[Federal Register Volume 79, Number 53 (Wednesday, March 19, 2014)]
[Notices]
[Pages 15363-15365]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-05986]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71720; File No. SR-FINRA-2014-011]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rule 6432

March 13, 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 March 6, 2014, Financial Industry Regulatory Authority, Inc. 
(``FINRA) filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. FINRA has 
designated the proposed rule change as ``constituting a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule'' under Section 
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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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 6432 to require members to 
certify that they have and will not accept any payment or other 
consideration for market making from issuers and related persons.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
6000. QUOTATION AND TRANSACTION REPORTING FACILITIES
* * * * *
6400. QUOTING AND TRADING IN OTC EQUITY SECURITIES
* * * * *
6430. OTC Equity Quotation Requirements
* * * * *
6432. Compliance With the Information Requirements of SEA Rule 15c2-11
    (a) No Change.
    (b) The information to be filed shall contain:
    (1) O[o]ne copy of all information required to be maintained under 
SEA Rule 15c2-11(a)(1), (2), (3), (4), or (5), including any 
information that may be required by future amendments thereto. Members 
are not required to file with FINRA copies of any information that is 
available through the SEC's Electronic Data Gathering, Analysis, and 
Retrieval (``EDGAR'') system; provided, however, that the filing with 
FINRA shall contain identifying information for each issuer report or 
statement available through EDGAR that was relied upon in satisfying 
the member's obligations under this Rule and SEA Rule 15c2-11(a), 
including the type of report, report date and any other information as 
may be requested by FINRA.
    (2) [In addition, this filing shall identify]Identification of the 
issuer, the issuer's predecessor in the event of a merger or 
reorganization within the previous 12 months, the type of non-exchange-
listed security to be quoted (e.g., ADR, warrant, unit, or common 
stock), the quotation medium to be used, the member's initial or 
resumed quotation, and the particular subsection of SEA Rule 15c2-11 
with which the member is demonstrating compliance.
    (3) [Additionally, i]If a member is initiating or resuming 
quotation of a non-exchange-listed security with a priced entry, [the 
member's filing must

[[Page 15364]]

specify] the basis upon which that priced entry was determined and the 
factors considered in making that determination.
    (4) A certification that neither the member nor persons associated 
with the member have accepted or will accept any payment or other 
consideration prohibited by FINRA Rule 5250.
    (c) through (e) No Change.
       Supplementary Material: ----------
    01. No Change.
* * * * *

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 Rule 5250 (Payments for Market Making) prohibits members from 
receiving any payment or other consideration by issuers or issuers' 
affiliates and promoters, directly or indirectly, for publishing a 
quotation, acting as a market maker, or submitting an application in 
connection therewith. The Rule is intended, among other things, to 
prohibit members from receiving consideration from an issuer for 
quoting or making a market in the issuer's securities and to assure 
that members act in an independent capacity when publishing a quotation 
or making a market in an issuer's securities.\5\ The prohibition 
against receiving payments for market making activities includes within 
its scope payments for submitting an application in connection with 
market making, including the filing of a Form 211.
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    \5\ As stated in prior filings and notices, FINRA believes a 
market maker should have considerable latitude and freedom to make 
or terminate market making activities in an issuer's securities. The 
decision by a member to make a market in a given security and the 
question of price generally are dependent on a number of factors, 
including, among others, supply and demand, the member's 
expectations toward the market, its current inventory position, and 
exposure to risk and competition. The decision, however, should not 
be influenced by payments to the member by the issuer. FINRA's 
policy concerning payments for market making was first set forth in 
Notice to Members 75-16 and then codified as NASD Rule 2460 (now 
FINRA Rule 5250) in 1997. See Notice to Members 75-16 (February 
1975) and Securities Exchange Act Release No. 38812 (July 3, 1997), 
62 FR 37105 (July 10, 1997) (``Order Approving File No. SR-NASD-97-
46'').
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    FINRA Rule 6432 sets forth the standards applicable to member firms 
for demonstrating compliance with Rule 15c2-11 under the Act.\6\ 
Pursuant to the Rule 6432, members must submit to FINRA a Form 211 
which, among other things, requires the member to provide information 
regarding the issuer sought to be quoted. FINRA is proposing to amend 
Rule 6432 to require members to, as part of the Form 211 process, 
certify to FINRA that neither the member nor its associated persons 
have or will accept any payment or other consideration for posting a 
quotation or market making as prohibited under Rule 5250, including in 
connection with the filing of the Form 211.
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    \6\ Rule 15c2-11 under the Act prescribes information review and 
maintenance requirements for broker-dealers that publish quotations 
in a quotation medium for certain over-the-counter equity 
securities. Specifically, Rule 15c2-11 prohibits a broker-dealer 
from publishing, or submitting for publication, a quotation for a 
covered OTC equity security unless it has obtained and reviewed 
current information about the issuer whose security is the subject 
of the quotation that the broker-dealer believes is accurate and 
obtained from a reliable source. See 17 CFR 240.15c2-11.
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    FINRA intends to include the new certification as part of the 
current Form 211, which is required to be completed by members prior to 
initiating or resuming quotations in a non-exchange-listed security \7\ 
in any quotation medium.\8\ Thus, only members submitting a Form 211 
going forward will be required to certify that no payments for market 
making prohibited by Rule 5250 have or will be accepted. FINRA believes 
that this approach seamlessly implements this new requirement without 
imposing any additional burden on members, since both the submission of 
the Form 211 as well as the substantive prohibition on receipt of Rule 
5250 payments already apply to members.
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    \7\ Rule 6432(e) defined ``non-exchange-listed security'' as any 
equity security, other than a restricted equity security, that is 
not traded on any national securities exchange. Rule 6420(k) defines 
``restricted equity security'' as any equity security that meets the 
definition of ``restricted security'' as contained in Rule 144(a)(3) 
under the Securities Act.
    \8\ Rule 6420(j) defines ``quotation medium'' as any inter-
dealer quotation system or any publication or electronic 
communications network or other device that is used by brokers or 
dealers to make known to others their interest in transactions in 
any OTC Equity Security, including offers to buy or sell at a stated 
price or otherwise, or invitations of offers to buy or sell.
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    FINRA has filed the proposed rule change for immediate 
effectiveness. The implementation date of the proposed rule change will 
be announced in a Regulatory Notice.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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 also believes that the proposed rule change is 
consistent with the provisions of Section 15A(b)(11) of the Act,\10\ 
which requires, among other things, that FINRA's rules be designed to 
produce fair and informative quotations, to prevent fictitious or 
misleading quotations, and to promote orderly procedures for 
collecting, distributing, and publishing quotations.
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    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78o-3(b)(11).
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    FINRA believes that the proposed rule change meets these 
requirements in that it maintains the protections that Rule 5250 was 
designed to provide by helping to ensure that a member makes an 
independent decision (rather than one influenced by payments to a 
member from an issuer) in determining to make a market in the issuer's 
security in advance of FINRA permitting a member to initiate or resume 
quotations. By including a requirement that members certify to their 
compliance of this rule on the Form 211, FINRA is reinforcing the 
importance of member compliance with Rule 5250. The proposed rule 
change also facilitates FINRA's ability to identify potential red flags 
in connection with members' planned quotation activities by explicitly 
including the Rule 5250 certification as part of the review process 
required of members seeking to initiate quotations in securities that 
require Form 211 clearance.

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. The proposed rule change would 
require that members submitting a Form 211 certify to FINRA that 
neither the member nor persons associated with the

[[Page 15365]]

member have or will accept any payment or other consideration 
prohibited by FINRA Rule 5250, which generally prohibits a member from 
receiving payments, directly or indirectly, from an issuer of a 
security, or any affiliate or promoter thereof, for publishing a 
quotation, acting as market maker in a security, or submitting an 
application in connection therewith. Thus, the proposed rule change 
helps ensure that members act in an independent capacity when 
publishing a quotation or making a market in an issuer's securities. 
Because the certification relates to compliance with a rule the member 
is already subject to and will be included as part of the existing Form 
211, FINRA does not believe there is any substantial additional burden 
on competition imposed by the proposal. FINRA recognizes that the 
certifying firm may choose to require sub-certifications within the 
firm, but FINRA does not view this as required by the rule or involving 
significant costs relative to the compliance benefits of the 
certification. Further, any member submitting a new Form 211 will be 
required to comply with the new certification, which does not impose 
any disparate treatment among such members that might result in a 
burden on competition.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \11\ and paragraph (f)(1) of Rule 19b-4 
thereunder.\12\ 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(1).
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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-2014-011 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-2014-011. 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-2014-011 and 
should be submitted on or before April 9, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05986 Filed 3-18-14; 8:45 am]
BILLING CODE 8011-01-P