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Notice

Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Incorporated NYSE Rules 12 (“Business Day”) and 282 (Buy-in Procedures) and To Delete Incorporated NYSE Rule 177 (Delivery Time-“Cash” Contracts) Relating to the Elimination of NYSE Members' Ability To Enter Orders on the NYSE With Settlement Instructions of “Cash,” “Next Day” and “Seller's Option”

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Start Preamble March 3, 2009.

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 February 20, 2009, Financial Industry Regulatory Authority, Inc. (“FINRA”) (f/k/a National Association of Securities Dealers, Inc. (“NASD”)) 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 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

FINRA is proposing to amend Incorporated NYSE Rules 12 (“Business Day”) and 282 (Buy-in Procedures), and to delete Incorporated NYSE Rule 177 (Delivery Time—“Cash” Contracts) [4] to conform to the proposed rule change by the New York Stock Exchange, LLC (“NYSE”) to its versions of Rules 12, 177 and 282.[5]

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

FINRA is proposing changes to Incorporated NYSE Rules 12,[6] 177 [7] and 282 [8] to conform these rules to recent amendments made by NYSE. The NYSE's amendments remove references to certain settlement instructions that are no longer compatible with the NYSE's electronic market. These include instructions to settle on “cash,” “next day” or “seller's option” basis.

As described by the NYSE in its filing,[9] in the NYSE's current environment, orders received by NYSE systems that are marketable upon entry are eligible to be immediately and automatically executed. According to the NYSE, order types and settlement instructions that require manual intervention pose significant Start Printed Page 10320impediments to the efficient functioning of the NYSE's market. In addition, the NYSE states that the ability to have market participants' orders executed in the most efficient manner necessitates the elimination of cash, next day and seller's option as valid settlement instructions for orders submitted to the NYSE. It adds that because these instructions result in the orders printing to paper, the manual intervention required in the processing of these orders puts the orders at the very real risk of “missing the market” as a result of the current speed of order execution in the NYSE market. Under the NYSE filing, references to cash, next day and seller's option were deleted from NYSE Rules 12 (“Business Day”) and 282 (Buy-in Procedures) as valid settlement instructions for orders submitted to the NYSE. In addition, the NYSE eliminated NYSE Rule 177 (Delivery Time—“Cash” Contracts).[10]

Given these changes, FINRA is proposing to make conforming changes to Incorporated NYSE Rules 12, 177 and 282 to ensure consistency with NYSE's versions of Rules 12, 177 and 282.[11]

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 necessary and appropriate to reduce the risk of customers missing the market and possibly receiving inferior priced executions because of legacy NYSE settlement instructions and to maintain consistency with the NYSE's amendments to its Rules 12, 177 and 282.

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

Because the 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 after the date of the filing, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) [13] of the Act and Rule 19b-4(f)(6) thereunder.[14]

A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative until 30 days after the date of filing.[15] However, Rule 19b-4(f)(6)(iii) [16] permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. FINRA has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative on March 13, 2009, the same date that NYSE's amendments are implemented. The Commission believes that allowing the proposed rule change to become operative on March 13, 2009 is consistent with the protection of investors and the public interest. The Commission notes that FINRA is merely revising its rules to conform to a proposed rule change by the NYSE that will be operative on March 13, 2009,[17] which will allow FINRA's Incorporated NYSE Rules to maintain their status as Common Rules under the Agreement. Accordingly, the Commission designates the proposed rule change to be operative on March 13, 2009.[18]

At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate 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.

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

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-2009-007. 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, 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 Start Printed Page 10321available for inspection and copying 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 the filing also will be available for inspection and copying at the principal office of the Exchange. 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-2009-007 and should be submitted on or before March 31, 2009.

Start Signature

For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[19]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

4.  The current FINRA rulebook consists of (1) FINRA Rules; (2) NASD Rules; and (3) rules incorporated from NYSE (“Incorporated NYSE Rules”) (together, the NASD Rules and Incorporated NYSE Rules are referred to as the “Transitional Rulebook”). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (“Dual Members”). The FINRA Rules apply to all FINRA members, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see FINRA Information Notice, March 12, 2008 (Rulebook Consolidation Process).

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5.  See Securities Exchange Act Rel. No. 59446 (February 25, 2009) (File No. SR-NYSE-2009-17).

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6.  Incorporated NYSE Rule 12 defines the term “business day.”

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7.  Incorporated NYSE Rule 177 states the delivery time for “cash” contracts.

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8.  Incorporated NYSE Rule 282 sets forth buy-in procedures.

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9.  See supra note 3 [sic]. The Commission notes that the correct cross-reference is to note 5.

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11.  Pursuant to Rule 17d-2 under the Exchange Act, NASD, NYSE, and NYSE Regulation, Inc. entered into an agreement (“Agreement”) to reduce regulatory duplication for firms that are Dual Members by allocating certain regulatory responsibilities for selected NYSE rules from NYSE Regulation to FINRA. The Agreement includes a list of all those rules (“Common Rules”) for which FINRA has assumed examination, enforcement and surveillance responsibilities under the Agreement relating to compliance by Dual Members to the extent that such responsibilities involve member firm regulation. See Securities Exchange Act Release No. 56148 (July 26, 2007), 72 FR 42146 (August 1, 2007) (Notice of Filing and Order Approving and Declaring Effective a Plan for the Allocation of Regulatory Responsibilities). The Common Rules are the same NYSE rules that FINRA has incorporated into its rulebook. See Securities Exchange Act Release No. 56147 (July 26, 2007), 72 FR 42166 (August 1, 2007) (Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change to Incorporate Certain NYSE Rules Relating to Member Firm Conduct; File No. SR-NASD-2007-054).

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16.  17 CFR 240.19b-4(f)(6)(iii) In addition, Rule 19b-4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file 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 Exchange has satisfied this requirement.

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17.  See Securities Exchange Act Release No. 59446 (Feb. 25, 2009) (File No. SR-NYSE-2009-17).

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18.  For purposes only of waiving the 30-day operative delay of the proposal, 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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[FR Doc. E9-4965 Filed 3-9-09; 8:45 am]

BILLING CODE 8011-01-P