter Transactions in Equity Securities
Executed Outside Normal Market Hours

June 1, 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 May 8, 2009, 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 prepared by FINRA. On May 29,
2009, FINRA filed Amendment No. 1 to the proposed rule change. The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 relating to
over-the-counter transactions in equity securities executed outside
normal market hours to (1) require that any

[[Page 27362]]

trades executed during the hours that a FINRA Facility (the Alternative
Display Facility (``ADF''), a Trade Reporting Facility (``TRF'') or the
OTC Reporting Facility (``ORF'')) is closed be reported within 15
minutes of the opening of the Facility, i.e., 8:15 a.m. Eastern Time;
and (2) conform the trade reporting requirements applicable to
``outside normal market hours'' transactions across FINRA Facilities.
    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
    FINRA rules prescribe special requirements applicable to the
reporting of trades executed outside normal market hours (i.e., trades
executed outside the hours of 9:30 a.m. to 4 p.m. Eastern Time), and
the rules distinguish between such trades that are executed during the
hours a FINRA Facility is open and trades that are executed during the
hours the facility is closed.\3\ Specifically, trades that are executed
outside normal market hours and during the hours that the FINRA
Facility to which the member is reporting is open must be reported
within 90 seconds of execution.\4\ Thus, for example, a trade executed
at 9 a.m. or a trade executed at 5 p.m. must be reported within 90
seconds. Trades that are executed outside normal market hours and
during the hours that the FINRA Facility is closed are not subject to
90-second reporting, since the facility is not open to facilitate the
reporting of the trade. Rather, such trades are reported as follows:
(1) trades executed between midnight and 8 a.m. must be reported on
trade date; and (2) trades executed between the close of the facility
(i.e., either 6:30 p.m. or 8 p.m.) and midnight must be reported on an
``as/of'' basis the following business day.\5\ ``Outside normal market
hours'' trades are designated with a unique trade report modifier, as
specified by FINRA.
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    \3\ The TRFs and ORF are open between 8 a.m. and 8 p.m. Eastern
Time and the ADF is open between 8 a.m. and 6:30 p.m. Eastern Time.
    \4\ See Rules 6282(a)(2)(A); 6380A(a)(2)(A) and (B);
6380B(a)(2)(A) and (B); and 6622(a)(3)(A) and (B).
    \5\ See Rules 6282(a)(2)(B); 6380A(a)(2)(C) and (D);
6380B(a)(2)(C) and (D); and 6622(a)(3)(C).
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Proposed Amendments To Require Reporting Within 15 Minutes of Opening
of Facility
    FINRA is proposing to amend the trade reporting rules \6\ to
require that trades executed during the hours that the FINRA Facility
is closed be reported within 15 minutes of the opening of the facility
(i.e., 8:15 a.m. Eastern Time for all FINRA Facilities). Specifically,
members would be required to report as follows: (1) trades executed
between midnight and 8 a.m. must be reported by 8:15 a.m. on trade
date, and (2) trades executed between the close of the FINRA Facility
(i.e., either 6:30 p.m. or 8 p.m.) and midnight must be reported on an
``as/of'' basis the following business day by 8:15 a.m. These trades
would be designated with the unique trade report modifier to denote
their execution outside normal market hours. Any such trades not
reported by 8:15 a.m. would be marked with the ``outside normal market
hours trade reported late'' modifier.
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    \6\ See Rules 6282(a)(2)(B); 6380A(a)(2)(C) and (D);
6380B(a)(2)(C) and (D); and 6622(a)(3)(C).
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    FINRA believes that the proposed rule change will enhance market
transparency by ensuring that these ``outside normal market hours''
trades are reported and disseminated closer to the actual execution
time rather than reported at some later time during the trading day. As
a result, market participants will have better information about the
time of execution for such trades. For example, under current rules, a
trade with the ``outside normal market hours'' modifier that is
reported and disseminated at 9:20 a.m. could have been executed and
reported real-time at 9:20 a.m., or it could have been executed at some
point between midnight and the opening of the FINRA Facility at 8 a.m.
There is currently nothing to distinguish a trade executed and reported
at 9:20 a.m. from a trade executed between midnight and 8 a.m. and
reported at 9:20 a.m. Under the proposed rule change, a trade executed
between midnight and 8 a.m. that is reported at 9:20 a.m. would be
marked late, thus distinguishing it from a trade executed and reported
real-time at 9:20 a.m.
Proposed Conforming Amendments
    FINRA also is proposing certain amendments to conform the
requirements for reporting ``outside normal market hours'' trades
across FINRA Facilities. First, under current rules and system
functionality, members are not permitted to submit to the FINRA/Nasdaq
TRF and ORF a trade report with the ``outside normal market hours''
modifier during normal market hours. For example, if a member executes
a trade at 9:29:00 a.m. and reports the trade at 9:30:15 a.m. (in
compliance with the 90-second reporting requirement under FINRA rules),
the FINRA/Nasdaq TRF and ORF will reject the trade report; the trade
cannot be reported, and will not be disseminated, until after 4 p.m. By
contrast, the ADF and FINRA/NYSE TRF permit the submission of trade
reports with the ``outside normal market hours'' modifier throughout
the day. Thus, the trade described in the example above can be reported
to the ADF or FINRA/NYSE TRF and disseminated at 9:30:15 a.m.
    Accordingly, FINRA is proposing to amend Rules 6380A(a)(2)(A) and
(a)(2)(C) relating to the FINRA/Nasdaq TRF and Rules 6622(a)(3)(A) and
(a)(3)(C)(i) relating to the ORF to delete the requirement that
``outside normal market hours'' transactions that are not reported by
9:30 a.m. be reported after 4 p.m. This will enhance market
transparency by eliminating systematically imposed delays in the
reporting of ``outside normal market hours'' trades to the FINRA/Nasdaq
TRF and ORF. The proposed amendments are identical to the text of
current Rules 6282(a)(2)(A) and (a)(2)(B)(i) relating to the ADF.
    Additionally, FINRA is proposing conforming changes to Rules
6380B(a)(2)(A) and (C) relating to the FINRA/NYSE TRF. Today, members
submit trade reports with the ``outside normal market hours'' modifier
to the FINRA/NYSE TRF throughout the day. However, when the rules for
this TRF were originally adopted, these provisions inadvertently were
based on the rules relating to the FINRA/Nasdaq TRF, rather than the
ADF. Thus, the proposed amendments for the FINRA/NYSE TRF do not
represent a departure from current member reporting practices and
systems functionality.
    In this regard, FINRA also is proposing to amend Rules
6380A(a)(2)(D), 6380B(a)(2)(D) and 6622(a)(3)(C)(ii) to require
expressly that ``as/of'' reports submitted pursuant to

[[Page 27363]]

these provisions include the unique trade report modifier, as specified
by FINRA, to denote their execution outside normal market hours. The
proposed amendments conform to the text of current Rule
6282(a)(2)(C)(ii).
    Second, FINRA is proposing to amend Rules 6282(a), 6380A(a),
6380B(a) and 6622(a) to consolidate the provisions relating to late
trade reporting and make clear the requirement that trades that are
required to be reported on trade date, but are not reported on trade
date, must be reported on an ``as/of'' basis on a subsequent date (T+N)
and shall be designated as late. This requirement applies to trades
executed during normal market hours, as well as those ``outside normal
market hours'' trades that are required by rule to be reported on trade
date (i.e., trades executed between midnight and 9:30 a.m. and between
4 p.m. and the close of the Facility at either 6:30 or 8 p.m.). The
proposed amendments also would make clear the requirement that
``outside normal market hours'' trades that are required to be reported
on an ``as/of'' basis the following business day (T+1), but are not
reported T+1, must be reported on a subsequent date (T+N) and shall be
designated as late.\7\ Accordingly, FINRA is proposing to amend Rules
6380A(a)(2)(B), 6380B(a)(2)(B) and 6622(a)(3)(B) to delete the
duplicative requirement that transactions not reported by 8:00 p.m. on
trade date must be reported on an ``as/of'' basis the following
business day (T+1).
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    \7\ FINRA is proposing to amend paragraph (a)(1) and adopt new
paragraph (a)(6) of Rule 6282 to conform to Rules 6380A(a)(4),
6380B(a)(4) and 6622(a)(5).
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    Third, FINRA is proposing certain technical, non-material changes
to conform the text of the rules relating to the reporting of trades
executed outside normal market hours across FINRA Facilities. For
example, FINRA is proposing to amend Rule 6282(a)(2) relating to the
ADF and Rule 6622(a)(3) relating to the ORF to delete the specific
references to the ``.T'' trade report modifier. This conforms to the
trade reporting rules relating to the TRFs, as well as the other
provisions of the ADF trade reporting rules, which do not refer to
specific trade report modifier labels.\8\ Additionally, FINRA is
proposing to renumber the subparagraphs in Rule 6282(a)(2) relating to
the ADF and Rule 6622(a)(3) relating to the ORF to conform to the
numbering of the subparagraphs in Rules 6380A(a)(2) and 6380B(a)(2)
relating to the TRFs.
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    \8\ See, e.g., Rules 6282(a)(4), 6380A(a)(2) and (5) and
6380B(a)(2) and (5).
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    FINRA believes that by conforming the reporting requirements and
systems functionality with respect to ``outside normal market hours''
trades across FINRA Facilities, the proposed rule change will promote
more consistent trade reporting by members and a more complete and
accurate audit trail.\9\
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    \9\ The Commission notes that in connection with these changes
to the trade reporting rules FINRA is also moving language from Rule
6282(a)(1) to Rule 6282(a)(6) concerning patterns or practices of
late trade reporting. Rule 6282(a)(1) currently states that ``[a]
pattern or practice of late trade reporting without exceptional
circumstances shall be considered conduct inconsistent with high
standards of commercial honor and just equitable principles of trade
violation of Rule 2010.'' The change FINRA is proposing would
replace the word ``shall'' with ``may,'' and applies the lower
standard not only to a pattern or practice of late trade reporting
outside of normal market hours, but to a pattern or practice of late
trade reporting during normal market hours. Rule 6282 concerns
transactions reported only to TRACS, and FINRA has told Commission
staff that the change is to make the rule consistent with the FINRA/
NASDAQ, FINRA/NYSE, and OTC Trade Reporting Facilities, all of which
currently have the identical language to proposed Rule 6282(a)(6).
See telephone call between Stephanie Dumont, Senior Vice President
and Director of Capital Markets Policy, FINRA, and Kathy England,
Assistant Director, Commission, May 29, 2009. The Commission notes
that it has routinely upheld appeals from FINRA disciplinary actions
when FINRA has charged respondents with violations of Rule 2010
(Standards of Commercial Honor and Principles of Trade) based solely
on an underlying violation of another SRO rule. See e.g., Stephen J.
Gluckman, 54 S.E.C. 175, 185 (1999), Exchange Act Release No. 41628
(July 20, 1999).
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    FINRA will announce the effective date of the proposed rule change
in a Regulatory Notice. The effective date will be no earlier than 120
days and no later than 180 days from the date of Commission approval.
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
enhance market transparency and promote more consistent trade reporting
by members and a more complete and accurate audit trail.
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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.

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be 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, as amended, 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-2009-031 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-2009-031. 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

[[Page 27364]]

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 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-2009-031 and should be
submitted on or before June 30, 2009.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-13395 Filed 6-8-09; 8:45 am]

BILLING CODE 8010-01-P