[Federal Register Volume 73, Number 2 (Thursday, January 3, 2008)]
[Notices]
[Pages 529-531]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25508]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57045; File No. SR-FINRA-2007-037]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Relating to Amendments to FINRA's New York Stock
Exchange Rule 409(f)
December 27, 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 December 21, 2007, the 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. FINRA has designated the proposed rule change as constituting a
``non-controversial'' rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(6) \4\ thereunder, 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).
\4\ 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 New York Stock Exchange (``NYSE'') Rule
409(f), to delete the requirement that certain confirmations and
reports include the name of the securities market on which a
transaction is effected. Below is the text of the proposed rule change.
Proposed new language is in italics; proposed deletions are in
brackets.
* * * * *
Rule 409. Statements of Accounts to Customers
(a) through (e) No change.
(f) Confirmation of all transactions (including those made ``over-
the-counter'' and on other exchanges) in securities admitted to
dealings on the Exchange, sent by members or member organizations to
their customers, shall [indicate]clearly set forth with a suitable
legend the settlement date of each transaction[ and bear the name of
the securities market on which the transaction was made]. This
requirement also applies to confirmations or reports from an
organization to a correspondent, but does not apply to reports made by
floor brokers to the member organization from whom the orders were
received.
[All confirmations shall contain a suitable legend clearly setting
forth all required information.]
(g) No change.
* * * * *
[[Page 530]]
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
NYSE Rule 409(f) requires that confirmations of all transactions
(including those made over-the-counter and on other exchanges) in
securities admitted to dealings on the NYSE, and sent by FINRA members
that are also members of NYSE (``Dual Members'') to their customers,
indicate the settlement date of the transaction and the name of the
securities market on which the transaction was effected.\5\ This
requirement also applies to confirmations or reports from an
organization to a correspondent, but does not apply to reports made by
floor brokers to the member organization from which the orders were
received.
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\5\ FINRA incorporated NYSE Rule 409(f) into its interim
rulebook; however, the incorporated NYSE rules, including NYSE Rule
409(f), apply solely to Dual Members. See Securities Exchange Act
Release No. 56147 (July 26, 2007), 72 FR 42166 (August 1, 2007)
(Notice of Filing and Order Granting Accelerated Approval of SR-
NASD-2007-054).
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Following the SEC's adoption of Regulation NMS, an increasing
number of orders, or portions of orders, routed to a given market for
execution are rerouted to other markets that, at that time, display a
better quotation. This process, which often is necessary due to the
requirements of the Order Protection Rule under Regulation NMS, may
lead to relatively small orders receiving executions in multiple market
centers.\6\ This has created an operational challenge for Dual Members
to capture the name of the market of execution on a timely basis for
inclusion on the transaction confirmation as required by NYSE Rule
409(f). As a result of this challenge, on March 20, 2007, NYSE granted
its member organizations temporary relief from the requirement that
confirmations and correspondent reports include the securities market
on which the transaction was effected.\7\ The temporary relief, which
expired on September 30, 2007, was extended by FINRA and by NYSE until
January 1, 2008.\8\ In extending the relief, both FINRA and NYSE stated
that they would continue to reassess the utility of NYSE Rule 409(f) in
the current regulatory environment.
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\6\ The Order Protection Rule requires trading centers,
including broker-dealers that internally execute orders, to
establish, maintain, and enforce written policies and procedures
reasonably designed to protect against ``trade-throughs'' of
protected quotations in NMS stocks. See 17 CFR 242.611(a).
\7\ See NYSE Information Memo 07-28 (March 20, 2007).
\8\ See FINRA Regulatory Notice 07-35 (August 2007); NYSE
Information Memo 07-84 (August 2, 2007).
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Under the duty of best execution, Dual Members are required to
exercise diligence to obtain the best price when routing customer
trades for execution,\9\ and Regulation NMS imposes disclosure
obligations on broker-dealers regarding the handling of customer
orders.\10\ In this regard, NASD Rule 2320 requires every FINRA member
to employ reasonable diligence in ascertaining best execution in the
execution of a transaction. As stated in NASD Notice to Members 01-22,
members generally may execute such diligence on either a trade-by-trade
basis or through the regular and rigorous review of the execution
quality of various market centers. FINRA has concluded that in light of
these existing best execution and disclosure requirements, the
usefulness of including on a confirmation or correspondent report the
securities market on which a transaction was effected does not outweigh
the operational difficulties of capturing the information following the
adoption of Regulation NMS. Consequently, the proposed rule change
would delete from NYSE Rule 409(f) the requirement that confirmations
and correspondent reports include the securities market on which the
transaction was effected. Dual Members would, however, still be
required to indicate the settlement date of each transaction on
customer and correspondent confirmations and correspondent reports for
all transactions (including those made over-the-counter and on other
exchanges) in securities admitted to dealings on the NYSE.
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\9\ See, e.g., Securities Exchange Act Release No. 51808 (June
9, 2005), 70 FR 37496, 37537-38 (June 29, 2005) (discussing the duty
of best execution in relation to Regulation NMS).
\10\ SEC Rule 606(b) requires a broker-dealer to disclose to its
customer upon request ``the identity of the venue to which the
customer's orders were routed for execution in the six months prior
to the request, whether the orders were directed orders or non-
directed orders, and the time of the transactions, if any, that
resulted from such orders.'' See 17 CFR 242.606(b). SEC Rule 607
requires a broker-dealer that acts as agent for a customer to
disclose, in writing, upon opening a new account and on an annual
basis thereafter, the firm's policies regarding receipt of payment
for order flow and the firm's policies for determining where to
route customer orders that are the subject of payment for order
flow. See 17 CFR 242.607(a).
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FINRA has filed the proposed rule change for immediate
effectiveness. The operative date will be January 1, 2008.
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. FINRA believes that the operational difficulties of
including on a confirmation or correspondent report the securities
market on which a transaction was effected outweigh the benefits of
including the information in light of existing best execution and
disclosure requirements.
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\11\ 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
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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6) thereunder.\13\ In accordance with Rule 19b-4,\14\ FINRA
submitted written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed
[[Page 531]]
rule change, at least five business days prior to the date of filing.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
\14\ 17 CFR 240.19b-4.
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FINRA has requested that the Commission waive the 30-day operative
delay contained in Rule 19b-4(f)(6)(iii) \15\ under the Act based upon
a representation that the temporary exemptive relief provided by FINRA
and NYSE expires on January 1, 2008. In light of the foregoing, the
Commission believes such waiver is consistent with the protection of
investors and the public interest. Accordingly, the Commission
designates the proposal to be effective upon filing with the Commission
and operative on January 1, 2008.\16\
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\15\ 17 CFR 240.19b-4(f)(6)(iii).
\16\ For purposes only of waiving the 30-day operative delay of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
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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 [email protected]. Please include
File Number SR-FINRA-2007-037 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-FINRA-2007-037. 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-2007-037 and should be
submitted on or before January 24, 2008.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-25508 Filed 1-2-08; 8:45 am]
BILLING CODE 8011-01-P