[Federal Register Volume 76, Number 83 (Friday, April 29, 2011)]
[Notices]
[Pages 24076-24078]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-10447]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64341; File No. SR-FINRA-2011-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend
FINRA Rule 5131 (New Issue Allocations and Distributions)
April 26, 2011.
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 April 18, 2011, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared substantially 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 5131 (New Issue Allocations
and Distributions) to simplify the spinning provision and to delay the
implementation date of paragraphs (b) and (d)(4).
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
On November 29, 2010, FINRA issued Regulatory Notice 10-60
announcing
[[Page 24077]]
Commission approval of SR-NASD-2003-140 \3\ and designating the
effective date of new Rule 5131 (the ``Rule'') as May 27, 2011.\4\
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\3\ See Securities Exchange Act Release No. 63010 (September 29,
2010), 75 FR 61541 (October 5, 2010) (Order Approving File No. SR-
NASD-2003-140).
\4\ See Regulatory Notice 10-60 (November 2010) (Approval of New
Issue Rule).
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A. Spinning
Paragraph (b) of the Rule (Spinning), implements a recommendation
from the IPO Advisory Committee Report \5\ to prohibit spinning--i.e.,
an underwriter's allocation of IPO shares to directors or executives of
investment banking clients in exchange for receipt of investment
banking business. The primary means by which the Rule prohibits
spinning is through a series of prophylactic prohibitions on the
allocation of new issues. Specifically, the Rule prohibits allocations
of a new issue to any account in which an executive officer or director
of a public company or a covered non-public company, or a person
materially supported by such executive officer or director, has a
beneficial interest: (A) If the company is currently an investment
banking services client of the member or the member has received
compensation from the company for investment banking services in the
past 12 months; (B) if the person responsible for making the allocation
decision knows or has reason to know that the member intends to
provide, or expects to be retained by the company for, investment
banking services within the next 3 months; or (C) on the express or
implied condition that such executive officer or director, on behalf of
the company, will retain the member for the performance of future
investment banking services.
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\5\ NYSE/NASD IPO Advisory Committee Report and Recommendations
(May 2003). http://www.finra.org/web/groups/industry/@ip/@reg/@guide/documents/industry/p010373.pdf.
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Paragraph (b)(1) requires that members establish, maintain and
enforce policies and procedures reasonably designed to ensure that
investment banking personnel have no involvement or influence, directly
or indirectly, in the new issue allocation decisions of the member.
However, because the term ``investment banking personnel'' is not
defined in the Rule, members have raised concern that, if the term is
read co-extensively with the definition of ``investment banking
services,'' certain necessary functions traditionally performed by
syndicate personnel would be prohibited. In light of this unintended
consequence, FINRA is proposing to delete paragraph (b)(1). FINRA
believes that benefits of the anti-spinning provisions can be attained
without this particular provision inasmuch as firms currently are
required to have written policies and procedures with respect to the
spinning prohibitions in paragraph (b)(2) pursuant to NASD Rule 3010.
In addition, upon further discussions with member firms regarding
the steps necessary to prepare for compliance with the spinning
provisions,\6\ FINRA proposes to delay the implementation date of
paragraph (b), as amended, until September 26, 2011.
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\6\ For example, members have requested additional time to: (1)
Create additional forms, account documents and other measures of
obtaining information from clients necessary to assess eligibility
for new issue allocations under the new Rule; (2) build systems and
surveillance infrastructure to ensure appropriate blocks of
allocations; and (3) develop appropriate compliance policies and
procedures and training materials on the new policies and
procedures.
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B. Market Orders
Paragraph (d)(4) of the Rule (Market Orders) prohibits members from
accepting any market order for the purchase of shares of a new issue in
the secondary market prior to the commencement of trading of such
shares in the secondary market. Members have requested additional time
to develop a process for reliably identifying new issues and to modify
their order handling systems to prevent the acceptance of market orders
in new issue shares in contravention of the Rule. FINRA believes the
Rule must carefully balance the investor protection concerns with needs
of issuers in capital formation and market participants in price
discovery. Accordingly, FINRA proposes to delay the implementation date
of paragraph (d)(4) until September 26, 2011.
The effective date of the proposed rule change will be the date of
Commission approval. However, FINRA also is proposing to delay the
implementation date of paragraphs (b) and (d)(4) until September 26,
2011.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Exchange Act,\7\ 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 the proposed rule change
simplifies member obligations with respect to Rule 5131, thereby aiding
member compliance efforts and helping to maintain investor confidence
in the capital markets.
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\7\ 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 Exchange 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 or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
The Commission is considering granting accelerated approval of the
proposed rule change at the end of a 15-day comment period.
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-2011-017 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-2011-017. This
file number should be included on the
[[Page 24078]]
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 website viewing and printing 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-2011-017 and should be submitted on or before May 16, 2011.
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\8\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10447 Filed 4-28-11; 8:45 am]
BILLING CODE 8011-01-P