[Federal Register Volume 79, Number 80 (Friday, April 25, 2014)]
[Notices]
[Pages 23034-23035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09395]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71981; File No. SR-FINRA-2014-019]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Amending the Security Futures Risk
Disclosure Statement
April 21, 2014.
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 April 8, 2014, 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,
II, and III below, which Items have been substantially 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 the security futures risk disclosure
statement (``Statement'').
Below is the text of the proposed supplement to the Statement
reflecting amendments to the current Section 5.2 (Settlement by
Physical Delivery). The text of the proposed supplement is new.
* * * * *
April 2014 Supplement to the Security Futures Risk Disclosure Statement
The October 2002 Security Futures Risk Disclosure Statement is
amended as provided below.
The first paragraph under Section 5.2 (Settlement by Physical
Delivery) is replaced with the following paragraph:
Settlement by physical delivery is carried out by clearing brokers
or their agents with National Securities Clearing Corporation (NSCC),
an SEC-regulated securities clearing agency. Such settlements are made
in much the same way as they are for purchases and sales of the
underlying security. Promptly after the last day of trading, the
regulated exchange's clearing organization will report a purchase and
sale of the underlying stock at the previous day's settlement price
(also referred to as the ``invoice price'') to NSCC. In general, if
NSCC does not reject the transaction by a time specified in its rules,
settlement is effected pursuant to the rules of the exchange and NSCC's
Rules and Procedures within the normal clearance and settlement cycle
for securities transactions, which currently is three business days.
However, settlement may be effected on a shorter timeframe based on the
rules of the exchange and subject to NSCC's Rules and Procedures.
* * * * *
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
In 2002, FINRA developed sales practice rules governing security
futures.\4\ Among those rules' requirements is the obligation of a
member to deliver the current Statement to each customer at or prior to
the time such customer's account is approved for trading security
futures.\5\ Thereafter, the member must distribute each new or revised
Statement to each customer having an account approved for such trading
or, in the alternative, not later than the time a confirmation of a
transaction is delivered to each customer that enters into a security
futures transaction.\6\ FINRA guidance provides that firms may
separately distribute new supplements to such customers; firms are not
required to redistribute the entire Statement or earlier
supplements.\7\
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\4\ See Securities Exchange Act Release No. 46663 (October 15,
2002), 67 FR 64944 (October 22, 2002) (Order Approving File No. SR-
NASD-2002-040).
\5\ FINRA Rule 2370(b)(11).
\6\ Id.
\7\ See FINRA Information Notice, September 7, 2010 (August 2010
Supplement to the Security Futures Risk Disclosure Statement).
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The original Statement was approved by the SEC in 2002,\8\ and the
first supplement to the Statement was added in 2010.\9\ FINRA is
proposing a second supplement to the Statement (``proposed
supplement'') to accommodate proposed changes by OneChicago, LLC, to
list a product with a physical delivery settlement cycle shorter than
three business days. The proposed supplement discloses that settlement
by physical delivery may be effected on a timeframe shorter than three
business days based on the rules of the exchange and subject to NSCC's
Rules and Procedures. As with the previous supplement to the Statement,
the proposed supplement is intended to be read in conjunction with the
Statement.
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\8\ See Securities Exchange Act Release No. 46612 (October 7,
2002), 67 FR 64151 (October 17, 2002) (Notice of Filing and Summary
Effectiveness of File No. SR-NASD-2002-128).
\9\ The amendment added a supplement to the Statement to
accommodate changes by OneChicago, LLC, to list a class of security
futures for which adjustments are made for ordinary dividends. See
Securities Exchange Act Release No. 62787 (August 27, 2010), 75 FR
53998 (September 2, 2010) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2010-045).
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FINRA will announce the implementation date of the proposed rule
change in a Regulatory Notice to be published no later than 60 days
following Commission notice of the filing of the rule change for
immediate effectiveness. The implementation date will be no later than
90 days after the date of the filing.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\10\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative
[[Page 23035]]
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 supplement, by updating the security futures
risk disclosure statement, will help to accurately inform customers of
the characteristics and risks of security futures. The proposed
supplement discloses that settlement by physical delivery may be
effected on a timeframe shorter than three business days based on the
rules of the exchange and subject to NSCC's Rules and Procedures.
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\10\ 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. While FINRA recognizes that
there may be a burden associated with the distribution of the proposed
supplement to the Statement, FINRA believes that any such burden would
be outweighed by the benefit to customers of accurately disclosing the
characteristics and risks of security futures. FINRA also believes that
any burden will be minimal because firms would only be required to
distribute the proposed supplement and would not be required to
redistribute the Statement and initial supplement if they have already
provided those documents to customers. In addition, firms may
electronically transmit documents that they are required to furnish to
customers under FINRA rules, including the proposed supplement,
provided firms adhere to the standards contained in the Commission's
May 1996 and October 1995 releases on electronic delivery,\11\ and as
discussed in Notice to Members 98-3.\12\ Firms also may transmit the
proposed supplement to customers through the use of a hyperlink,
provided that customers have consented to electronic delivery.\13\
Moreover, FINRA Rule 2370(b)(11) provides flexibility on when each
revised Statement (e.g., a new supplement) must be delivered after a
customer's account is approved for trading security futures. Instead of
having to automatically and immediately distribute a new supplement to
every customer having an account approved for trading security futures,
a firm may distribute a new supplement no later than the time a
confirmation of a transaction is delivered to each customer who enters
into a security futures transaction. Accordingly, firms would not be
required to distribute the proposed supplement to customers who have
accounts approved for trading security futures but do not engage in any
new security futures transactions.
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\11\ See Securities Act Release No. 7288 (May 9, 1996), 61 FR
24644 (May 15, 1996) and Securities Act Release No. 7233 (October 6,
1995), 60 FR 53458 (October 13, 1995).
\12\ See Notice to Members 98-3 (January 1998).
\13\ See FINRA Information Notice, September 7, 2010 (August
2010 Supplement to the Security Futures Risk Disclosure Statement).
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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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), FINRA provided the Commission with written notice of
its intention to file the proposed rule change at least five
business days prior to filing the proposal with the Commission or
such shorter period as designated by the Commission.
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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-2014-019 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2014-019. 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
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 available publicly. All
submissions should refer to File Number SR-FINRA-2014-019 and should be
submitted on or before May 16, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09395 Filed 4-24-14; 8:45 am]
BILLING CODE 8011-01-P