Document ID: SEC-2007-1540-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-11-14T05:00Z

[Federal Register: November 14, 2007 (Volume 72, Number 219)]
[Notices]               
[Page 64101-64102]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56754; File No. SR-NASD-2007-031]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc. 
(``FINRA''); Notice of Filing of Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto To Amend NASD Rule 7001E To Increase Percentage of 
Market Data Revenue Shared With NASD/NYSE TRF Participants

November 6, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on April 24, 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 prepared by NASD. On June 1, 2007, 
NASD filed Amendment No. 1. On October 29, 2007, FINRA filed Amendment 
No. 2 to the proposed rule change.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change, as modified by 
Amendment No. 2 only, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On July 26, 2007, the Commission approved a proposed rule 
change filed by NASD to amend NASD's Certificate of Incorporation to 
reflect its name change to Financial Industry Regulatory Authority, 
Inc., or FINRA, in connection with the consolidation of the member 
firm regulatory functions of NASD and NYSE Regulation, Inc. See 
Securities Exchange Act Release No. 56146 (July 26, 2007), 72 FR 
42190 (August 1, 2007).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA proposes to amend NASD Rule 7001E (Securities Transaction 
Credit) to increase to 100% the percentage of New York Stock Exchange 
(``Tape A''), American Stock Exchange (``Tape B'') and Nasdaq Exchange 
(``Tape C'') revenue shared with FINRA members reporting trades to the 
NASD/NYSE Trade Reporting Facility (``NASD/NYSE TRF''). The text of the 
proposed rule change is available at FINRA, http://www.finra.org, and 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. 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
Background
    On February 1, 2007, NASD filed for immediate effectiveness a 
proposed rule change relating to the establishment of the NASD/NYSE 
TRF.\4\ The NASD/NYSE TRF provides NASD members another mechanism for 
reporting locked-in transactions in exchange-listed securities effected 
otherwise than on an exchange.
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    \4\ See Securities Exchange Act Release No. 55325 (February 21, 
2007), 72 FR 8820 (February 27, 2007) (SR-NASD-2007-011). The NASD/
NYSE TRF commenced operation on April 18, 2007.
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    In connection with the establishment of the NASD/NYSE TRF, NASD and 
NYSE Market, Inc. (``NYSE'') entered into the Limited Liability Company 
Agreement of NASD/NYSE Trade Reporting Facility LLC (``NASD/NYSE TRF 
LLC Agreement''), a copy of which appears in the NASD Manual. Under the 
NASD/NYSE TRF LLC Agreement, NASD, the ``SRO Member,'' has sole 
regulatory responsibility for the NASD/NYSE TRF. NYSE, the ``Business 
Member,'' is primarily responsible for the management of the NASD/NYSE 
TRF's business affairs to the extent those activities are not 
inconsistent with the regulatory and oversight functions of FINRA. 
Additionally, the Business Member is obligated to pay the cost of 
regulation and is entitled to the profits and losses, if any, derived 
from the operation of the NASD/NYSE TRF.
    On March 21, 2007, NASD filed a proposed rule change for immediate 
effectiveness to adopt a new NASD Rule 7000E Series relating to fees 
and credits applicable to the NASD/NYSE TRF.\5\ Pursuant to NASD Rule 
7001E, FINRA members reporting trades in Tape A, Tape B and Tape C 
securities to the NASD/NYSE TRF currently receive a 50% pro rata credit 
on gross market data revenue earned by the NASD/NYSE TRF. ``Gross 
revenue'' is the revenue received by the NASD/NYSE TRF from the three 
tape associations after the tape associations deduct allocated support 
costs and unincorporated business costs.
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    \5\ See Securities Exchange Act Release No. 55526 (March 26, 
2007), 72 FR 15739 (April 2, 2007) (SR-NASD-2007-025).
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Proposal To Increase Securities Transaction Credit
    FINRA is proposing to amend Rule 7001E to increase from 50% to 100% 
the percentage of market data revenue shared with members under the 
securities transaction credit program. Thus, FINRA members reporting 
trades in Tape A, Tape B and Tape C stocks to the NASD/NYSE TRF will 
receive a 100% pro rata credit on gross market data revenue earned by 
the NASD/NYSE TRF.
    The NYSE, as the Business Member under the NASD/NYSE TRF LLC 
Agreement, has determined that the proposed increase in the percentage 
of market data revenue shared with NASD/NYSE TRF participants is 
necessary for competitive reasons. The NYSE believes that, as a new and 
late entrant to the OTC trade reporting arena, competitive pricing can 
differentiate its product offering. Additionally, the proposed increase 
would be consistent with the position of the NYSE that the economic 
benefits of off-exchange trades should

[[Page 64102]]

not accrue to exchanges.\6\ The NYSE has indicated that because there 
are currently no fees for reporting trades to the NASD/NYSE TRF, the 
NYSE will fund regulatory costs associated with the NASD/NYSE TRF from 
NYSE general revenues.
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    \6\ See letter dated April 27, 2006 from Mr. John A. Thain, 
Chief Executive Officer, NYSE Group, to Chairman Cox, SEC. In that 
letter, the NYSE also stated that ``Since dealer-internalized trades 
do not contribute directly to price discovery, the ideal resolution 
would be to remove such trades from the revenue sharing formula.''
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    FINRA is proposing that the effective date of the proposed rule 
change shall be retroactive to April 18, 2007, the date on which the 
NASD/NYSE TRF commenced operation.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A of the Act,\7\ in general, and with section 
15A(b)(5) of the Act,\8\ in particular, which requires, among other 
things, that FINRA rules provide for the equitable allocation of 
reasonable dues, fees and other charges among members and issuers and 
other persons using any facility or system that FINRA operates or 
controls. FINRA believes that the proposed rule change is a reasonable 
and equitable credit structure in that it will be applied uniformly 
among members that participate in the NASD/NYSE TRF and that the NYSE 
has indicated that all regulatory costs owed by the NYSE as the 
Business Member related to the NASD/NYSE TRF will be funded by NYSE 
general revenues.
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    \7\ 15 U.S.C. 78o-3.
    \8\ 15 U.S.C. 78o-3(b)(5).
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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 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 No. SR-NASD-2007-031 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASD-2007-031. 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 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 
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-
NASD-2007-031 and should be submitted on or before December 5, 2007.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-22163 Filed 11-13-07; 8:45 am]

BILLING CODE 8011-01-P