[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76113-76116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-30980]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68471; File No. SR-FINRA-2012-056]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of
Proposed Rule Change To Extend the Expiration Date of FINRA Rule 0180
(Application of Rules to Security-Based Swaps)
December 19, 2012.
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 December 12, 2012, Financial Industry Regulatory
[[Page 76114]]
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 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 the expiration date of FINRA Rule 0180
(Application of Rules to Security-Based Swaps) to July 17, 2013. FINRA
Rule 0180 temporarily limits, with certain exceptions, the application
of FINRA rules with respect to 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.
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 July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank
Act''),\4\ Title VII of which established a comprehensive new
regulatory framework for swaps and security-based swaps. The
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. In general, the Dodd-Frank Act provides that the Commodity
Futures Trading Commission (``CFTC'') will regulate ``swaps'' and the
SEC will regulate ``security-based swaps.'' \5\ The Dodd-Frank Act
contemplates certain self-regulatory organization responsibilities in
this area as well.\6\
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\4\ Public Law 111-203, 124 Stat. 1376 (2010).
\5\ The terms ``swap'' and ``security-based swap'' are defined
in Sections 721 and 761 of the Dodd-Frank Act. See also Securities
Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48208 (August
13, 2012) (Further Definition of ``Swap,'' ``Security-Based Swap,''
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based
Swap Agreement Record-Keeping).
\6\ See, e.g., Sections 712 and 763 of the Dodd-Frank Act.
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Title VII of the Dodd-Frank Act became effective on July 16, 2011
(360 days after the enactment of the Dodd-Frank Act, i.e. the
``Effective Date''), unless a provision requires a rulemaking.\7\ The
SEC has taken a number of actions in connection with Title VII,
including providing certain temporary exemptions \8\ to address the
expansion, pursuant to Title VII, of the Act's definition of
``security'' to expressly encompass security-based swaps \9\ and
requesting public comment on the anticipated sequencing of the
compliance dates of final rules to be adopted by the SEC pursuant to
Title VII.\10\
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\7\ The Dodd-Frank Act provides that if a Title VII provision
requires a rulemaking, the provision will go into effect ``not less
than'' 60 days after publication of the related final rule or on
July 16, 2011, whichever is later. See Sections 754 and 774 of the
Dodd-Frank Act.
\8\ See Securities Exchange Act Release No. 64795 (July 1,
2011), 76 FR 39927 (July 7, 2011) (Order Granting Temporary
Exemptions Under the Securities Exchange Act of 1934 in Connection
With the Pending Revision of the Definition of ``Security'' To
Encompass Security-Based Swaps) (the ``Exemptive Release'').
\9\ See SEA Section 3(a)(10) (15 U.S.C. 78c(a)(10)), as revised
by Section 761 of the Dodd-Frank Act.
\10\ See 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 Adopted Pursuant to the Securities Exchange Act
of 1934 and the Dodd-Frank Wall Street Reform and Consumer
Protection Act) (the ``Policy Statement'').
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In its Exemptive Release, the SEC noted that the expansion of the
Act's definition of ``security'' raises certain complex issues of
interpretation, including issues as to the application of those
provisions to registered broker-dealers. The SEC determined that it was
appropriate to provide market participants with additional time to
consider the potential impact on their businesses and the interpretive
questions raised, and to provide the SEC with any related requests for
guidance or relief, along with the underlying analysis. Further, in the
Policy Statement, the SEC noted that it has been considering how to
implement the new requirements that will be applicable to security-
based swaps pursuant to the final rules to be adopted by the SEC
pursuant to Title VII in a practical and efficient manner that avoids
unnecessary disruption to the security-based swaps market.
Because the Act's expanded definition of ``security'' has
implications for numerous provisions under FINRA rules \11\ similar to
those noted by the SEC in the Exemptive Release, and in the interest of
avoiding unnecessary market disruption, on July 8, 2011, FINRA filed
for immediate effectiveness FINRA Rule 0180,\12\ which, with certain
exceptions, is intended to temporarily limit the application of FINRA
rules with respect to security-based swaps.\13\
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\11\ The current FINRA rulebook consists of: (1) FINRA Rules;
(2) NASD Rules; and (3) rules incorporated from NYSE (``Incorporated
NYSE Rules''). 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. 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 Information Notice, March 12, 2008
(Rulebook Consolidation Process).
\12\ See Securities Exchange Act Release No. 64884 (July 14,
2011), 76 FR 42755 (July 19, 2011) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2011-033)
(``FINRA Rule 0180 Notice of Filing''). On January 13, 2012, FINRA
filed for immediate effectiveness a rule change to extend the
implementation of FINRA Rule 0180 to January 17, 2013. See
Securities Exchange Act Release No. 66156 (January 13, 2012), 77 FR
3027 (January 20, 2012) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change; File No. SR-FINRA-2012-004).
\13\ In its Exemptive Release, the Commission noted that the
relief is targeted and does not include, for instance, relief from
the Act's antifraud and anti-manipulation provisions. FINRA has
noted that FINRA Rule 0180 is similarly targeted. For instance,
paragraph (a) of FINRA Rule 0180 provides that FINRA rules shall not
apply to members' activities and positions with respect to security-
based swaps, except for FINRA Rules 2010 (Standards of Commercial
Honor and Principles of Trade), 2020 (Use of Manipulative, Deceptive
or Other Fraudulent Devices), 3310 (Anti-Money Laundering Compliance
Program) and 4240 (Margin Requirements for Credit Default Swaps).
See also paragraphs (b) and (c) of FINRA Rule 0180 (addressing the
applicability of additional rules) and FINRA Rule 0180 Notice of
Filing.
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The CFTC's and the Commission's rulemaking with respect to swaps
and security-based swaps pursuant to Title VII is ongoing. FINRA
believes it is appropriate and in the public interest to extend FINRA
Rule 0180 for a limited period, to July 17, 2013, pending the
implementation of new rules and guidance that would provide greater
regulatory clarity in relation to security-based swap activities, so as
to provide relief from certain FINRA requirements and thereby help
avoid undue market disruptions resulting from the change to
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the definition of ``security'' under the Act. FINRA will amend the
expiration date of Rule 0180 in subsequent filings as necessary such
that the expiration date will coincide with the implementation of such
rules and guidance.
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 and prevent FINRA Rule 0180 from lapsing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\14\ 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 would
further the purposes of the Act because, consistent with the goals set
forth by the Commission in the Exemptive Release and the Policy
Statement, the proposed rule change will help to avoid undue market
disruption resulting from the expiration of FINRA Rule 0180 before the
implementation of new rules and guidance that would provide greater
regulatory clarity in relation to security-based swap activities.
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\14\ 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 the
proposed rule change would prevent undue market disruption that would
otherwise result if security-based swaps were, by virtue of the
expansion of the Act's definition of ``security'' to encompass
security-based swaps, subject to the application of all FINRA rules
before the implementation of new rules and guidance that would provide
greater regulatory clarity in relation to security-based swap
activities. FINRA believes that, by extending the expiration of FINRA
Rule 0180, the proposed rule change will serve to promote regulatory
clarity and consistency, thereby reducing burdens on the marketplace
and facilitating investor protection.
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 \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\17\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest.
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\17\ 17 CFR 240.19b-4(f)(6)(iii).
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FINRA has requested that the Commission waive both the 5-day
advance filing requirement \18\ and the 30-day operative delay
requirement so that the proposal may become operative upon filing. The
Commission hereby grants both of those requests. The proposed rule is
consistent with the goals set forth by the Commission when it issued
the Exemptive Release and the Policy Statement and will help avoid
undue market interruption resulting from the change to the definition
of ``security'' under the Act. Therefore, the Commission believes it is
consistent with the protection of investors and the public interest to
waive both the requirement that the proposed rule be filed at least
five (5) days in advance and the 30-day operative delay requirement.
Therefore the Commission designates the proposal as operative upon
filing.\19\
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\18\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6)(iii) requires a
self-regulatory organization to provide the Commission with 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.
\19\ For purposes only of waiving the operative delay for this
proposal, 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. 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 [email protected]. Please include
File Number SR-FINRA-2012-056 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-2012-056. 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
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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-2012-056
and should be submitted on or before January 16, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-30980 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P