[Federal Register Volume 75, Number 131 (Friday, July 9, 2010)]
[Notices]
[Pages 39603-39608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16687]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62434; File No. SR-FINRA-2009-089]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed FINRA Rule 6490 (Processing
of Company-Related Actions) To Clarify the Scope of FINRA's Authority
When Processing Documents Related to Announcements for Company-Related
Actions for Non-Exchange Listed Securities and To Implement Fees for
Such Services
July 1, 2010.
I. Introduction
On December 7, 2009, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\
proposed FINRA Rule 6490 (Processing of Company-Related Actions), to
clarify the scope of FINRA's regulatory authority and discretionary
power when processing documents relating to announcements for company-
related actions for non-exchange listed equity and debt securities
(collectively ``OTC Securities'') and to implement fees for such
services. The proposed rule change was published for comment in the
Federal Register on December 28, 2009.\3\ The Commission received two
comment letters on the proposed rule change,\4\ and a letter from FINRA
responding to the comment letters.\5\ This order approves the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 61189 (December 17,
2009), 74 FR 68648 (``Notice'').
\4\ See Letter to Elizabeth M. Murphy, Secretary, Commission,
from Liz Heese, Managing Director, Issuer Services, Pink OTC
Markets, Inc. (``Pink OTC''), dated January 20, 2010 (``Pink OTC
Letter''), and Letter to Elizabeth M. Murphy, Secretary, Commission,
from Stephen J. Nelson, The Nelson Law Firm, LLC (``Nelson Law
Firm''), dated February 18, 2010 (``Nelson Law Firm Letter'').
\5\ See Letter from Kosha K. Dalal, Associate Vice President and
Associate General Counsel, FINRA, to Elizabeth M. Murphy, Secretary,
Commission, dated April 30, 2010 (``FINRA Response Letter'').
---------------------------------------------------------------------------
II. Background
FINRA performs several critical functions in the over-the-counter
(``OTC'') market. FINRA currently operates the OTC Bulletin Board
(``OTCBB''), which provides a mechanism for FINRA members to quote
certain registered OTC equity securities. FINRA also operates the OTC
Reporting Facility, which provides a mechanism for FINRA members to
report, for both regulatory and dissemination purposes, transactions in
OTC equity securities. More broadly, FINRA also oversees the activities
of broker-dealer member firms, and their associated persons, that quote
and trade OTC Securities to ensure their compliance with the Federal
securities laws and FINRA rules.
In addition to these functions, FINRA reviews and processes
requests to announce or publish certain actions taken by issuers of OTC
Securities. FINRA performs other more limited functions relating to the
processing of certain actions by non-exchange listed companies whose
securities are traded in the OTC market. In this regard, FINRA reviews
and processes documents relating to announcements for company-related
actions pursuant to Rule 10b-17 under the Act (``Rule 10b-
[[Page 39604]]
17 Actions'').\6\ These documents include announcements of dividends or
other distributions in cash or in kind, stock splits or reverse stock
splits, or rights or other subscriptions offerings. FINRA also reviews
requests to process documents relating to other company actions
(``Other Company-Related Actions''), including the issuance or change
to a trading symbol or company name, merger, acquisition, dissolution
or other company control transactions, bankruptcy or liquidation.\7\ In
addition, FINRA maintains the symbols database for OTC Securities.
Based on information it receives regarding Company-Related Actions,
FINRA, in turn, provides notice to the marketplace of such events and
adjusts names, symbols, and the issuers' stock prices, if necessary.
According to FINRA, these functions are important both to the trading
of securities in the OTC marketplace and to the settlement of
transactions involving OTC Securities. FINRA notes that the issuer-
related services it performs are aimed not only at facilitating trading
and settlement, but also at promoting investor protection and market
integrity.
---------------------------------------------------------------------------
\6\ 17 CFR 240.10b-17. Rule 10b-17 requires issuers to give
FINRA, in a timely fashion, information relating to: (1) A dividend
or other distribution in cash or in kind; (2) a stock split or
reverse split; and (3) a rights or other subscription offering.
Under Rule 10b-17, the issuer is required to provide this
information to FINRA no later than 10 days prior to the record date
or, in case of a rights subscription or other offering if such 10
days advance notice is not practical, on or before the record date,
and in no event later than the effective date of the registration
statement to which the offer relates. Pursuant to Rule 10b-17(b)(3),
comparable notice given by the issuer of an exchange-listed security
in accordance with the procedures of the national securities
exchange upon which a security of such issuer is registered
satisfies this requirement.
\7\ Rule 10b-17 Actions and Other Company-Related Actions
collectively are referred to herein as ``Company-Related Actions.''
FINRA publishes Company-Related Actions pursuant to requests from
issuers and their agents on its Web site in a document known as the
``Daily List.'' Publication of Company-Related Actions in the Daily
List effectively announces the Company-Related Action to the OTC
market.
---------------------------------------------------------------------------
Historically, FINRA has viewed its role in performing issuer-
related functions as primarily ministerial, due in large part to its
limited jurisdictional reach. FINRA does not impose listing standards
for securities and maintains no formal relationship with, or direct
jurisdiction over, issuers. FINRA's authority to perform issuer-related
functions flows primarily from two sources: Rule 10b-17 under the Act
and FINRA's Uniform Practice Code (NASD Rule 11000 Series)
(``UPC'').\8\ Recently, there has been growing concern that FINRA's
Company-Related Action processing services may potentially be used by
certain parties to further fraudulent activities.\9\ Accordingly, in
furtherance of its authority to adopt rules to prevent fraudulent and
manipulative acts and practices, promote just and equitable principles
of trade, and protect investors and the public interest, FINRA proposes
Rule 6490 to clarify the scope of its regulatory authority and to
codify procedures that it will apply when reviewing requests to process
Company-Related Actions. FINRA also proposes to establish fees for its
review and processing of documentation relating to Rule 10b-17 Actions
and Other Company-Related Actions, as well as a fee for appealing FINRA
staff determinations.
---------------------------------------------------------------------------
\8\ The UPC sets forth a basic framework of rules governing
broker-dealers with respect to the settlement of OTC Securities.
\9\ See, e.g., Commission Order of Suspension of Trading In the
Matter of Andros Isle, Corporation, et al., dated March 13, 2008
(File No. 500-1), in which the Commission suspended trading pursuant
to Section 12(k) of the Act, 15 U.S.C. 78l(k), in the securities of
approximately 26 Pink Sheet securities, stating ``[c]ertain persons
appear to have usurped the identity of a defunct or inactive
publicly traded corporation, initially by incorporating a new entity
using the same name, and then by obtaining a new CUSIP number and
ticker symbol based on the apparently false representation that they
were duly authorized officers, directors and/or agents of the
original publicly traded corporation.'' See also SEC v. Irwin Boock,
Stanton B.J. DeFreitas, Nicolette D. Loisel, Roger L. Shoss, and
Jason C. Wong, Birte Boock, and 1621566 Ontario, Inc., Civil Action
No. 09 CV 8261 (S.D.N.Y.) (DLC), Litigation Release No. 21243
(October 8, 2009) (Commission Charges Five With Dozens of Fraudulent
Corporate Hijackings and Unregistered Offerings of Securities and
Names Two Relief Defendants).
---------------------------------------------------------------------------
III. Description of the Proposal
A. Processing Announcements of Company Related Actions
Rule 6490 would codify the authority of FINRA's Department of
Operations (``Department'') to conduct in-depth reviews of requests to
process Company-Related Actions and to provide FINRA staff the
discretion not to process incomplete requests and requests for which
there are certain indicators of potential fraud. Specifically, the
proposed rule would establish procedures for the submission, review,
and determination of the sufficiency of requests made to FINRA to
process Company-Related Actions. The proposed rule would permit the
Department to prescribe the forms, supporting documentation and
procedures necessary to conduct more in-depth reviews of requests to
process Company-Related Actions. The proposed rule would require that
an issuer or other duly authorized representative of the issuer
(``Requesting Party'') submit a request for FINRA to review and process
documentation related to a Rule 10b-17 Action or Other Company-Related
Action within the time frames specified by either Rule 10b-17, in the
event of a Rule 10b-17 Action, or no later than ten calendar days prior
to the effective date of the Company-Related Action in the event of
Other Company-Related Actions. The proposed rule would require all such
requests to be accompanied by proof of payment of a non-refundable fee
specified in the fee table that would be included in Rule 6490, as more
fully described below. In addition, the proposed rule would provide
that initial symbol set up requests may be submitted by FINRA members
or their associated persons in order to comply with regulatory
reporting requirements.
In recognition of FINRA's lack of privity with issuers of OTC
Securities, FINRA is proposing to adopt Supplementary Material .02
(Requests by Third-Parties) to Rule 6490, which would permit FINRA, in
its discretion, to announce a Company-Related Action when it is
contacted by a third party, such as The Depository Trust & Clearing
Corporation (``DTC''), foreign exchanges or regulators, or members or
associated persons. FINRA would request that the third party contact
the issuer in question regarding the issuer's obligations under Rule
10b-17 or other rules and regulations, as applicable, and instruct the
issuer to contact FINRA directly to provide notice and complete the
requisite forms. However, FINRA would, in its discretion, be permitted
to review and process a Company-Related Action based on information
from a third party when it believes that such action is necessary for
the protection of investors and the public interest and to maintain
fair and orderly markets, and/or FINRA has been unable to obtain
notification of the Company-Related Action from the issuer.
The proposed rule would permit the Department to request additional
information or documentation as may be necessary for the Department to
verify the accuracy of the information submitted by the Requesting
Party. If the Requesting Party does not sufficiently respond within 90
calendar days of the date the Department requests additional
information or documentation, the request would be deemed ``lapsed''
and then closed. The proposed rule also would provide that if a request
to process a Company-Related Action is deficient, and the Department
determines that it is necessary for the protection of investors and the
public interest and to maintain fair and orderly markets, the
Department may determine
[[Page 39605]]
that documentation related to a Company-Related Action shall not be
processed.
The proposal sets forth five factors that the Department can
consider in determining whether a request to process documentation is
deficient: (1) FINRA staff reasonably believes the forms and all
supporting documentation, in whole or in part, may not be complete,
accurate or with proper authority; (2) the issuer is not current in its
reporting obligations, if applicable, to the Commission or other
regulatory authority; (3) FINRA has actual knowledge that parties
related to the Company-Related Action are the subject of pending,
adjudicated or settled regulatory action or investigation by a
regulatory body, or civil or criminal action related to fraud or
securities laws violations; \10\ (4) a government authority or
regulator has provided information to FINRA, or FINRA has actual
knowledge, indicating that persons related to the Company-Related
Action may be potentially involved in fraudulent activities related to
the securities market and/or pose a threat to public investors; and/or
(5) there is significant uncertainty in the settlement and clearance
process for the security.
---------------------------------------------------------------------------
\10\ According to FINRA, this factor would include instances
when FINRA has actual knowledge of a Commission Order pursuant to
Section 12(k) of the Act, 15 U.S.C. 78l(k), temporarily suspending
the issuer's securities or pursuant to Section 12(j) of the Act, 15
U.S.C. 78l(j), revoking registration of the issuer's securities.
---------------------------------------------------------------------------
Following a Department determination that a request to process a
Company-Related Action is deficient, the Department would be required
to provide written notice to the Requesting Party. Such written notice
would be required to state the specific factor(s) that caused the
request to be deemed deficient. The proposal permits a Requesting Party
to appeal a deficiency determination to a three-member subcommittee
comprised of current or former industry members of FINRA's UPC
Committee in writing within seven calendar days after service of the
notice. Any written request for an appeal would be required to: (1) Be
accompanied by proof of payment of a non-refundable Action
Determination Appeal Fee; and (2) specifically set forth any and all
defenses to the Department's deficiency determination. Under the
proposal, an appeal would stay the processing of the Company-Related
Action (i.e., the requested Company-Related Action would not be
processed during the period that the Requesting Party requests an
appeal or while any such appeal is pending).
Under the proposal, the subcommittee would convene once each
calendar month to consider all appeals received during the prior month
and would render a determination within three business days following
the day the subcommittee considered the appeal. The subcommittee's
determination would constitute final FINRA action. If a Requesting
Party fails to file a written request for an appeal within seven
calendar days after service of notice, the Department's deficiency
determination would constitute final FINRA action.
B. Fees
FINRA also proposes to establish fees in connection with its review
and processing of Company-Related Actions. The proposed fees would
include late fees for Requesting Parties that fail to provide timely
notice of and requests to process Company-Related Actions. According to
FINRA, the proposed late fees would help encourage issuers of OTC
Securities to meet deadlines, including those associated with Rule 10b-
17, which are critical to enabling FINRA to process such requests in a
timely fashion in order to provide adequate notice to market
participants. Further, FINRA states that the proposed fees would be
beneficial because they would offset some of the significant costs that
FINRA currently bears for the benefit of issuers of OTC Securities that
are not otherwise paying to support the OTC symbol database and the
processing of Company-Related Actions.
Specifically, FINRA proposes to charge the following non-refundable
fees for the review and processing of documentation related to Rule
10b-17 Actions and Other Company-Related Actions:
------------------------------------------------------------------------
Fee
------------------------------------------------------------------------
Rule 10b-17 Action:
Timely Rule 10b-17 Notification.................. $200
Late Rule 10b-17 Notification Submitted at least 1,000
5 calendar days prior to Corporate Action Date..
Late SEA Rule 10b-17 Notification Submitted at 2,000
least 1 calendar day prior to Corporate Action
Date............................................
Late SEA Rule 10b-17 Notification Submitted on or 5,000
after Corporate Action Date.....................
Other Company-Related Action:
Voluntary Symbol Request Change.................. 500
Initial Symbol Set Up............................ (*)
Symbol Deletion.................................. (*)
Appeals:
Action Determination Appeal Fee.................. 4,000
------------------------------------------------------------------------
* No charge.
FINRA also proposes Supplementary Material .01, which would permit
FINRA to process documentation for Company-Related Actions, absent a
determination that the action is deficient, even if the required fee is
not paid. Proposed Supplementary Material .01 provides that unpaid Rule
10b-17 Action fees associated with a specific issuer would be
accumulated, and further, that FINRA would not process Voluntary Symbol
Request Changes until all accumulated fees are paid. According to
FINRA, this accumulation authority would create incentives for issuers
that are not otherwise subject to FINRA's direct jurisdiction to comply
with the proposed rule's requirements without compromising FINRA's
investor protection mission. FINRA states further that acceptance and
processing of untimely Company-Related Action requests and related fees
by FINRA will not act to relieve an issuer of potential violations of
Rule 10b-17 or other Federal or State rules or self-regulatory
organization rules.
In addition, the Voluntary Symbol Request Change Fee would not
apply to mandatory symbol set ups or changes. Specifically, FINRA would
not charge a Voluntary Symbol Request Change Fee in connection with a
mandatory symbol change that results from a Rule 10b-17 Action (i.e., a
mandatory symbol change required because of a CUSIP number change or
otherwise in direct connection with a Rule 10b-17 Action
[[Page 39606]]
would not require the payment of the Voluntary Symbol Request Change
Fee). However, the request (and its granting, subject to symbol
availability) of a specific symbol in connection with a Rule 10b-17
Action would result in assessment of such a fee in addition to the
requisite Rule 10b-17 Action fee.
IV. Discussion and Commission's Findings
The Commission has reviewed carefully the proposed rule change, the
comment letters received, and the FINRA Response Letter and finds that
the proposal is consistent with the Act and the rules and regulations
thereunder applicable to a national securities association, including
the provisions of Section 15A(b)(6) of the Act,\11\ which requires,
among other things, that FINRA rules be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
transactions in securities, and, in general, to protect investors and
the public interest; and Section 15A(b)(5) of the Act,\12\ 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.\13\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78o-3(b)(6).
\12\ 15 U.S.C. 78o-3(b)(5).
\13\ In approving the proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission believes that FINRA's proposal to codify procedures
for the submission, review, and determination of the sufficiency of
requests to process Company-Related Actions will benefit the OTC
marketplace and investors in OTC Securities. The proposal clarifies
FINRA's authority to conduct reviews of requests to process Company-
Related Actions and reserves to FINRA the right to process Rule 10b-17
Actions and Other Company-Related Actions when, notwithstanding the
failure of an issuer to timely submit a notice or pay the applicable
processing fee, such processing is necessary for the protection of
investors and the public interest and to maintain fair and orderly
markets. Accordingly, the Commission believes that the proposal is
designed to encourage issuers and their agents to provide complete,
accurate and timely information to FINRA concerning Company-Related
Actions involving OTC Securities, and thereby to prevent fraudulent and
manipulative acts and practices with respect to these securities.
The Commission notes that the proposal sets forth five factors that
FINRA can look to as a basis for denying a request to process
documentation concerning a Company-Related Action: (1) FINRA staff
reasonably believes the forms and all supporting documentation, in
whole or in part, may not be complete, accurate or with proper
authority; (2) the issuer is not current in its reporting obligations,
if applicable, to the Commission or other regulatory authority; (3)
FINRA has actual knowledge that parties related to the Company-Related
Action are the subject of pending, adjudicated or settled regulatory
action or investigation by a regulatory body, or civil or criminal
action related to fraud or securities laws violations; \14\ (4) a
government authority or regulator has provided information to FINRA, or
FINRA has actual knowledge, indicating that persons related to the
Company-Related Action may be potentially involved in fraudulent
activities related to the securities market and/or pose a threat to
public investors; and/or (5) there is significant uncertainty in the
settlement and clearance process for the security. The Commission also
notes that the proposal includes provisions pursuant to which an
aggrieved party may appeal the denial of a request to process a
Company-Related Action.
---------------------------------------------------------------------------
\14\ See supra note 10.
---------------------------------------------------------------------------
As noted above, the Commission received two comment letters in
response to the proposal.\15\ Both commenters generally supported the
goals of the proposal, but questioned certain aspects of it. One
commenter requested that FINRA provide additional guidance on two of
the factors FINRA would consider when determining whether a request to
process documentation related to a Company-Related Action is deficient,
namely, whether an issuer is not current in its reporting obligations,
if applicable, to the Commission or other regulatory authority, and
whether there is significant uncertainty in the clearance and
settlement process.\16\ Specifically, this commenter inquired whether
delinquent issuers would automatically have their requests to process a
Company-Related Action determined to be deficient, and also whether
issuers that are not designated as eligible for the DTC's FAST systems
would have their requests viewed as raising significant uncertainty in
the clearance and settlement process.\17\
---------------------------------------------------------------------------
\15\ See Pink OTC Letter and Nelson Law Firm Letter, supra note
4.
\16\ See Pink OTC Letter.
\17\ Id.
---------------------------------------------------------------------------
In response to this commenter, FINRA explained that when the
Department reasonably believes that an issuer submitting a request to
process documentation related to a Company-Related Action has triggered
one of the explicitly enumerated factors, the Department would
generally conduct an in-depth review of the Company-Related Action and
seek additional information or documentation from the issuer.\18\ FINRA
noted that it would have the discretion not to process any such actions
that are incomplete or when it determines that not processing such an
action is necessary for the protection of investors and the public
interest and to maintain fair and orderly markets.\19\ FINRA stated
that the failure of an issuer to remain current it its reporting
obligations is one of five factors that FINRA ``may'' consider in
making a deficiency determination.\20\ FINRA further noted that the
proposal does not mandate any particular mechanism of clearance and
settlement for an issuer's securities, including FAST designation by
DTC.\21\
---------------------------------------------------------------------------
\18\ See FINRA Response Letter, supra note 5 at 3-4.
\19\ Id.
\20\ Id.
\21\ Id.
---------------------------------------------------------------------------
The Commission believes that the proposed factors are reasonably
designed to allow FINRA to deny a request to process a Company-Related
Action based on the above-noted objective criteria. As FINRA pointed
out, if FINRA believes that one of the enumerated factors has been
triggered, FINRA staff would conduct an in depth review and follow up
with the issuer to seek additional information or documentation. The
Commission believes that the proposal furthers FINRA's goal to assure
that documents supporting a request to process a Company-Related Action
are complete and correct and that its facilities are not misused in
furtherance of fraudulent or manipulative acts and practices. At the
same time, the proposal recognizes the interests of a Requesting Party
in receiving fair consideration from FINRA in connection with a request
to process a Company-Related Action and in having a fair process for an
appeal in the event a request to process a Company-Related Action is
denied. The Commission therefore finds the proposal to be consistent
with Section 15A(b)(6) of the Act.\22\ The Commission
[[Page 39607]]
notes that FINRA's administration of its proposed rule is subject to
continuing Commission oversight, and that FINRA, as a registered
national securities association, remains bound by its obligations as a
self-regulatory organization under the Act and all relevant rules and
regulations thereunder.
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
Two commenters questioned the effects of the proposed fees.\23\
Specifically, one commenter expressed concern that the proposal would
permit FINRA to decline to set an ex-dividend date for distributions of
``Liquidating OTC Securities'' if an issuer failed to timely notify
FINRA of an upcoming distribution, as required by Rule 10b-17, and pay
the required processing fee.\24\ According to this commenter, a failure
by FINRA to set an ex-dividend date for these securities would ``burden
transactions in Liquidating OTC Securities with wholly unnecessary
risks and transaction costs'' and potentially permit FINRA to ``escape
from its responsibilities under Section 15A'' of the Act when the
required fee is not paid.\25\
---------------------------------------------------------------------------
\23\ See Pink OTC Letter and Nelson Law Firm Letter, supra note
4.
\24\ See Nelson Law Firm Letter. This commenter defines
``Liquidating OTC Securities'' as securities whose issuers are
``bankrupt, in liquidation, or involved in various forms of
reorganization.''
\25\ Id.
---------------------------------------------------------------------------
In response to this concern, FINRA clarified that the proposal
expressly permits FINRA to set ex-dividend dates, as well as process
other Company-Related Actions, in certain circumstances even if FINRA
fails to receive the required notice and accompanying fee from the
issuer. In particular, FINRA noted that the text of proposed
Supplementary Material .01 (SEA Rule 10b-17 Fee Accumulations) states
that ``notwithstanding the timeliness of the SEA Rule 10b-17 Action
submission or the failure to pay applicable fees, FINRA will make its
best efforts to process documentation related to SEA Rule 10b-17
Actions that are not otherwise deemed incomplete or otherwise deficient
by FINRA because of the critical nature of this information to the
marketplace.'' \26\ Similarly, FINRA noted that the rule text of
proposed Supplementary Material .02 (Requests by Third-Parties)
provides that when FINRA is unable to obtain notification from an
issuer, it may in its discretion review and process a Rule 10b-17
Action or Other Company-Related Action based on information from a
third-party, such as DTC, foreign exchanges or regulators, or members
or associated persons, when it believes such action is necessary under
its statutory obligations.\27\
---------------------------------------------------------------------------
\26\ See FINRA Response Letter, supra note 5 at 2-3.
\27\ Id.
---------------------------------------------------------------------------
One commenter noted that issuers of OTC Liquidating Securities may
believe that they are not obligated to provide a Rule 10b-17 notice to
FINRA, particularly, if, for example a bankruptcy trustee views its
obligations to maximize the value of the issuer's estate to be in
conflict with payment of processing fees to FINRA.\28\ In response to
this comment, FINRA remarked that an issuer that files for bankruptcy,
or a trustee acting on its behalf, faces numerous fees and charges in
an effort to discharge the issuer's obligations and stated that it saw
no reason why its proposed fees should not apply to these issuers.\29\
---------------------------------------------------------------------------
\28\ See Nelson Law Firm Letter supra note 4 at 3.
\29\ See FINRA Response Letter, supra note 5 at 2.
---------------------------------------------------------------------------
The other commenter questioned whether the proposed fees for
providing Company-Related Action processing services might cause
issuers to effect corporate actions without notifying FINRA.\30\ In
response to this point, FINRA noted that an issuer that fails to notify
FINRA of a proposed corporate action, as required by Rule 10b-17 is
potentially violating an anti-fraud rule of the Federal securities laws
and stated that where it has actual knowledge of issuer non-compliance
with Rule 10b-17, FINRA will use its best efforts to notify the
Commission.\31\ According to FINRA, non-compliance with Rule 10b-17 has
been an ongoing concern, and it suggested that heightened awareness of
Rule 10b-17 that could result from adoption of the proposal, graduated
fees for delayed compliance with Rule 10b-17, and the potential for
referral to the Commission for non-compliance may lead issuers to
proceed more cautiously in this area.\32\
---------------------------------------------------------------------------
\30\ See Pink OTC Letter, supra note 4 at 2.
\31\ See FINRA Response Letter, supra note 5 at 5.
\32\ See id at 6. FINRA also stated that if its proposal is
approved, it (i) will notify issuers of the proposed rule and fees
by issuing a Regulatory Notice, sending out alerts through
electronic platforms used by market participants, and posting this
information on its dedicated Web page for OTC Actions; (ii) will
reach out to industry groups involved in issuer corporate actions to
notify parties that will be impacted by the proposal; and (iii)
expects the percentage of late notifications will decline over time.
---------------------------------------------------------------------------
The Commission finds that FINRA's proposed fees to review requests
to process Company-Related Actions are consistent with the Act. The
Commission believes that the proposed fees are reasonable because they
are intended to offset some of the significant costs FINRA currently
incurs in processing Company-Related Actions and that they are
equitably allocated because they apply to any Requesting Party that
submits a request to process a Company-Related Action (other than those
enumerated actions for which no fees would be charged). The Commission
believes that FINRA has adequately responded to commenters' concerns
about the impact of the proposed fees.
Finally, one commenter offered suggestions relating to the
operation of the proposed rule.\33\ In response to the comment that
FINRA should limit intra-day processing of Company-Related Actions to
emergency situations such as security revocations and quotation and
trading halts, FINRA explained that, with the exception of security
revocations, quotation and trading halts, and cancellation of
securities pursuant to an effective bankruptcy court order, its general
policy is to announce actions on the Daily List published on OTCBB.com
with a future effective date, but that in some cases, often because of
failure to receive timely notification, setting a future effective date
is not possible.\34\ This commenter also suggested that FINRA
coordinate processing of Company-Related Actions across FINRA
departments and ensure information regarding Company-Related Actions is
disseminated accurately and consistently on the Daily List on the
OTCBB.com and NasdaqTrader Web sites.\35\ In response to these
comments, FINRA noted that, although FINRA departments work closely in
this regard, not all systems and platforms used by market participants
to access such data are controlled by FINRA, and there could be a lag
in the dissemination of certain information.\36\ FINRA also noted that
because the NasdaqTrader Web site simply provides a hyperlink to the
OTCBB.com Daily List, there should be no inconsistencies in information
on these two Web sites.\37\ The Commission believes that FINRA has
adequately responded to the commenters' suggestions relating to the
operation of the proposed rule.
---------------------------------------------------------------------------
\33\ See Pink OTC Letter, supra note 4.
\34\ See FINRA Response Letter, supra note 5.
\35\ See Pink OTC Letter, supra note 4.
\36\ See FINRA Response Letter, supra note 5.
\37\ Id.
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-FINRA-2009-89), be, and it hereby is,
approved.
[[Page 39608]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
Elizabeth M. Murphy,
Secretary.
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. 2010-16687 Filed 7-8-10; 8:45 am]
BILLING CODE 8010-01-P