Document ID: SEC-2008-1066-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2008-07-31T04:00Z

[Federal Register: July 31, 2008 (Volume 73, Number 148)]
[Notices]               
[Page 44793-44794]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy08-89]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58227; File No. SR-FINRA-2008-033]

 
Self-Regulatory Organizations: Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto, To Adopt FINRA Rule 4560 (Short-Interest Reporting) in 
the Consolidated FINRA Rulebook

July 25, 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 June 23, 2008, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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 substantially prepared by 
FINRA. On July 16, 2008, FINRA submitted Amendment No. 1 to the 
proposed rule change. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to adopt the short interest reporting 
requirements (NASD Rule 3360 and Incorporated NYSE Rules 421(1) and 
421.10) as FINRA Rule 4560 in the consolidated FINRA rulebook.
    The text of the proposed rule change is attached as Exhibit 5 to 
this rule filing.

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 is available at FINRA, the Commission's Public 
Reference Room, and http://www.finra.org/RulesRegulation/RuleFilings/
2008RuleFilings/P038813. 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
    As part of the process of developing the new consolidated rulebook 
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt the 
short interest reporting requirements in NASD Rule 3360 and 
Incorporated NYSE Rules 421(1) and 421.10 as FINRA Rule 4560 in the 
Consolidated FINRA Rulebook.
---------------------------------------------------------------------------

    \3\ The current FINRA rulebook consists of two sets of rules: 
(1) NASD Rules and (2) rules incorporated from NYSE (``Incorporated 
NYSE Rules'') (together referred to as the ``Transitional 
Rulebook''). The Incorporated NYSE Rules apply only to those members 
of FINRA that are also members of the NYSE (``Dual Members''). Dual 
Members also must comply with NASD Rules. For more information about 
the rulebook consolidation process, see FINRA Information Notice, 
March 12, 2008 (Rulebook Consolidation Process).
---------------------------------------------------------------------------

    NASD Rule 3360 and Incorporated NYSE Rules 421(1) and 421.10 set 
forth FINRA's short interest reporting requirements.\4\ NASD Rule 3360 
requires members to report short positions \5\ in OTC Equity Securities 
\6\ and exchange-listed securities not otherwise reported to another 
self-regulatory organization (``SRO''),\7\ and Incorporated NYSE Rules 
421(1) and 421.10 require members to report short positions in NYSE-
listed securities. Members must report total short positions in all 
customer and proprietary accounts as of the designated settlement dates 
and in the manner so prescribed.\8\ Currently, the rules require such 
information to be reported twice a month, which in turn, is then made 
publicly available on an aggregate basis twice a month.\9\
---------------------------------------------------------------------------

    \4\ Incorporated NYSE Rules 421(2) and 421.40 require members 
carrying margin accounts for customers to report certain aggregate 
debit and free credit balances. Those provisions will be addressed 
in a separate filing and therefore are not being addressed here.
    \5\ Short positions required to be reported under the rules are 
those resulting from ``short sales'' as the term is defined in Rule 
200(a) of Regulation SHO, subject to certain limited exceptions. See 
NASD Rule 3360(b)(1).
    \6\ The term ``OTC Equity Securities'' refers to any equity 
security that is not listed on a national securities exchange. See 
NASD Rule 3360(b)(3).
    \7\ It is the responsibility of each member firm to ensure that 
it is reporting accurate short interest data, including confirming 
that issue symbols are active and valid as of the designated 
settlement date. See Notice to Members 06-20 (April 2006).
    \8\ Non-self-clearing broker-dealers generally are considered to 
have satisfied their reporting requirement by making appropriate 
arrangements with their respective clearing organizations. See 
Notice to Members 03-08 (February 2003).
    \9\ A schedule of FINRA's designated settlement dates can be 
found on its Web site at http://www.finra.org. See also Notice to 
Members 07-24 (May 2007).

---------------------------------------------------------------------------

[[Page 44794]]

    Currently, firms report short interest positions in NYSE-listed 
securities through the NYSE's Electronic Filing Platform (``EFP'') and 
all other securities through FINRA's Regulation Filing Applications 
(``RFA'') system or the Securities Industry Automation Corporation 
(``SIAC''). As of June 30, 2008, FINRA will consolidate the collection 
of short interest data, and firms will be required to report short 
interest positions in all securities to FINRA using the RFA system; 
consequently, firms will no longer be able to report any of their short 
interest positions using EFP or SIAC.\10\
---------------------------------------------------------------------------

    \10\ See Regulatory Notice 08-13 (March 2008).
---------------------------------------------------------------------------

    Given that the short interest requirements in each of the rules are 
substantially similar, FINRA is proposing to adopt these requirements 
as part of the Consolidated FINRA Rulebook, subject only to certain 
non-substantive changes. Most notably, because FINRA will now be the 
primary collector of consolidated short interest data for its members 
in all securities (rather than only if such positions in exchange-
listed securities are not reported to another SRO), FINRA is not 
retaining the text in NASD Rule 3360 that limits short interest 
reportable to FINRA to those positions in exchange-listed securities 
``not otherwise reported to another self-regulatory organization.''
    As noted above, FINRA will announce the implementation date of the 
proposed rule change in a Regulatory Notice to be published no later 
than 60 days following 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,\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. The short interest reporting requirements, which are 
proposed to be transferred to the Consolidated FINRA Rulebook, 
previously have been found to meet the statutory requirements, and 
FINRA believes such requirements have since proven effective in 
achieving the statutory mandates.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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 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-2008-033 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-2008-033. 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 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-2008-033 
and should be submitted on or before August 21, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17563 Filed 7-30-08; 8:45 am]

BILLING CODE 8010-01-P