[Federal Register Volume 78, Number 191 (Wednesday, October 2, 2013)]
[Notices]
[Pages 60952-60954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24007]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70516; File No. SR-FINRA-2013-041]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change to Extend the Clearly Erroneous Pilot Period and
to Remove Certain References to Individual Stock Trading Pauses in
FINRA Rule 11892
September 26, 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 September 24, 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 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) to extend the effective
date of the clearly erroneous pilot, which currently is scheduled to
expire on September 30, 2013. FINRA also proposes to remove certain
references to individual stock trading pauses contained in Rule 11892.
FINRA has designated this proposal as non-controversial and provided
the Commission with the notice required by Rule 19b-4(f)(6)(iii) under
the Act.\4\
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\4\ 17 CFR 240.19b-4(f)(6)(iii).
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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 proposes to amend FINRA Rule 11892 (Clearly Erroneous
Transactions in Exchange-Listed Securities) to extend the effective
date of the amendments set forth in File No. SR-FINRA-2010-032 (the
``clearly erroneous pilot''). Portions of Rule 11892, explained in
further detail below, currently are operating as a pilot set to expire
on September 30, 2013.\5\ FINRA proposes to extend the clearly
erroneous pilot until April 8, 2014. FINRA also proposes to remove
references to individual stock trading pauses described in Rule
11892(b)(4).
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\5\ See Securities Exchange Act Release No. 68808 (February 1,
2013), 78 FR 9083 (February 7, 2013) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Extend the Clearly
Erroneous Pilot Period and To Adopt a New Provision in Connection
With the Limit Up-Limit Down Plan) (``File No. SR-FINRA-2013-012'').
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On September 10, 2010, the Commission approved, on a pilot basis,
changes to FINRA Rule 11892 to provide for uniform treatment: (1) Of
clearly erroneous execution reviews in multi-stock events involving
twenty or more securities, and (2) in the event transactions occur that
result in the issuance of an individual stock trading pause by the
primary listing market and subsequent transactions that occur before
the trading pause is in effect.\6\ FINRA also adopted additional
changes to Rule 11892 that reduced the ability of FINRA to deviate from
the objective standards set forth in Rule 11892,\7\ and in 2013,
adopted a provision designed to address the operation of the clearly
erroneous rules and the Plan to Address Extraordinary Market Volatility
[[Page 60953]]
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').\8\ FINRA believes the benefits to
market participants from the more objective clearly erroneous
executions rule should continue on a pilot basis through April 8, 2014,
which is one year following the commencement of operations of the Plan.
FINRA believes that continuing the pilot during this time will protect
against any unanticipated consequences. Thus, FINRA believes that the
protections of the clearly erroneous rule should continue while the
industry gains further experience with the operation of the Limit Up-
Limit Down Plan.
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\6\ See Securities Exchange Act Release No. 62885 (September 10,
2010), 75 FR 56641 (September 16, 2010) (Order Granting Approval of
Proposed Rule Change Relating to Clearly Erroneous Transactions)
(``File No. SR-FINRA-2010-032'').
\7\ See File No. SR-FINRA-2010-032.
\8\ See File No. SR-FINRA-2013-012.
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FINRA also proposes to eliminate all references in Rule 11892 to
individual stock trading pauses issued by a primary listing market.
Specifically, Rule 11892(b)(4) provides specific rules that apply to
the review of an execution as potentially clearly erroneous in the
context of an individual stock trading pause issued for that security
where the security is included in the S&P 500[supreg] Index, the
Russell 1000[supreg] Index, or a pilot list of Exchange Traded Products
(``Subject Securities''). The trading pauses described in Rule
11892(b)(4) are being phased out as securities become subject to the
Plan pursuant to a phased implementation schedule. The Plan already is
operational with respect to all Subject Securities, and thus, FINRA
believes that all references to individual stock trading pauses should
be removed, including all cross-references to Rule 11892(b)(4)
contained in other portions of Rule 11892.\9\
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\9\ FINRA notes that certain Exchange Traded Products (``ETPs'')
are not yet subject to the Limit Up-Limit Down Plan. Because such
ETPs are not on the pilot list of securities, such ETPs are not
subject to Rule 11892(b)(4). Accordingly, the proposed rule change
does not change the status quo with respect to such ETPs. As
amended, all securities, including ETPs not subject to the Limit Up-
Limit Down Plan, will continue to be subject to Rule 11892(b)(1)
through (3). See Securities Exchange Act Release No. 65101 (August
11, 2011), 76 FR 51097 (August 17, 2011) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Amend FINRA Rule
11892) (SR-FINRA-2011-039).
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FINRA has filed the proposed rule change for immediate
effectiveness. The effective date of the proposed rule change will be
the date of filing.
2. Statutory Basis
FINRA believes that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities association and, in particular,
with the requirements of Section 15A of the Act.\10\ In particular, the
proposal is consistent with Section 15A(b)(6) \11\ because it is
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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\10\ 15 U.S.C. 78o-3.
\11\ 15 U.S.C. 78o-3(b)(6).
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FINRA believes that the clearly erroneous pilot promotes just and
equitable principles of trade in that it promotes transparency and
uniformity across markets concerning review of transactions as clearly
erroneous. More specifically, FINRA believes that the extension of the
clearly erroneous pilot would help assure that the determination of
whether a clearly erroneous trade has occurred will be based on clear
and objective criteria, and that the resolution of the incident will
occur promptly through a transparent process.
The proposed rule change also would help assure consistent results
in handling erroneous trades across the U.S. markets, thus furthering
fair and orderly markets, the protection of investors and the public
interest. Although the Limit Up-Limit Down Plan will become fully
operational during the same time period as the proposed extended
clearly erroneous pilot, FINRA believes that maintaining the pilot will
help to protect against unanticipated consequences. To that end, the
extension will allow FINRA to determine whether the pilot provisions of
Rule 11892 are appropriate once the Plan is fully operational and, if
so, whether improvements can be made. Finally, the elimination of
references to individual stock trading pauses will help to avoid
confusion amongst market participants, which is consistent with the
protection of investors and the public interest and therefore
consistent with the Act. As described above, individual stock trading
pauses have been replaced by the Limit Up-Limit Down Plan with respect
to all Subject Securities.
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change implicates any
competitive issues. FINRA believes that the other self-regulatory
organizations also are filing similar proposals, and thus, that the
proposal will help to ensure consistency across the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
FINRA has not solicited, and does not intend to solicit, comments
on this proposed rule change. FINRA has not received any written
comments from members or other interested parties.
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 from the date on which it was filed, or such shorter time as the
Commission may designate if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \12\ and Rule 19b-
4(f)(6)(iii) thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), FINRA provided the Commission with written notice of
its intent to file the proposed rule change, along with a brief
description and the 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.
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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, as
it will allow the pilot program to continue uninterrupted, thereby
avoiding investor confusion that could result from a temporary
interruption in the pilot program. For this reason, the Commission
designates the proposed rule change to be operative upon filing.\14\
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\14\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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,
[[Page 60954]]
including whether the proposal 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-2013-041 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-2013-041. 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 the 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-2013-041 and should be
submitted on or before October 23, 2013.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24007 Filed 10-1-13; 8:45 am]
BILLING CODE 8011-01-P