[Federal Register: August 29, 2008 (Volume 73, Number 169)]
[Notices]
[Page 51032-51033]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29au08-143]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58421; File No. SR-FINRA-2008-025]
Self Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change Relating to the
Adoption of NASD Rule 2790 as FINRA Rule 5130 (Restrictions on the
Purchase and Sale of Initial Public Offerings) in the Consolidated
FINRA Rulebook
August 25, 2008.
I. Introduction
On June 12, 2008, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to adopt NASD Rule 2790 (Restrictions on the Purchase and Sale
of Initial Equity Public Offerings) (``Rule'') as FINRA Rule 5130 in
the consolidated FINRA rulebook, with only minor changes. This proposal
was published for comment in the Federal Register on July 16, 2008.\3\
The Commission received one comment on the proposal.\4\ This order
approves this proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 58134 (Jul. 10, 2008),
73 FR 40892 (Jul. 16, 2008) (SR-FINRA-2008-025).
\4\ See submission via SEC WebForm from Dan Mayfield, President,
Sanderlin Securities, dated July 24, 2008.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
As part of the process of developing the new consolidated rulebook
(the ``Consolidated FINRA Rulebook''),\5\ FINRA proposed to adopt the
Rule as FINRA Rule 5130 in the Consolidated FINRA Rulebook with only
minor changes. The Rule is designed to protect the integrity of the
initial public offering (``IPO'') process by ensuring that FINRA member
firms make bona fide public offerings of securities at the offering
price, such firms do not withhold
[[Page 51033]]
securities in a public offering for their own benefit or use such
securities to reward persons who are in a position to direct future
business to firms, and industry insiders, including FINRA member firms
and their associated persons, do not take advantage of their insider
position to purchase new issues for their own benefit at the expense of
public customers. Because of these controls, FINRA believes that the
Rule plays an important part in maintaining investor confidence in the
capital raising and IPO process.
---------------------------------------------------------------------------
\5\ The current FINRA rulebook consists of two sets of rules:
(1) NASD rules and (2) rules incorporated from NYSE (``Incorporated
NYSE Rules'') (together referred to as the ``Transitional
Rulebook''). The Incorporated NYSE Rules apply only to those members
of FINRA that are also members of the NYSE (``Dual Members''). Dual
Members also must comply with NASD rules. For more information
regarding the rulebook consolidation process, see FINRA Information
Notice March 12, 2008 (Rulebook Consolidation Process).
---------------------------------------------------------------------------
The Rule was originally adopted in 2003, replacing NASD IM-2110-1
(the Free-Riding and Withholding Interpretation) in its entirety.\6\
The Rule was subject to extensive input from the industry and other
interested persons during a four-year rulemaking process, and FINRA
believes that there is broad support for it. The Rule provides
necessary predictability and certainty in support of capital formation.
Based on FINRA's experience, the Rule is achieving its purpose and is
significantly easier than NASD IM-2110-1 for FINRA member firms and the
investing public to understand and follow. Among other things, FINRA
has seen a significant reduction in the number of interpretive and
exemptive issues that have arisen with respect to the IPO allocation
process since the Rule became effective. There is no Incorporated NYSE
Rule equivalent to the Rule.\7\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 48701 (October 24,
2003), 68 FR 62126 (October 31, 2003) (Order Approving File No. SR-
NASD-99-60); see also NASD Notice to Members 03-79 (December 2003)
(SEC Approves New Rule 2790 (Restrictions on the Purchase and Sale
of IPOs of Equity Securities); Replaces Free-Riding and Withholding
Interpretation).
\7\ Incorporated NYSE Rules only apply to FINRA members who are
also members of the NYSE. All FINRA members are subject to existing
NASD rules. See Note 5, supra. Thus, the movement of a rule that
existed only the NASD rulebook but was not an Incorporated NYSE Rule
into the Consolidated FINRA Rulebook does not create any new
obligations for FINRA members.
---------------------------------------------------------------------------
For the reasons discussed above, FINRA proposed to transfer NASD
Rule 2790 to the Consolidated FINRA Rulebook in substantially the same
form. As part of this transfer, FINRA proposed minor changes to the
Rule to reflect the registration of the NASDAQ Stock Market LLC
(``NASDAQ'') as a national securities exchange. The Rule currently
refers to the NASDAQ Global Market because at the time the Rule was
adopted, references to the listing standards of a national securities
exchange did not include NASDAQ's Global Market. Since NASDAQ completed
its registration as a national securities exchange, the references to
the NASDAQ Global Market in the Rule are no longer necessary. In
addition, FINRA proposed certain minor, technical changes to the Rule.
FINRA represented that it would announce the effective date of the
proposed rule change in a Regulatory Notice to be published no later
than 60 days following Commission approval of the proposed rule change.
III. Summary of Comments
The Commission received one comment letter on the proposal.\8\ The
commenter urged that FINRA amend the proposal to except FINRA members
that are not underwriters from the Rule. FINRA has considered the
comment and determined that it is not germane to the proposal in that
the comment relates to the substantive requirements of the Rule which
FINRA did not propose to change other than in minor, technical ways.
---------------------------------------------------------------------------
\8\ See Note 4, supra.
---------------------------------------------------------------------------
IV. Discussion and Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act, and the rules
and regulations thereunder that are applicable to a national securities
association.\9\ In particular, the Commission 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 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. The Commission
notes that it has previously approved the Rule,\11\ and the proposal
merely moves the Rule nearly verbatim from the NASD rulebook to the
Consolidated FINRA Rulebook. The Commission believes that the move
proposed in this filing is primarily ministerial and only aids FINRA
members in complying with existing obligations.
---------------------------------------------------------------------------
\9\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\10\ 15 U.S.C. 78o-3(b)(6).
\11\ See Note 6, supra.
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (File No. SR-FINRA-2008-025) be,
and hereby is, approved.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. E8-20084 Filed 8-28-08; 8:45 am]
BILLING CODE 8010-01-P