
[Federal Register Volume 78, Number 140 (Monday, July 22, 2013)]
[Notices]
[Pages 43945-43947]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17539]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69993; File No. SR-FINRA-2013-030]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Implementation of FINRA Rule 4240 
(Margin Requirements for Credit Default Swaps)

July 16, 2013.
    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 July 11, 2013, 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 substantially have been prepared by FINRA. FINRA 
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend to July 17, 2014 the implementation of 
FINRA Rule 4240 (Margin Requirements for Credit Default Swaps). FINRA 
Rule 4240 implements an interim pilot program with respect to margin 
requirements for certain transactions in credit default swaps that are 
security-based swaps.
    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.

[[Page 43946]]

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 May 22, 2009, the Commission approved FINRA Rule 4240,\4\ which 
implements an interim pilot program (the ``Interim Pilot Program'') 
with respect to margin requirements for certain transactions in credit 
default swaps (``CDS'').\5\ On July 13, 2012, FINRA filed a proposed 
rule change for immediate effectiveness extending the implementation of 
FINRA Rule 4240 to July 17, 2013.\6\
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    \4\ See Securities Exchange Act Release No. 59955 (May 22, 
2009), 74 FR 25586 (May 28, 2009) (Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change; File No. SR-
FINRA-2009-012) (``Approval Order'').
    \5\ In March 2012, the SEC approved amendments to FINRA Rule 
4240 that, among other things, limit at this time the rule's 
application to credit default swaps that are security-based swaps. 
See Securities Exchange Act Release No. 66527 (March 7, 2012), 77 FR 
14850 (March 13, 2012) (Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change; File No. SR-FINRA-
2012-015).
    \6\ See Securities Exchange Act Release No. 67449 (July 17, 
2012), 77 FR 43128 (July 23, 2012) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2012-035).
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    As explained in the Approval Order, FINRA Rule 4240, coterminous 
with certain Commission actions, was intended to address concerns 
arising from systemic risk posed by CDS, including, among other things, 
risks to the financial system arising from the lack of a central 
clearing counterparty to clear and settle CDS.\7\ On July 21, 2010, 
President Obama signed into law the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act''),\8\ Title VII of which 
established a comprehensive new regulatory framework for swaps and 
security-based swaps,\9\ including certain CDS. The new legislation was 
intended, among other things, to enhance the authority of regulators to 
implement new rules designed to reduce risk, increase transparency, and 
promote market integrity with respect to such products.
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    \7\ See 74 FR at 25588-89.
    \8\ Public Law 111-203, 124 Stat. 1376 (2010).
    \9\ The terms ``swap'' and ``security-based swap'' are defined 
in Sections 721 and 761 of the Dodd-Frank Act. The Commodity Futures 
Trading Commission (``CFTC'') and the Commission jointly have 
approved rules to further define these terms. See Securities 
Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48208 (August 
13, 2012) (Joint Final Rule; Interpretations; Request for Comment on 
an Interpretation: Further Definition of ``Swap,'' ``Security-Based 
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping). See also Securities 
Exchange Act Release No. 66868 (April 27, 2012), 77 FR 30596 (May 
23, 2012) (Joint Final Rule; Joint Interim Final Rule; 
Interpretations: Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'').
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    Pursuant to Title VII of the Dodd-Frank Act, the CFTC and the 
Commission are engaged in ongoing rulemaking with respect to swaps and 
security-based swaps.\10\ The Commission has, among other things, 
proposed rules with respect to capital, margin and segregation 
requirements for security-based swap dealers and major security-based 
swap participants and capital requirements for broker-dealers.\11\ 
FINRA believes it is appropriate to extend the Interim Pilot Program 
for a limited period, to July 17, 2014, in light of the continuing 
development of the CDS business within the framework of the Dodd-Frank 
Act and pending the final implementation of new CFTC and SEC rules 
pursuant to Title VII of that legislation. FINRA is considering 
proposing additional amendments to the Interim Pilot Program.
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    \10\ See, e.g., Securities Exchange Act Release No. 69491 (May 
1, 2013), 77 FR 30800 (May 23, 2013) (Reopening of Comment Periods 
for Certain Rulemaking Releases and Policy Statement Applicable to 
Security-Based Swaps Proposed Pursuant to the Securities Exchange 
Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer 
Protection Act); Securities Exchange Act Release No. 67177 (June 11, 
2012), 77 FR 35625 (June 14, 2012) (Statement of General Policy on 
the Sequencing of the Compliance Dates for Final Rules Applicable to 
Security-Based Swaps).
    \11\ See Securities Exchange Act Release No. 68071 (October 18, 
2012), 77 FR 70214 (November 23, 2012) (Proposed Rule: Capital, 
Margin, and Segregation Requirements for Security-Based Swap Dealers 
and Major Security-Based Swap Participants and Capital Requirements 
for Broker-Dealers).
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    FINRA has filed the proposed rule change for immediate 
effectiveness and has requested that the SEC waive the requirement that 
the proposed rule change not become operative for 30 days after the 
date of the filing, such that FINRA can implement the proposed rule 
change immediately. The proposed rule change will expire on July 17, 
2014.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ 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 the proposed rule change is 
consistent with the Act because, in light of the continuing development 
of the CDS business within the framework of the Dodd-Frank Act and 
pending the final implementation of new CFTC and SEC rules pursuant to 
Title VII of that legislation, extending the implementation of the 
margin requirements as set forth by FINRA Rule 4240 will help to 
stabilize the financial markets.
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    \12\ 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. FINRA believes that extending 
the implementation of FINRA Rule 4240 for a limited period, to July 17, 
2014, in light of the continuing development of the CDS business within 
the framework of the Dodd-Frank Act and pending the final 
implementation of new CFTC and SEC rules pursuant to Title VII of that 
legislation, helps to promote stability in the financial markets and 
regulatory certainty for members.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).

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[[Page 43947]]

    FINRA has requested that the Commission waive the five-day pre-
filing notice requirement specified in Rule 19b-4(f)(6)(iii) under the 
Act.\15\
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    \15\ 17 CFR 240.19b-4(f)(6)(iii). Rule 19b-4(f)(6)(iii) requires 
a self-regulatory organization to submit to the Commission written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Commission has waived the five-day pre-filing period in this case.
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    FINRA also has requested that the Commission waive the 30-day 
operative delay, so that the proposed rule change may become operative 
immediately upon filing. The Commission believes that waiving the 30-
day operative delay is consistent with the protection of investors and 
the public interest.\16\ This will allow the Interim Pilot Program to 
continue without interruption and extend the benefits of a pilot 
program that the Commission approved and previously extended. For these 
reasons, the Commission designates the proposed rule change to be 
operative upon filing.
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    \16\ For the purposes only of waiving the 30-day operative 
delay, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2013-030 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-2013-030. This 
file number should be included on the subject line if email 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 Web site 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 
10:00 a.m. and 3:00 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-2013-030 and 
should be submitted on or before August 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17539 Filed 7-19-13; 8:45 am]
BILLING CODE 8011-01-P


