
[Federal Register: July 31, 2009 (Volume 74, Number 146)]
[Notices]               
[Page 38250-38252]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy09-116]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60377; File No. SR-FINRA-2009-031]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change as Amended, 
Relating to the Reporting of Over-the-Counter Transactions in Equity 
Securities Executed Outside Normal Market Hours

July 23, 2009.

I. Introduction

    On May 8, 2009, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc. 
(``NASD'')) 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\ a 
proposed rule change to amend FINRA trade reporting rules relating to 
over-the-counter transactions in equity securities executed outside 
normal market hours to (1) require that any trades executed during the 
hours that a FINRA Facility (the Alternative Display Facility 
(``ADF''), a Trade Reporting Facility (``TRF'') or the OTC Reporting 
Facility (``ORF'')) is closed be reported within 15 minutes of the 
opening of the Facility, i.e., 8:15 a.m. Eastern Time; and (2) conform 
the trade reporting requirements applicable to ``outside normal market 
hours'' transacations across FINRA Facilities. On May 29, 2009, FINRA 
filed Amendment No. 1 to the proposed Rule Change. The proposed rule 
change was published for comment in the Federal Register on June 9, 
2009.\3\ The Commission received no comment letters on the proposed 
rule change.

[[Page 38251]]

This order approves the proposed rule change as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60022 (June 1, 
2009), 74 FR 27361 (``Notice'').
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II. Description of the Proposed Rule Change

    FINRA is proposing to amend the trade reporting rules \4\ to 
require that trades executed during the hours that the FINRA Facility 
is closed be reported within 15 minutes of the opening of the facility 
(i.e., 8:15 a.m. Eastern Time for all FINRA Facilities). Specifically, 
members would be required to report as follows: (1) Trades executed 
between midnight and 8 a.m. must be reported by 8:15 a.m. on trade 
date, and (2) trades executed between the close of the FINRA Facility 
(i.e., either 6:30 p.m. or 8 p.m.) and midnight must be reported on an 
``as/of'' basis the following business day by 8:15 a.m. These trades 
would be designated with the unique trade report modifier to denote 
their execution outside normal market hours. Any such trades not 
reported by 8:15 a.m. would be marked with the ``outside normal market 
hours trade reported late'' modifier.
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    \4\ See Rules 6282(a)(2)(B); 6380A(a)(2)(C) and (D); 
6380B(a)(2)(C) and (D); and 6622(a)(3)(C).
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    FINRA also is proposing certain amendments to conform the 
requirements for reporting ``outside normal market hours'' trades 
across FINRA Facilities. First, under current rules and system 
functionality, members are not permitted to submit to the FINRA/Nasdaq 
TRF and ORF a trade report with the ``outside normal market hours'' 
modifier during normal market hours. For example, if a member executes 
a trade at 9:29:00 a.m. and reports the trade at 9:30:15 a.m. (in 
compliance with the 90-second reporting requirement under FINRA rules), 
the FINRA/Nasdaq TRF and ORF will reject the trade report; the trade 
cannot be reported, and will not be disseminated, until after 4 p.m. By 
contrast, the ADF and FINRA/NYSE TRF permit the submission of trade 
reports with the ``outside normal market hours'' modifier throughout 
the day. With this change, the trade described in the example above can 
be reported to the ADF or FINRA/NYSE TRF and disseminated at 9:30:15 
a.m.
    Accordingly, FINRA is proposing to amend Rules 6380A(a)(2)(A) and 
(a)(2)(C) relating to the FINRA/Nasdaq TRF and Rules 6622(a)(3)(A) and 
(a)(3)(C)(i) relating to the ORF to delete the requirement that 
``outside normal market hours'' transactions that are not reported by 
9:30 a.m. be reported after 4 p.m. The proposed amendments are 
identical to the text of current Rules 6282(a)(2)(A) and (a)(2)(B)(i) 
relating to the ADF.
    Additionally, FINRA is proposing conforming changes to Rules 
6380B(a)(2)(A) and (C) relating to the FINRA/NYSE TRF. Today, members 
submit trade reports with the ``outside normal market hours'' modifier 
to the FINRA/NYSE TRF throughout the day. However, FINRA stated that 
when the rules for this TRF were originally adopted, these provisions 
inadvertently were based on the rules relating to the FINRA/Nasdaq TRF, 
rather than the ADF. Thus, FINRA stated that the proposed amendments 
for the FINRA/NYSE TRF do not represent a departure from current member 
reporting practices and systems functionality.\5\
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    \5\ See Notice, supra, note 3.
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    In this regard, FINRA also is proposing to amend Rules 
6380A(a)(2)(D), 6380B(a)(2)(D) and 6622(a)(3)(C)(ii) to require 
expressly that ``as/of'' reports submitted pursuant to these provisions 
include the unique trade report modifier, as specified by FINRA, to 
denote their execution outside normal market hours. The proposed 
amendments conform to the text of current Rule 6282(a)(2)(C)(ii).
    Second, FINRA is proposing to amend Rules 6282(a), 6380A(a), 
6380B(a) and 6622(a) to consolidate the provisions relating to late 
trade reporting and make clear that trades that are required to be 
reported on trade date, but are not reported on trade date, must be 
reported on an ``as/of'' basis on a subsequent date (T+N) and shall be 
designated as late. This requirement applies to trades executed during 
normal market hours, as well as those ``outside normal market hours'' 
trades that are required by rule to be reported on trade date (i.e., 
trades executed between midnight and 9:30 a.m. and between 4 p.m. and 
the close of the FINRA Facility at either 6:30 or 8 p.m.). The proposed 
amendments also would make clear the requirement that ``outside normal 
market hours'' trades that are required to be reported on an ``as/of'' 
basis the following business day (T+1), but are not reported T+1, must 
be reported on a subsequent date (T+N) and shall be designated as 
late.\6\ Accordingly, FINRA is proposing to amend Rules 6380A(a)(2)(B), 
6380B(a)(2)(B) and 6622(a)(3)(B) to delete the duplicative requirement 
that transactions not reported by 8 p.m. on trade date must be reported 
on an ``as/of'' basis the following business day (T+1).
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    \6\ FINRA is proposing to amend paragraph (a)(1) and adopt new 
paragraph (a)(6) of Rule 6282 to conform to Rules 6380A(a)(4), 
6380B(a)(4) and 6622(a)(5).
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    Third, FINRA is proposing certain technical, non-material changes 
to conform the text of the rules relating to the reporting of trades 
executed outside normal market hours across FINRA Facilities. For 
example, FINRA is proposing to amend Rule 6282(a)(2) relating to the 
ADF and Rule 6622(a)(3) relating to the ORF to delete the specific 
references to the ``.T'' trade report modifier. This conforms to the 
trade reporting rules relating to the TRFs, as well as the other 
provisions of the ADF trade reporting rules, which do not refer to 
specific trade report modifier labels.\7\ Additionally, FINRA is 
proposing to renumber the subparagraphs in Rule 6282(a)(2) relating to 
the ADF and Rule 6622(a)(3) relating to the ORF to conform to the 
numbering of the subparagraphs in Rules 6380A(a)(2) and 6380B(a)(2) 
relating to the TRFs.
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    \7\ See, e.g., Rules 6282(a)(4), 6380A(a)(2) and (5) and 
6380B(a)(2) and (5).
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III. Discussion and Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\8\ In particular, the Commission finds that the proposed 
rule change is consistent with the provisions of Section 15A(b)(6) of 
the Act,\9\ 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, and, in general, to 
protect investors and the public interest.
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
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    The Commission believes that the proposed rule change will enhance 
market transparency by ensuring that these ``outside normal market 
hours'' trades are reported and disseminated closer to the actual 
execution time rather than reported at some later time during the 
trading day. As a result, market participants will have better 
information about the time of execution for such trades. For example, 
under current rules, a trade with the ``outside normal market hours'' 
modifier that is reported and disseminated at 9:20 a.m. could have been 
executed and reported real-time at 9:20 a.m., or it could have been 
executed at some point between midnight and the opening of the FINRA 
Facility at 8 a.m. There is currently nothing to distinguish a trade 
executed and reported at 9:20 a.m. from a trade executed between 
midnight and 8 a.m.

[[Page 38252]]

and reported at 9:20 a.m. Under the proposed rule change, a trade 
executed between midnight and 8 a.m. that is reported at 9:20 a.m. 
would be marked late, thus distinguishing it from a trade executed and 
reported real-time at 9:20 a.m. The Commission believes that this 
change will enhance market transparency by eliminating systematically 
imposed delays in the reporting of ``outside normal market hours'' 
trades to the FINRA/Nasdaq TRF and ORF.
    The Commission believes that by conforming the reporting 
requirements and systems functionality with respect to ``outside normal 
market hours'' trades across FINRA Facilities, the proposed rule change 
will promote more consistent trade reporting by members and a more 
complete and accurate audit trail.\10\
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    \10\ The Commission notes that in connection with these changes 
to the trade reporting rules FINRA is also moving language from Rule 
6282(a)(1) to Rule 6282(a)(6) concerning patterns or practices of 
late trade reporting. Rule 6282(a)(1) currently states that ``[a] 
pattern or practice of late trade reporting without exceptional 
circumstances shall be considered conduct inconsistent with high 
standards of commercial honor and just equitable principles of trade 
violation of Rule 2010.'' The change FINRA is proposing would 
replace the word ``shall'' with ``may,'' and applies the lower 
standard not only to a pattern or practice of late trade reporting 
outside of normal market hours, but to a pattern or practice of late 
trade reporting during normal market hours. Rule 6282 concerns 
transactions reported only to TRACS, and FINRA has informed the 
Commission staff that the change is designed to make the rule 
consistent with the FINRA/NASDAQ, FINRA/NYSE, and OTC Trade 
Reporting Facilities, all of which currently have the identical 
language to proposed Rule 6282(a)(6). Telephone call between 
Stephanie Dumont, Senior Vice President and Director of Capital 
Markets Policy, FINRA, and Kathy England, Assistant Director, 
Commission, May 29, 2009. The Commission expects FINRA to continue 
pursuing violations of its trade reporting rules and to continue, as 
appropriate, charging violations of Rule 2010 (Standards of 
Commercial Honor and Principles of Trade). The Commission notes that 
it has routinely upheld appeals from FINRA disciplinary actions when 
FINRA has charged respondents with violations of Rule 2010 based 
solely on an underlying violation of another SRO rule. See e.g., 
Stephen J. Gluckman, 54 S.E.C. 175, 185 (1999), Exchange Act Release 
No. 41628 (July 20, 1999).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-FINRA-2009-031), as amended, 
be, and hereby is, approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-18270 Filed 7-30-09; 8:45 am]

BILLING CODE 8010-01-P
