[Federal Register: September 11, 2009 (Volume 74, Number 175)]
[Notices]
[Page 46814-46816]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11se09-91]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-60613; File No. SR-FINRA-2009-055]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt
FINRA Rules 5210 (Publication of Transactions and Quotations) and 5220
(Offers at Stated Prices) Into the Consolidated Rulebook
September 2, 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 August 18, 2009, 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 prepared by FINRA. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to adopt NASD Rule 3310 (Publication of
Transactions and Quotations), NASD Rule 3320 (Offers at Stated Prices),
IM-3310 (Manipulative and Deceptive Quotations) and IM-3320 (firmness
of Quotations) as FINRA rules in the consolidated FINRA rulebook
without material changes. The proposed rule change would combine NASD
Rule 3310 and IM-3310 into FINRA Rule 5210 and would combine NASD Rule
3320 and IM-3320 into FINRA Rule 5220 in the consolidated FINRA
rulebook.
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
[[Page 46815]]
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
As part of the process of developing a new consolidated rulebook
(``Consolidated FINRA Rulebook''),\3\ FINRA is proposing to adopt NASD
Rule 3310 (Publication of Transactions and Quotations), NASD Rule 3320
(Offers at Stated Prices), IM-3310 (Manipulative and Deceptive
Quotations) and IM-3320 (firmness of Quotations) with minor changes as
FINRA rules in the Consolidated FINRA Rulebook.
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\3\ The current FINRA rulebook consists of (1) FINRA Rules; (2)
NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together, the NASD Rules and Incorporated NYSE Rules
are referred to as the ``Transitional Rulebook''). While the NASD
Rules generally apply to all FINRA members, the Incorporated NYSE
Rules apply only to those members of FINRA that are also members of
the NYSE (``Dual Members''). The FINRA Rules apply to all FINRA
members, unless such rules have a more limited application by their
terms. For more information about the rulebook consolidation
process, see Information Notice, March 12, 2008 (Rulebook
Consolidation Process).
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Proposed FINRA Rule 5210
NASD Rule 3310 prohibits members from publishing or circulating, or
causing to be published or circulated, any communication that purports
to report any transaction as a purchase or sale of any security unless
such member believes that such transaction was a bona fide purchase or
sale of such security. The rule also prohibits members from publishing
or circulating, or causing to be published or circulated, any
communication that purports to quote the bid price or asked price for
any security, unless such member believes that such quotation
represents a bona fide bid for, or offer of, such security.
IM-3310 provides that it would be inconsistent with NASD Rules 2110
(Standards of Commercial Honor and Principles of Trade),\4\ 3310
(Publications of Transactions and Quotations), and 2120 (Use of
Manipulative, Deceptive or Other Fraudulent Devices) \5\ for a member
to: (1) Publish or circulate or cause to be published or circulated, by
any means whatsoever, any report of any securities transaction or of
any purchase or sale of any security unless such member knows or has
reason to believe that such transaction was a bona fide transaction,
purchase or sale, or (2) to publish or circulate or to cause to be
published or circulated, by any means whatsoever, any quotation for any
security without having reasonable cause to believe that such quotation
is a bona fide quotation, is not fictitious and is not published or
circulated or caused to be published or circulated for any fraudulent,
deceptive or manipulative purpose.
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\4\ NASD Rule 2110 has been transferred into the Consolidated
FINRA Rulebook as FINRA Rule 2010.
\5\ NASD Rule 2120 has been transferred into the Consolidated
FINRA Rulebook as FINRA Rule 2020.
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NASD Rule 3310 was adopted on June 6, 1939, and there have been no
subsequent amendments to the rule. IM-3310 was adopted in 1960 and also
has not been amended since adoption. More recently, FINRA reminded
members that directly enter (or that permit customers or non-members to
enter) orders into trading systems that they are required to take steps
to ensure that such orders are free of errors and are representative of
bona fide transaction and quotation activity consistent with their
obligations under NASD Rule 3310 and IM-3310.\6\ Therefore, members
have been reminded that they must have in place a supervisory system
and written supervisory procedures reasonably designed to ensure that
orders are not entered in error or in a manner inconsistent with FINRA
rules, including NASD Rule 3310 and IM-3310.
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\6\ See Notice to Members 04-66 (NASD Reminds Member Firms of
Their Obligations to Ensure the Accuracy and Integrity of
Information Entered into Order-Routing and Execution Systems)
(September 2004).
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FINRA is proposing to adopt the requirements set forth in NASD Rule
3310 and IM-3310 as FINRA Rule 5210 with minor changes to update the
content and cross-references. Specifically, FINRA is proposing minor
changes to delete the exception for nominal quotations that are clearly
identified as such because, under current practice, nominal quotations
are not published and a modifier does not exist to identify nominal
quotations. In addition, FINRA is proposing to incorporate the
substance of IM-3310 as Supplementary Material to FINRA Rule 5210 with
minor changes to simplify and update the cross-references within the
rule.\7\
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\7\ As stated in SR-FINRA-2008-021, with the exception of the
Arbitration Code, the Consolidated FINRA Rulebook will no longer
contain Interpretive Materials (``IMs''); rather, the IMs either
will become stand alone rules or will be integrated into existing
rule text or moved to a ``Supplementary Material'' section at the
end of a rule. (In some instances, an IM also may be eliminated as
outdated or otherwise unnecessary.) The ``Supplementary Material''
will set forth the same type of legally binding guidance and
additional information that IMs provide today and will be filed with
the SEC. See Securities Exchange Act Release No. 58176 (July 16,
2008); 73 FR 42845 (July 23, 2008).
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Proposed FINRA Rule 5220
NASD Rule 3320 provides that no member shall make an offer to buy
from or sell to any person any security at a stated price unless such
member is prepared to purchase or sell, as the case may be, at such
price and under such conditions as are stated at the time of such offer
to buy or sell. NASD Rule 3320 was adopted on June 6, 1939. There have
been no subsequent amendments to the rule.
As adopted in 1965, related IM-3320 restricts ``backing away'' from
quotations, which disrupts the normal operation of the over-the-counter
market. IM-3320 provides that it shall be deemed conduct inconsistent
with high standards of commercial honor and just and equitable
principles of trade if a member ``backs away'' from its quotation.
In addition, the interpretive material provides that, in order to
ensure the integrity of quotations, every member has an obligation to
correctly identify the nature of its quotations when they are supplied
to others. Further, each member furnishing quotations must ensure that
it is adequately staffed to respond to inquiries during the normal
business hours of such member. IM-3320 recognizes that members change
inter-dealer quotations constantly in the course of trading, but
further states that, under normal circumstances where the member is
making a firm trading market in any security, it is expected at least
to buy or sell a normal unit of trading in the quoted stock at its then
prevailing quotations unless clearly designated as ``not firm'' or
``firm for less than a normal unit of trading'' when supplied by the
member. In addition, IM-3320 recognizes that a member's quote may not
be firm at times where contemporaneous transactions or substantial
changes in inventory might require dealers to quote a ``subject
market'' temporarily.
FINRA proposes to adopt NASD Rule 3320, without change, into the
Consolidated FINRA Rulebook as FINRA Rule 5220 and to incorporate the
substance of IM-3320, with minor changes, as Supplementary Material to
FINRA Rule 5220. The minor changes to IM-3320 will: (1) Update
terminology (e.g., references to ``wire quotations'' and the ``National
Quotation Bureau Sheets'') to reflect technological advancements and
current practice
[[Page 46816]]
since the rule's enactment, and (2) update the ``subject market''
language to make it consistent with the language used in the SEC's Firm
Quote Rule (Rule 602 of Regulation NMS), specifically that, if at the
time an order for the purchase or sale of the quoted security is
presented the member is in the process of effecting a transaction and
immediately after the completion of such transaction communicates a
revised quotation size, such member shall not be obligated to purchase
or sell the quoted security in an amount greater than such revised
quotation size.
FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 90 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,\8\ 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 adopting the proposed rules as
part of the Consolidated FINRA Rulebook will continue to enhance market
quality by providing for increased reliability and usefulness of
quotation information. FINRA notes that the proposed rules have been in
operation for numerous decades and believes that they have since proven
effective in achieving the statutory mandates.
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\8\ 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 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-2009-055 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-2009-055. 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 the 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-2009-055 and should be
submitted on or before October 2, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-21883 Filed 9-10-09; 8:45 am]
BILLING CODE 8010-01-P