[Federal Register Volume 84, Number 29 (Tuesday, February 12, 2019)]
[Notices]
[Pages 3524-3526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01943]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85062; File No. SR-FINRA-2019-001]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Expiration Date of FINRA Rule 0180
(Application of Rules to Security-Based Swaps)
February 6, 2019.
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 January 29, 2019, 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 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 February 12, 2020.
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
website 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 1, 2011, the SEC issued an Order granting temporary
exemptive relief (the ``Temporary Exemptions'') from compliance with
certain provisions of the Exchange Act in connection with the revision,
pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Dodd-Frank Act''),\4\ of the Exchange Act
definition of ``security'' to encompass security-based swaps.\5\
Consistent with the Commission's action, on July 8, 2011, FINRA filed
for immediate effectiveness FINRA Rule 0180,\6\ which, with certain
exceptions, is intended to temporarily limit the application of FINRA
rules \7\ with respect to security-based swaps, thereby helping to
avoid undue market disruptions resulting from the change to the
definition of ``security'' under the Act.\8\
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\4\ Public Law 111-203, 124 Stat. 1376 (2010).
\5\ 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, and Request for Comment) (the
``Exemptive Release''). The term ``security-based swap'' is defined
in Section 761 of the Dodd-Frank Act. See also Securities Exchange
Act Release No. 67453 (July 18, 2012), 77 FR 48207 (August 13, 2012)
(Further Definition of ``Swap,'' ``Security-Based Swap,'' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping).
\6\ 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''). See also Securities Exchange
Act Release No. 82480 (January 10, 2018), 83 FR 2480 (January 17,
2018) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change; File No. SR-FINRA-2018-001) (extending the expiration date
of FINRA Rule 0180 to February 12, 2019).
\7\ 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).
\8\ 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 Commission, noting the need to avoid a potential unnecessary
disruption to the security-based swap market in the absence of an
extension of the Temporary Exemptions, and the need for additional time
to consider the potential impact of the revision of the Exchange Act
definition of ``security'' in light of ongoing Commission rulemaking
efforts under Title VII of the Dodd-Frank Act, issued an Order which
extended and refined the applicable expiration dates for the previously
granted Temporary Exemptions.\9\ The
[[Page 3525]]
Commission previously noted that extending the Temporary Exemptions
would facilitate a coordinated consideration of these issues with the
relief provided pursuant to FINRA Rule 0180.\10\ In establishing Rule
0180, and in extending the rule's expiration date, FINRA noted its
intent, pending the implementation of any SEC rules and guidance that
would provide greater regulatory clarity in relation to security-based
swap activities, to align the expiration date of FINRA Rule 0180 with
the termination of relevant provisions of the Temporary Exemptions.\11\
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\9\ See Securities Exchange Act Release No. 71485 (February 5,
2014), 79 FR 7731 (February 10, 2014) (Order Extending Temporary
Exemptions Under the Securities Exchange Act of 1934 in Connection
With the Revision of the Definition of ``Security'' to Encompass
Security-Based Swaps, and Request for Comment) (``2014 Extension
Release'') stating that, for those expiring Temporary Exemptions
``that are not directly linked to pending security-based swap
rulemakings, the Commission is extending the expiration date until
the earlier of such time as the Commission issues an order or rule
determining whether any continuing exemptive relief is appropriate
for security-based swap activities with respect to any of these
Exchange Act provisions or until three years following the effective
date of this Order.'' The 2014 Extension Release further stated that
for each expiring Temporary Exemption ``that is related to pending
security-based swap rulemakings, the Commission is extending the
expiration date until the compliance date for the related security-
based swap-specific rulemaking.'' The Commission has extended
certain Temporary Exemptions that are not directly linked to a
security-based swap rulemaking to February 5, 2020. See Securities
Exchange Act Release No. 84991 (January 25, 2019) (Order Granting a
Limited Exemption from the Exchange Act Definition of ``Penny
Stock'' for Security-Based Swap Transactions between Eligible
Contract Participants; Granting a Limited Exemption from the
Exchange Act Definition of ``Municipal Securities'' for Security-
Based Swaps; and Extending Certain Temporary Exemptions under the
Exchange Act in Connection with the Revision of the Definition of
``Security'' to Encompass Security-Based Swaps) (``2019 Extension
Release'').
\10\ See Securities Exchange Act Release No. 68864 (February 7,
2013), 78 FR 10218 (February 13, 2013) (Order Extending Temporary
Exemptions Under the Securities Exchange Act of 1934 in Connection
With the Revision of the Definition of ``Security'' to Encompass
Security-Based Swaps, and Request for Comment).
\11\ See note 6 supra.
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The Commission's rulemaking and development of guidance in relation
to security-based swap activities is ongoing. As such, FINRA believes
it is appropriate and in the public interest, in light of the
Commission's goals as set forth in the Exemptive Release, the 2014
Extension Release and the 2019 Extension Release, to extend FINRA Rule
0180 for a limited period, to February 12, 2020, so as to avoid undue
market disruptions resulting from the change to the definition of
``security'' under the Act.\12\
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\12\ FINRA may amend the expiration date of FINRA Rule 0180
based on any related Commission action.
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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, so FINRA can implement the proposed rule change on
February 12, 2019.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\13\ 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, the 2014 Extension
Release and the 2019 Extension Release, the proposed rule change will
help to avoid undue market disruption that could result if FINRA Rule
0180 expires before the implementation of any SEC rules and guidance
that would provide greater regulatory clarity in relation to security-
based swap activities.
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\13\ 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 any SEC 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 \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).
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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),\16\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. FINRA has requested
that the Commission waive the 30-day operative delay requirement so
that the proposal may become operative on February 12, 2019. The
Commission hereby grants the request. The proposed rule is consistent
with the goals set forth by the Commission when it issued the Exemptive
Release, the 2014 Extension Release and the 2019 Extension Release and
will help avoid undue market interruption resulting from the change of
the definition of ``security'' under the Act and the expiration of
FINRA Rule 0180. Therefore, the Commission believes it is consistent
with the protection of investors and the public interest to waive the
30-day operative delay requirement. Therefore the Commission designates
the proposal as operative on February 12, 2019.
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\16\ 17 CFR 240.19b-4(f)(6)(iii).
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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-2019-001 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-2019-001. 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 website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule
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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 website 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. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-FINRA-2019-001
and should be submitted on or before March 5, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Eduardo Aleman,
Deputy Secretary.
[FR Doc. 2019-01943 Filed 2-11-19; 8:45 am]
BILLING CODE 8011-01-P