[Federal Register Volume 73, Number 151 (Tuesday, August 5, 2008)]
[Notices]
[Pages 45506-45508]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-17890]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58251; File No. SR-FINRA-2008-041]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of 
Proposed Rule Change Relating To Making the Portfolio Margin Pilot 
Permanent

July 30, 2008.
    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 July 25, 2008, 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, 
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 proposes to make permanent the portfolio margin pilot program 
set forth in NASD Rule 2520(g) and Incorporated NYSE Rule 431(g).\4\ 
The

[[Page 45507]]

portfolio margin pilot program permits members to margin certain 
products according to a prescribed portfolio margin methodology and is 
set to expire on July 31, 2008. There is no change to the rule text 
with this proposed rule change.
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    \4\ The current FINRA rulebook consists of two sets of rules: 
(1) NASD Rules and (2) rules incorporated from NYSE (``Incorporated 
NYSE Rules''). While the NASD Rules generally apply to all FINRA 
members, the Incorporated NYSE Rules apply only to members of both 
FINRA and the NYSE, referred to as Dual Members.
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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 February 12, 2007, FINRA (then known as NASD) filed SR-NASD-
2007-013 for immediate effectiveness to establish a portfolio margin 
pilot program that permits member firms to elect to margin certain 
products according to a prescribed portfolio margin methodology.\5\ The 
portfolio margin pilot program is substantially similar to margin rule 
amendments by the NYSE and the Chicago Board Options Exchange 
(``CBOE''), which were approved by the Commission.\6\ Consistent with 
the amended NYSE and CBOE portfolio margin programs, the pilot, as 
proposed in SR-NASD-2007-013, started on April 2, 2007 and ended on 
July 31, 2007. The pilot program was extended for a one-year period to 
July 31, 2008, also consistent with the NYSE and CBOE portfolio margin 
programs.\7\
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    \5\ See Exchange Act Release No. 55471 (March 14, 2007), 72 FR 
13149 (March 20, 2007) (Notice of Filing and Immediate Effectiveness 
of SR-NASD-2007-013).
    \6\ See Exchange Act Release No. 54918 (December 12, 2006), 71 
FR 75790 (December 18, 2006) (SR-NYSE-2006-13, relating to further 
amendments to the NYSE's portfolio margin pilot program); Exchange 
Act Release No. 54125 (July 11, 2006), 71 FR 40766 (July 18, 2006) 
(SR-NYSE-2005-93, relating to amendments to the NYSE's portfolio 
margin pilot program); Exchange Act Release No. 52031 (July 14, 
2005) 70 FR 42130 (July 21, 2005) (SR-NYSE-2002-19, relating to the 
NYSE's original portfolio margin pilot). See also Exchange Act 
Release No. 54919 (December 12, 2006), 71 FR 75781 (December 18, 
2006) (SR-CBOE-2006-14, relating to amendments to the CBOE's 
portfolio margin pilot); Exchange Act Release No. 52032 (July 14, 
2005) 70 FR 42118 (July 21, 2005) (SR-CBOE-2002-03, relating to the 
CBOE's original portfolio margin pilot).
    \7\ See Exchange Act Release No. 56108 (July 19, 2007) 72 FR 
41375 (July 27, 2007) (Notice of Filing and Immediate Effectiveness 
of SR-NASD-2007-045). See also Exchange Act Release No. 56107 (July 
19, 2007) 72 FR 41377 (July 27, 2007) (Notice of Filing and 
Immediate Effectiveness of SR-NYSE-2007-56, relating to extension of 
the NYSE portfolio margin pilot program to July 31, 2008) and 
Exchange Act Release No. 56109 (July 19, 2007) 72 FR 41365 (July 27, 
2007) (Notice of Filing and Immediate Effectiveness of SR-CBOE-2007-
75, relating to extension of the CBOE portfolio margin pilot program 
to July 31, 2008).
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    FINRA is proposing to make permanent the pilot program contained in 
NASD Rule 2520(g) and Incorporated NYSE Rule 431(g). FINRA has not 
encountered any problems or difficulties relating to the pilot program 
since its inception and believes that the program better aligns margin 
requirements with the actual risk of hedged products. For these 
reasons, FINRA proposes to adopt the portfolio margin program on a 
permanent basis.
    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date of the proposed rule change is 
August 1, 2008.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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 making the portfolio margin program 
permanent is appropriate as the program better aligns the margin 
requirements with actual risk.
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    \8\ 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.

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 forgoing 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) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, 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. FINRA has fulfilled this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. FINRA requests that the Commission 
waive the 30-day operative delay, which would make the change operative 
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 the customer portfolio 
margining program to continue uninterrupted as it would otherwise 
expire on July 31, 2008.\11\ Accordingly, the Commission designates the 
proposed rule change effective upon filing with the Commission.
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    \11\ 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 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

     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

[[Page 45508]]

Number SR-FINRA-2008-041 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-2008-041. 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 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 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-2008-041 and should be 
submitted on or before August 26, 2008.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-17890 Filed 8-4-08; 8:45 am]
BILLING CODE 8010-01-P