[Federal Register Volume 75, Number 218 (Friday, November 12, 2010)]
[Notices]
[Pages 69503-69505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-28462]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63256; File No. SR-FINRA-2010-055]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend
FINRA Rule 6140 (Other Trading Practices)
November 5, 2010.
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 October 29, 2010, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (the
``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 amend FINRA Rule 6140 to eliminate the
provisions regarding the handling of stop orders, delete definitions
relating to stop stock transactions and to relocate the definition of
``initial public offering.''
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 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
FINRA Rule 6140(h) (the ``Rule'') addresses the handling of stop
orders in
[[Page 69504]]
NMS stocks, as defined in Rule 600(b)(47) of SEC Regulation NMS.\3\
Specifically, the Rule provides that members may, but are not obligated
to, accept stop orders. The Rule further provides that a stop order
becomes a market order (or a stop limit order becomes a limit order)
when a transaction takes place at or above the stop price (in the case
of a buy stop order) or at or below the stop price (in the case of a
sell stop order). Thus, as defined in the Rule, a stop order cannot be
triggered by the publication of a quotation at the stop price (only by
a transaction). However, members have stated that they believe
quotations may be a better indicator of the current price of a security
than transactions, and requested that FINRA provide members the
flexibility to determine whether the trigger of a stop order will be
based on transactions or quotations in the subject security at the stop
price.
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\3\ Stop buy orders generally are entered by investors with
short positions to limit losses should the stock price increase.
Stop sell orders generally are entered in a stock whose price has
increased substantially in order to protect the investor's profits
should the stock price decline.
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FINRA rules do not typically define the parameters of the various
order types that members may accept and we agree that members should
have the ability to define the triggering event for stop orders as well
as to design their systems consistent with such determination.\4\
Therefore, FINRA is proposing to delete Rule 6140(h). FINRA is also
deleting Rule 6140(i), which defines the terms ``stop stock price'' and
``stop stock transaction.''
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\4\ These requirements were initially adopted by NASD (and the
national securities exchanges) in 1975. See Notice to Members 75-42
(June 10, 1975) (Rules Governing Reporting of Transactions to
Consolidated Tape).
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Members that also are members of another self-regulatory
organization (``SRO'') will continue to be subject to any applicable
provisions adopted by such other SRO with respect to the handling of
stop orders. FINRA expects that, irrespective of whether a transaction
or quotation is used as the trigger for a customer stop order, each
member will apply the approach consistently firm-wide to all customer
orders and fully disclose its practice to its customers.
FINRA also is proposing to move the definition of ``initial public
offering'' from Rule 6220 (Definitions) to Rule 6130 (Transactions
Related to Initial Public Offerings).\5\ FINRA is not proposing
substantive changes to the definition of ``initial public offering.''
FINRA believes that Rule 6130 is the more appropriate location for the
definition of ``initial public offering'' and that relocating this
definition, as proposed, will reduce confusion for members.
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\5\ For the purposes of Rule 6130(a), ``initial public
offering'' means: (1) The offering of the security is registered
under the Securities Act; and (2) the issuer of the security,
immediately prior to filing the registration statement with respect
to such offering, was not subject to the reporting requirements of
Section 13 or 15(d) of the Act.
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FINRA will announce the implementation date of the proposed rule
change no later than 30 days following Commission approval. The
implementation date will be no more 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,\6\ 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 rule change
will provide members with the flexibility to determine whether the
execution of stop orders will be triggered by transactions or
quotations in the subject security without compromising investor
protection. In addition, FINRA believes that relocating the definition
of ``initial public offering'' to Rule 6130 is appropriate and will
reduce member confusion.
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\6\ 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 45 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 [email protected]. Please include
File Number SR-FINRA-2010-055 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-2010-055. 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,\7\ 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 Web site viewing and printing in the Commission's Public
Reference Room, 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
[[Page 69505]]
you wish to make available publicly. All submissions should refer to
File Number SR-FINRA-2010-055 and should be submitted on or before
December 3, 2010.
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\7\ The text of the proposed rule change is available on the
Commission's Web site at http://www.sec.gov/rules/sro.shtml.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28462 Filed 11-10-10; 8:45 am]
BILLING CODE 8011-01-P