[Federal Register Volume 76, Number 159 (Wednesday, August 17, 2011)]
[Notices]
[Pages 51097-51099]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20902]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65101; File No. SR-FINRA-2011-039]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Amend FINRA Rule 11892 (Clearly Erroneous
Transactions in Exchange-Listed Securities)
August 11, 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 August 10, 2011, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission
(``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.
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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 amend FINRA Rule 11892 (Clearly Erroneous
Transactions in Exchange-Listed Securities) so that the rule will
continue to operate in the same manner as it did prior to the expansion
of the trading pause pilot.
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 51098]]
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 modifications to FINRA Rule 11892 in light of
the recent expansion of the trading pause pilot \4\ by FINRA and the
other SROs to cover additional securities.\5\ As described in more
detail below, the primary listing markets have filed rule changes to
amend their clearly erroneous rules to revert back to the non-trading
pause clearly erroneous framework for Phase III securities and FINRA is
proposing changes to align its clearly erroneous process with the
exchanges.\6\
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\4\ In consultation with other self-regulatory organizations
(``SROs'') and the Commission, FINRA implemented a trading pause
pilot, which was approved by the Commission on June 10, 2010, as
part of a concerted effort to strengthen the markets after the
severe market disruption that occurred on May 6, 2010. See
Securities Exchange Act Release No. 62252 [sic] (June 10, 2010), 75
FR 34186 [sic] (June 16, 2010). (``trading pause pilot'').
\5\ See Securities Exchange Act Release No. 64735 (June 23,
2011), 76 FR 38243 (June 29, 2011) (Order Approving File No. SR-
FINRA-2011-023) (``Phase III'').
\6\ See e.g., SR-NASDAQ-2011-116 (August 8, 2011).
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Effective August 8, 2011, the scope of the trading pause pilot was
extended beyond the securities included in the S&P 500[reg] Index, the
Russell 1000[reg] Index and the pilot list of Exchange Traded Products
(``Phase I & II securities'') to all other NMS stocks (``Phase III
securities''). In addition to widening the scope of the securities
included in the trading pause pilot, the Phase III amendments apply a
significantly higher percentage price move to trigger a trading pause
for Phase III securities than is applicable to the Phase I & II
securities. Specifically, while a ten percent price move within a five-
minute period continues to apply to the Phase I & II securities, the
Phase III securities are subject to a thirty percent price move where
the security had a closing price the previous trading day of $1.00 or
more, and a fifty percent price move where the security had a closing
price the previous trading day of less than $1.00.\7\
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\7\ If no prior day closing price is available, the last sale
reported to the consolidated tape on the previous trading day is
used.
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Rule 11892(b)(4) (Individual Stock Trading Pauses) provides that
clearly erroneous reviews of securities subject to the trading pause
pilot use the ``trading pause trigger price'' \8\ as the reference
price rather than using the consolidated last sale, which generally is
applicable to clearly erroneous reviews of non-trading pause pilot
securities. Because the trading pause trigger price percentages for the
Phase III securities are substantially greater than the ten percent
threshold applicable to the Phase I & II securities, applying paragraph
(b)(4)'s requirement to use the trading pause trigger price for Phase
III securities would overly limit the SROs' abilities to deem certain
trades in Phase III securities clearly erroneous.
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\8\ Pursuant to Rule 11892, the phrase ``trading pause trigger
price'' means the price that triggered a trading pause on a primary
listing market under its rules. The trading pause trigger price
reflects a price calculated by the primary listing market over a
rolling five minute period and may differ from the execution price
of a transaction that triggered a trading pause. See Rule
11892(b)(4).
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For example, assume a Phase III security is trading at $100.00
during a five-minute period before a $130.00 trade triggers a trading
pause. Under the regular clearly erroneous review framework of FINRA
Rule 11892 (1) [sic] through (3), a clearly erroneous review of a
trigger trade or latency trade \9\ would apply a clearly erroneous
price of $103.00 (at and beyond which trades may be broken).\10\
However, under the framework set forth in paragraph (b)(4), the clearly
erroneous price would jump to $133.90--making it impossible to deem the
$130.00 trade clearly erroneous. This result occurs under paragraph
(b)(4) because the trigger trade of $130.00, rather than the
consolidated last sale of $100.00, must be used as the reference price
to determine the price at which trades are eligible to be deemed
clearly erroneous. Because of the lower trigger trade threshold for
Phase I & II securities, the paragraph (b)(4) framework continues to be
reasonable for these securities but is less workable and reasonable for
Phase III securities given the greater percentages that apply.
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\9\ A ``latency trade'' is a trade that occurs subsequent to a
trigger trade but prior to the trading pause taking effect.
\10\ FINRA Rule 11892 (b)(1) provides a numerical guideline of
3% for clearly erroneous calculations where the reference price is
greater than $50.00.
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As a result, FINRA, along with the other SROs, is amending Rule
11892 to revert back to the regular clearly erroneous calculation
standards of paragraphs (1) through (3) for the Phase III securities,
which generally re-establishes the consolidated last sale as the
reference price and provides further flexibility in making clearly
erroneous determinations in those securities.
FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the Commission waive the
requirement that the proposed rule change not become operative for 30
days after the date of the filing so that it may become operative
immediately.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\11\ 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.
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\11\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the proposed rule meets these requirements in
that it promotes transparency and uniformity across markets concerning
decisions to break clearly erroneous trades, yet also ensures fair
application of the process so that similarly situated members are
provided the same treatment under the rule. FINRA notes that the
changes proposed herein will in no way interfere with the operation of
the trading pause pilot, as amended, and notes that the proposed rule
change is consistent with the clearly erroneous rules of other SROs.
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 foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant
[[Page 51099]]
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 \12\ and Rule 19b-4(f)(6)(iii) thereunder.\13\ FINRA has asked
the Commission to waive the 30-day operative delay so that the proposal
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 because such waiver
will allow FINRA to align its clearly erroneous rules, with respect to
Phase III securities, to those of the exchanges. Accordingly, the
Commission waives the 30-day operative delay requirement and designates
the proposed rule change as operative upon filing with the
Commission.\14\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization 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 filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Commission is waiving the five day written notice
requirement in this case. Therefore, the Commission notes that FINRA
has satisfied this requirement.
\14\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 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.
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-2011-039 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-2011-039. 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 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 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 publicly
available. All submissions should refer to File Number SR-FINRA-2011-
039 and should be submitted on or before September 7, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20902 Filed 8-16-11; 8:45 am]
BILLING CODE 8011-01-P