[Federal Register Volume 87, Number 75 (Tuesday, April 19, 2022)]
[Notices]
[Pages 23291-23296]
[FR Doc No: 2022-08283]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94710; File No. SR-FINRA-2022-010]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Adopt on a Permanent Basis the Pilot Program
for Market-Wide Circuit Breakers in FINRA Rule 6121.02 (Market-Wide
Circuit Breakers in NMS Stocks)

April 13, 2022.
    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 13, 2022, the 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 and
II 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 adopt on a permanent basis the pilot program
for Market-Wide Circuit Breakers in FINRA Rule 6121.02 (Market-wide
Circuit Breakers in NMS Stocks).
    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 March 16, 2022, the Commission approved the proposal of the New
York Stock Exchange LLC (``NYSE'') to adopt on a permanent basis the
pilot program for Market-Wide Circuit Breakers (``MWCB'') in NYSE Rule
7.12.\4\ FINRA now proposes to adopt the MWCB pilot program as
permanent in FINRA Rule 6121.02.
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    \4\ See Securities Exchange Act Release No. 94441 (March 16,
2022), 87 FR 16286 (March 22, 2022) (Order Approving File No. SR-
NYSE-2021-40). The proposed rule change would also make two non-
substantive, technical changes. First, the proposed rule change
would update the citation in Rule 6121 for the definition of ``NMS
stock'' under Regulation NMS from Rule 600(b)(47) to Rule 600(b)(55)
to reflect recent reorganization of the defined terms in Rule 600 of
Regulation NMS. Second, consistent with FINRA rulebook style, the
proposed rule change would change the reference to the ``Securities
and Exchange Commission'' in Rule 6121 to the ``SEC.''
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The Pilot Rules
    The MWCB rules, including FINRA's Rule 6121.02, provide an
important, automatic mechanism that is invoked to promote stability and
investor confidence during periods of significant stress when cash
equities securities experience extreme market-wide declines. The MWCB
rules are designed to slow the effects of extreme price declines
through coordinated trading halts across both cash equity and equity
options securities markets.
    The cash equities rules governing MWCBs were first adopted in 1988
and, in 2012, all U.S. cash equity exchanges and FINRA amended their
cash equities uniform rules on a pilot basis (the ``Pilot Rules,''
i.e., Rule 6121.02 (a)-(c)).\5\ The Pilot Rules currently provide for
trading halts in all cash equity securities during a severe market
decline as measured by a single-day decline in the S&P 500 Index
(``SPX'').\6\ Under the Pilot Rules, a market-wide trading halt will be
triggered if SPX declines in price by specified percentages from the
prior day's closing price of that index. The triggers are set at three
circuit breaker thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level
3). A market decline that triggers a Level 1 or Level 2 halt after 9:30
a.m. and before 3:25 p.m. would halt market-wide trading for 15
minutes, while a similar market decline at or after 3:25 p.m. would not
halt market-wide trading. (Level 1 and Level 2 halts may occur only
once a day.) A market decline that triggers a Level 3 halt at any time
during the trading day would halt market-wide trading for the remainder
of the trading day.
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    \5\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-
025; SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-
30; SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-
2011-61; SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-
NYSEAmex-2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129) (``Pilot
Rules Approval Order'').
    \6\ The rules of the equity options exchanges similarly provide
for a halt in trading if the cash equity exchanges invoke a MWCB
Halt. See, e.g., NYSE Arca Rule 6.65-O(d)(4).
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    The Commission approved the Pilot Rules, the term of which was to
coincide with the pilot period for the Plan to Address Extraordinary
Market Volatility Pursuant to Rule 608 of Regulation NMS (the ``LULD
Plan''),\7\ including any extensions to the pilot period for the LULD
Plan.\8\ In April 2019, the Commission approved an amendment to the
LULD Plan for it to operate on a permanent, rather than pilot,
basis.\9\ In light of the proposal to make the LULD Plan permanent,
FINRA amended Rule 6121.02 to untie the pilot's effectiveness from that
of the LULD Plan and to extend the pilot's effectiveness to the close
of business on October 18, 2019.\10\ FINRA then filed to extend the
pilot to the close of business on October 18, 2020,\11\ October 18,
2021,\12\ March 18, 2022,\13\ and April 18, 2022.\14\
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    \7\ See Securities Exchange Act Release No. 67091 (May 31,
2012), 77 FR 33498 (June 6, 2012). The LULD Plan provides a
mechanism to address extraordinary market volatility in individual
securities.
    \8\ See Securities Exchange Act Release Nos. 67090 (May 31,
2012), 77 FR 33531 (June 6, 2012) (Order Approving File No. SR-
FINRA-2011-054); and 68778 (January 31, 2013), 78 FR 8668 (February
6, 2013) (Notice of Filing and Immediate Effectiveness of File No.
SR-FINRA-2013-011).
    \9\ See Securities Exchange Act Release No. 85623 (April 11,
2019), 84 FR 16086 (April 17, 2019) (Order Approving the Eighteenth
Amendment to the National Market System Plan To Address
Extraordinary Market Volatility).
    \10\ See Securities Exchange Act Release No. 85547 (April 8,
2019), 84 FR 14981 (April 12, 2019) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2019-010).
    \11\ See Securities Exchange Act Release No. 87078 (September
24, 2019), 84 FR 51669 (September 30, 2019) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2019-023).
    \12\ See Securities Exchange Act Release No. 90160 (October 13,
2020), 85 FR 67072 (October 21, 2020) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2020-033).
    \13\ See Securities Exchange Act Release No. 93300 (October 13,
2021), 86 FR 57867 (October 19, 2021) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2021-027).
    \14\ See Securities Exchange Act Release No. Release No. 94428
(March 16, 2022), 87 FR 16265 (March 22, 2022) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2022-005).
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The MWCB Working Group Study
    Beginning in February 2020, at the outset of the COVID-19 pandemic,
the markets experienced increased volatility, culminating in four MWCB
Level 1 halts on March 9, 12, 16, and 18, 2020. In each instance,
pursuant to the Pilot Rules, the markets halted as intended upon a 7%
drop in SPX and did not start the process to resume trading until the
prescribed 15-minute halt period ended.
    On September 17, 2020, the Director of the Commission's Division of
Trading and Markets asked the SROs to conduct a study of the design and
operation of the Pilot Rules and the LULD Plan during the period of
volatility in March 2020. In response to the request, the SROs created
a MWCB ``Working Group'' composed of SRO representatives and industry
advisers that included members of the advisory committees to both the
LULD Plan and the NMS Plans governing the collection, consolidation,
and dissemination of last-sale transaction reports and quotations in
NMS Stocks. The Working Group met regularly from September 2020 through
March 2021 to consider the Commission's request, review data, and
compile its study.
    On March 31, 2021, the MWCB Working Group submitted its study (the
``Study'') to the Commission.\15\ The Study included an evaluation of
the operation of the Pilot Rules during the March 2020 events and an
evaluation of the design of the current MWCB system. In the Study, the
Working Group concluded: (1) The MWCB mechanism set out in the Pilot
Rules worked as intended during the March 2020 events; (2) the MWCB
halts triggered in March 2020 appear to have had the intended effect of
calming volatility in the market, without causing harm; (3) the design
of the MWCB mechanism with respect to reference value (SPX), trigger
levels (7%/13%/20%), and halt times (15 minutes) is appropriate; (4)
the change implemented in Amendment 10 to the LULD Plan did not likely
have any negative impact on MWCB functionality; and (5) no changes
should be made to the mechanism to prevent the market from halting
shortly after the opening of regular trading hours at 9:30 a.m.
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    \15\ See Report of the Market-Wide Circuit Breaker (``MWCB'')
Working Group Regarding the March 2020 MWCB Events, submitted March
31, 2021 (the ``Study''), available at https://www.nyse.com/publicdocs/nyse/markets/nyse/Report_of_the_Market-Wide_Circuit_Breaker_Working_Group.pdf.
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    In light of those conclusions, the MWCB Working Group also made
several recommendations, including

that (1) the Pilot Rules should be made permanent without any changes,
and (2) SROs should adopt a rule requiring all designated Regulation
SCI firms to participate in at least one Level 1/Level 2 MWCB test each
year and to verify their participation via attestation.\16\
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    \16\ See the Study, supra note 15, at 46.
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Proposal To Make the Pilot Rules Permanent
    On July 16, 2021, NYSE proposed a rule change to make the Pilot
Rules permanent, consistent with the Working Group's
recommendations.\17\ On March 16, 2022, the Commission approved NYSE's
proposal.\18\
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    \17\ See Securities Exchange Act Release No. 92428 (July 16,
2021), 86 FR 38776 (July 22, 2021) ((Notice of Filing File No. SR-
NYSE-2021-40).
    \18\ See supra note 4.
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    Consistent with the Commission's approval of NYSE's proposal, FINRA
now proposes that paragraphs (a) through (c) of Rule 6121.02 be made
permanent. To accomplish this, FINRA proposes to remove the text of
existing paragraph (d) of Rule 6121.02, which currently provides that
the provisions of Rule 6121.02 shall be in effect during a pilot period
that expires at the close of business on April 18, 2022. FINRA does not
propose any changes to paragraphs (a) through (c) of Rule 6121.02.
    Consistent with the Commission's approval of NYSE's proposal, FINRA
proposes to add new paragraphs (d), (e), and (f) to Rule 6121.02, as
follows:
    (d) Market-Wide Circuit Breaker (``MWCB'') Testing.
    (1) FINRA will participate in all industry-wide tests of the MWCB
mechanism. Members designated pursuant to Rule 4380 (Mandatory
Participation in FINRA BC/DR Testing Under Regulation SCI) with respect
to a FINRA Trade Reporting Facility (``TRF'') or the Alternative
Display Facility (``ADF'') to participate in FINRA's periodic,
scheduled testing of their business continuity and disaster recovery
(``BC/DR'') plans are required to participate in at least one industry-
wide MWCB test each year and to verify their participation in that test
by attesting that they are able to or have attempted to:
    (A) Receive and process MWCB halt messages from the securities
information processors (``SIPs'');
    (B) receive and process resume messages from the SIPs following a
MWCB halt;
    (C) receive and process market data from the SIPs relevant to MWCB
halts; and
    (D) send quotes, trades or both, as applicable, to the facility or
facilities for which the member has been designated pursuant to Rule
4380 following a Level 1 or Level 2 MWCB halt in a manner consistent
with their usual trading behavior.
    (2) To the extent that a member participating in a MWCB test is
unable to receive and process any of the messages identified in
paragraph (d)(1)(A) through (D) above, its attestation should notify
FINRA which messages it was unable to process and, if known, why.
    (3) Members not designated pursuant to Rule 4380 are permitted to
participate in any MWCB test.
    (e) In the event that a MWCB is triggered following a Level 1,
Level 2, or Level 3 Market Decline, FINRA, together with other SROs and
industry representatives (the ``MWCB Working Group''), will review such
event. The MWCB Working Group will prepare a report that documents its
analysis and recommendations and will provide that report to the SEC
within six months of the event.
    (f) In the event that there is (1) a Market Decline of more than
five percent, or (2) an SRO implements a rule that changes its
reopening process following a MWCB Halt, FINRA, together with the MWCB
Working Group, will review such event and consider whether any
modifications should be made to FINRA Rule 6121.02. If the MWCB Working
Group recommends that a modification should be made to FINRA Rule
6121.02, the MWCB Working Group will prepare a report that documents
its analysis and recommendations and provide that report to the SEC.
    The MWCB testing requirement that FINRA is proposing to add as the
new text of paragraph (d) of Rule 6121.02 is consistent with the MWCB
testing obligation adopted by the exchanges (e.g., NYSE Rule 7.12(e))
that requires all designated Regulation SCI firms to participate in at
least one MWCB test each year. However, the language of proposed Rule
6121.02(d) has been modified from the language of NYSE Rule 7.12(e) in
two regards to account for FINRA's unique role in the equity markets,
as follows.
    First, FINRA's testing requirement would apply on a facility-by-
facility basis. Like the exchanges, Regulation SCI requires that FINRA
designate firms that must participate in the testing of the firm's
business continuity and disaster recovery BC/DR plans. To comply with
this Regulation SCI requirement, FINRA adopted Rule 4380, which
authorizes FINRA to designate member firms that must participate in
annual BC/DR testing according to established criteria designed to
ensure participation by firms FINRA reasonably determines are, taken as
a whole, the minimum necessary for maintaining fair and orderly markets
in the event of the activation of its BC/DR plan. As summarized in
Regulatory Notice 19-15,\19\ FINRA applies specified criteria to
designate firms under Rule 4380 on a facility-by-facility basis,
including designation of participants of the TRFs \20\ and the ADF.\21\
As the TRFs and ADFs are the FINRA facilities relevant to quoting and
trading NMS stocks, FINRA believes that firms designated under Rule
4380 with respect to any TRF or the ADF should be required to
participate in annual MWCB testing.\22\ Therefore, in line with the
exchanges' MWCB testing rule, paragraph (d)(1) of Rule 6121.02 would
provide that members designated pursuant to Rule 4380 for BC/DR testing
with respect to a TRF or the ADF are required to participate in at
least one industry-wide MWCB test each year.
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    \19\ See Regulatory Notice 19-15 (April 19, 2019) (``Designation
Notice'').
    \20\ The TRFs provide FINRA members with a mechanism to report
over-the-counter (``OTC'') transactions in NMS stocks. There are
currently three active TRFs: (1) FINRA/Nasdaq TRF Carteret, (2)
FINRA/Nasdaq TRF Chicago and (3) FINRA/NYSE TRF. While each TRF is
operated by an affiliate of a registered national securities
exchange, each TRF is a FINRA facility and subject to FINRA's
oversight.
    \21\ The ADF is a display-only facility operated by FINRA that
provides FINRA members with a mechanism to display quotations and
report OTC transactions in NMS stocks.
    \22\ For the TRFs, FINRA will designate those TRF participants
that account for five percent or more of the total number of trades
reported to the TRF over the six-month period immediately preceding
designation, provided that the cumulative trade volume represented
by designated firms amounts to at least 50 percent of all trade
volume reported to the TRF during the applicable six-month period.
Trade volume for purposes of Rule 4380 is separately calculated for
each TRF. For the ADF, there currently are not any active
participants. If the ADF becomes active, FINRA will then study the
system's activity to establish appropriate criteria for member
designation. See Designation Notice, supra note 19, at 2.
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    Second, consistent with the exchanges' rules, such designated
members would be required to verify their participation in the annual
MWCB test by attesting that they are able to or have attempted to
undertake four specified actions related to operation of MWCB halts.
The first three of these actions, set forth in paragraphs (d)(1)(A)
through (C) of proposed Rule 6121.02, would be identical to the
exchanges' testing rules and would require that such members attest
that they are able to or have attempted to: (A) Receive and process
MWCB halt messages from the SIPs; (B) receive and process resume
messages from the SIPs following a

MWCB halt; and (C) receive and process market data from the SIPs
relevant to MWCB halts. The fourth element specified in the exchanges'
rules requires that designated member organizations attest that they
are able to or have attempted to send orders following a Level 1 or
Level 2 MWCB halt in a manner consistent with their usual trading
behavior. The TRFs and the ADF are facilities for reporting OTC
transactions in NMS stocks and, in the case of the ADF, displaying
quotations in NMS stocks. Therefore, FINRA is proposing a modified
requirement in paragraph (d)(1)(D) for designated members to attest
that they are able to or have attempted to send quotes, trades or both,
as applicable, to the facility or facilities for which they have been
designated pursuant to Rule 4380 in a manner consistent with their
usual trading behavior.
    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
immediately.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\23\ which requires, among
other things, that FINRA rules must be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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    \23\ 15 U.S.C. 78o-3(b)(6).
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    The Pilot Rules set out in Rule 6121.02 (a) through (c) are an
important, automatic mechanism that is invoked to promote stability and
investor confidence during periods of significant market stress when
securities markets experience broad-based declines. The four MWCB halts
that occurred in March 2020 provided FINRA, the other SROs, and market
participants with real-world experience as to how the Pilot Rules
actually function in practice. Based on the Working Group's Study and
FINRA's own analysis of those events, FINRA believes that making the
Pilot Rules permanent would benefit market participants, promote just
and equitable principles of trade, remove impediments to and perfect
the mechanism of a free and open market and a national market system,
and protect investors and the public interest.
    Specifically, FINRA believes that making the Pilot Rules permanent
would benefit market participants, promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system, and protect
investors and the public interest, because the Pilot Rules worked as
intended during the March 2020 events. As detailed above, the markets
were in communication before, during, and after each of the MWCB Halts
that occurred in March 2020. All 9,000+ equity symbols were
successfully halted in a timely manner when SPX declined 7% from the
previous day's closing value, as designed. FINRA believes that market
participants would benefit from having the Pilot Rules made permanent
because such market participants are familiar with the design and
operation of the MWCB mechanism set out in the Pilot Rules, and know
from experience that it has functioned as intended on multiple
occasions under real-life stress conditions. Accordingly, FINRA
believes that making the Pilot Rules permanent would enhance investor
confidence in the ability of the markets to successfully halt as
intended when under extreme stress.
    FINRA further believes that making the Pilot Rules permanent would
benefit market participants, promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and protect investors and the
public interest, because the halts that were triggered pursuant to the
Pilot Rules in March 2020 appear to have had the intended effect of
calming volatility in the market without causing harm. As detailed
above, after studying a variety of metrics concerning opening and
reopening auctions, quote volatility, and other factors, FINRA
concluded that there was no significant difference in the percentage of
securities that opened on a trade versus on a quote for the four days
in March 2020 with MWCB Halts, versus the other periods studied. In
addition, while the post-MWCB Halt reopening auctions were smaller than
typical opening auctions, the size of those post-MWCB Halt reopening
auctions plus the earlier initial opening auctions in those symbols was
on average equal to opening auctions in January 2020. FINRA believes
this indicates that the MWCB Halts on the four March 2020 days did not
cause liquidity to evaporate. Finally, FINRA observes that, while quote
volatility was generally higher on the four days in March 2020 with
MWCB Halts as compared to the other periods studied, quote volatility
stabilized following the MWCB Halts at levels similar to the January
2020 levels, and LULD Trading Pauses worked as designed to address any
additional volatility later in the day. From this evidence, FINRA
concludes that the Pilot Rules actually calmed volatility on the four
MWCB Halt days in March 2020, without causing liquidity to evaporate or
otherwise harming the market. As such, FINRA believes that making the
Pilot Rules permanent would remove impediments to and perfect the
mechanism of a free and open market and a national market system, and
protect investors and the public interest.
    FINRA believes that making the Pilot Rules permanent without any
changes would benefit market participants, promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system, and protect
investors and the public interest, because the current design of the
MWCB mechanism as set out in the Pilot Rules remains appropriate. As
detailed above, FINRA considered whether SPX should be replaced as the
reference value, whether the current trigger levels (7%/13%/20%) and
halt times (15 minutes for Level 1 and 2 halts) should be modified, and
whether changes should be made to prevent the market from halting
shortly after the opening of regular trading hours at 9:30 a.m., and
concluded that the MWCB mechanism set out in the Pilot Rules remains
appropriate, for the reasons cited above. FINRA believes that public
confidence in the MWCB mechanism would be enhanced by the Pilot Rules
being made permanent without any changes, given investors' familiarity
with the Pilot Rules and their successful functioning in March 2020.
    FINRA believes that proposed new paragraph (d) regarding MWCB
testing is designed to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general to protect
investors and the public interest. The Working Group recommended that
all cash equities exchanges adopt a rule requiring all designated
Regulation SCI firms to participate in MWCB testing and to attest to
their participation. FINRA believes that these requirements would
promote the stability of the markets and enhance investor confidence in
the MWCB mechanism and the protections that it provides to the markets
and to investors. FINRA further believes that

requiring firms participating in a MWCB test to identify any inability
to process messages pertaining to such MWCB test would contribute to a
fair and orderly market by flagging potential issues that should be
corrected. FINRA would preserve such attestations pursuant to its
obligations to retain books and records of FINRA.\24\
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    \24\ See 17 CFR 240.17a-1.
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    FINRA believes that proposed paragraph (e) would benefit market
participants, promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors and the public
interest. Having the MWCB Working Group review any halt triggered under
Rule 6121.02 and prepare a report of its analysis and recommendations
would permit FINRA, along with other market participants and the
Commission, to evaluate such event and determine whether any
modifications should be made to Rule 6121.02 in the public interest.
Preparation of such a report within six months of the event would
permit FINRA, along with the MWCB Working Group, sufficient time to
analyze such halt and prepare their recommendations.
    FINRA believes that proposed paragraph (f) would benefit market
participants, promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors and the public
interest. Having the MWCB Working Group review instances of a Market
Decline of more than 5% or an SRO implementing a rule that changes its
reopening process following a MWCB Halt would allow the MWCB Working
Group to identify situations where it would recommend that Rule 6121.02
be modified in the public interest. In such situations where the MWCB
Working Group recommends that a modification should be made to Rule
6121.02, the MWCB Working Group would prepare a report that documents
its analysis and recommendations and provide that report to the
Commission, thereby removing impediments to and perfecting the
mechanism of a free and open market and a national market system while
protecting investors and the public interest.
    For the foregoing reasons, FINRA believes that the proposed rule
change is consistent with the Act.

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 is not
intended to address competition, but rather, makes permanent the
current MWCB Pilot Rules for the protection of the markets. FINRA
believes that making the current MWCB Pilot Rules permanent would have
no discernable burden on competition at all, since the Pilot Rules have
already been in effect since 2012 and would be made permanent without
any changes. Moreover, because the MWCB mechanism contained in the
Pilot Rules requires all exchanges and all market participants to cease
trading at the same time, making the Pilot Rules permanent would not
provide a competitive advantage to any exchange or any class of market
participants.
    Further, FINRA understands that the other SROs have or will submit
substantively identical proposals to the Commission. Thus, the proposed
rule change will help to ensure consistency across SROs without
implicating any competitive issues.

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 \25\ and Rule 19b-
4(f)(6) thereunder.\26\
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    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \27\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\28\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange asked
that the Commission waive the 30 day operative delay so that the
proposal may become operative immediately upon filing. Waiver of the
30-day operative delay would allow the Exchange to immediately provide
the protections included in this proposal in the event of a MWCB halt,
which is consistent with the protection of investors and the public
interest. Therefore, the Commission hereby waives the 30-day operative
delay and designates the proposed rule change as operative upon
filing.\29\
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    \27\ 17 CFR 240.19b-4(f)(6).
    \28\ 17 CFR 240.19b-4(f)(6)(iii).
    \29\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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 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-2022-010 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-2022-010. 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 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
the filing also will be available for inspection and copying at the
principal office of the Exchange.
    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-2022-010
and should be submitted on or before May 10, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-08283 Filed 4-18-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 105 (Wednesday, June 1, 2016)]
[Notices]
[Pages 35111-35115]
[FR Doc No: 2016-12789]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77903; File No. SR-MSRB-2016-07]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of a Proposed Rule Change Consisting of
Proposed Amendments to MSRB Rule G-12, on Uniform Practice, Regarding
Close-Out Procedures for Municipal Securities

May 25, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\
notice is hereby given that on May 11, 2016, the Municipal Securities
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities
and Exchange Commission (the ``SEC'' or ``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by the MSRB. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The MSRB filed with the Commission a proposed rule change
consisting of proposed amendments to Rule G-12, on uniform practice,
regarding close-out procedures for municipal securities (``proposed
rule change'').
    The text of the proposed rule change is available on the MSRB's Web
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2016-Filings.aspx, at the MSRB's principal office, 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, the MSRB 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. The MSRB 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
Background
    Rule G-12(h) \3\ and the MSRB's Manual on Close-Out Procedures \4\
provide optional procedures that can be used by brokers, dealers, or
municipal securities dealers (``dealers'') to close out open inter-
dealer fail transactions. The rule currently allows the purchasing
dealer to issue a notice of close-out to the selling dealer on any
business day from five to 90 business days after the scheduled
settlement date.\5\ Rule G-12(h) currently does not

mandate a purchasing dealer to initiate a close-out, or to execute a
close-out notice it has initiated nor does it provide the selling
dealer with the right to force a close-out of the transaction. If the
purchasing dealer chooses not to initiate a close-out within 90
business days of the original contract settlement date (and ultimately
execute it) then that dealer loses its right to use the Rule G-12(h)
procedure, and the transaction remains open until it is resolved by
agreement of the parties or through arbitration. During this period,
the selling dealer is subject to market risk for any increase in the
price of the municipal securities. Rule G-12(h) provides the close-out
options of substitution and mandatory repurchase because municipal
securities often are not available for a buy-in within a reasonable
period of time.
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    \3\ See MSRB Rule G-12.
    \4\ See Manual on Close-Out Procedures.
    \5\ The purchasing dealer may initiate a close-out within 15
business days after a reclamation made under Rule G-12(g)(iii)(C) or
G-12(g)(iii)(D), even though more than 90 business days have elapsed
since the original settlement date.
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    If the selling dealer does not deliver the securities owed on the
transaction within 10 business days after receipt of the close-out
notice (15 business days for retransmitted notices), then the
purchasing dealer may execute a close-out procedure using one of three
options: (1) Purchase (``buy-in'') at the current market all or any
part of the securities necessary to complete the transaction for the
account and liability of the seller; (2) accept from the seller in
satisfaction of the seller's obligation under the original contract
(which shall be concurrently cancelled) the delivery of municipal
securities that are comparable to those originally bought in quantity,
quality, yield or price, and maturity, with any additional expenses or
any additional cost of acquiring such substituted securities being
borne by the seller; or (3) require the seller to repurchase the
securities on terms that provide for the seller to pay an amount that
includes accrued interest and bear the burden of any change in market
price or yield.
    Rule G-12(h) includes a 90-business day time limit for close-outs
to encourage dealers to resolve open transactions in a timely manner,
but there is no requirement that open transactions be closed out within
90 business days. Currently, a purchasing dealer is not required to
initiate a close-out or to execute a close-out notice if one is
initiated, nor does the selling dealer have a right to force a close-
out of the transaction. If the purchasing dealer chooses not to
initiate a close-out within 90 business days of the original contract
settlement date (and ultimately execute the close-out), then that
dealer loses its right to use the Rule G-12(h) procedure and the
transaction remains open until it is resolved by agreement of the
parties or through arbitration. During this period, the selling dealer
is subject to market risk for any increase in the price of the
securities.
    Since Rule G-12(h) was last revised in 1983, evolutions in the
municipal securities market have changed how securities are offered and
modernized the manner in which inter-dealer transactions are cleared
and settled. There are electronic alternative trading systems (``ATS'')
and broker-dealers that serve in the role of a ``broker's broker'' in
the municipal market, facilitating the ability of dealers to find
securities for purchase. MSRB rules requiring use of the Depository
Trust & Clearing Corporation (``DTCC'') automated comparison system and
book entry settlement, as well as the shortening of the settlement
cycle from T+5 to T+3, likewise have contributed to lowering the
occurrence of inter-dealer fails since the rule's adoption. The
initiative to move to T+2 settlement has received broad support from
both the industry and the SEC,\6\ and is likely to further reduce the
instances of inter-dealer fails.\7\ The MSRB believes that a more
timely resolution of inter-dealer fails would ultimately benefit
customers by providing greater certainty that their fully paid for
securities are in fact owned in their account, not allocated to a firm
short, and would benefit dealers by reducing the risk and costs
associated with inter-dealer fails.
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    \6\ See Michael S. Piwowar, Commissioner, and Kara M. Stein,
Commissioner, SEC, Statement Regarding Proposals to Shorten the
Trade Settlement Cycle (June 29, 2015) available at http://www.sec.gov/news/statement/statement-on-proposals-to-shorten-the-trade-settlement-cycle.html.
    \7\ On April 29, 2016 the SEC approved amendments to MSRB Rules
G-12, on uniform practice, and G-15 on confirmation, clearance,
settlement and other uniform practice requirements with respect to
transactions with customers, to define regular-way settlement for
municipal securities transactions as occurring on a two-day
settlement cycle (``T+2''). Exchange Act Release No. 77744 (April
29, 2016), 81 FR 26851 (May 4, 2016), File No. SR-MSRB-2016-04.
---------------------------------------------------------------------------

    MSRB Rule G-14 \8\ requires the use of National Securities Clearing
Corporation's (``NSCC'') Real-Time Trade Matching (``RTTM'') for
submitting or modifying data with respect to Inter-Dealer Transactions
Eligible for Comparison. Additionally, dealers' almost universal use of
DTCC's continuous net settlement (``CNS'') on a voluntary basis \9\ has
resulted in inter-dealer transactions that are netted (or paired-off)
with counterparties that may not have originally transacted together
causing new settlement dates to be continually established. This
scenario was not contemplated when Rule G-12(h) was originally adopted,
thus making it unclear that firms should use the original contract
settlement date pursuant to the rule today.\10\
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    \8\ See MSRB Rule G-14.
    \9\ As a key part of the CNS system, NSCC acts as the central
counterparty for clearance and settlement for virtually all broker-
to-broker equity, corporate and municipal bond and unit investment
trust trading in the United States. CNS processes include an
automated book entry accounting system that centralizes settlement
and maintains an orderly flow of security and money balances.
    \10\ In NSCC's CNS and RECAPS program, transactions are marked
to market, and receive new settlement dates that may also serve for
purposes of the SEC's net capital rules. This may reduce the
dealer's net capital deductions for ``aged'' failed transactions,
but does not always resolve the open transaction. If the dealer
keeps the transaction open, it must use the original contract
settlement date for purposes of the 90-day limit on close-outs.
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Proposal
    The proposed rule change to Rule G-12(h), regarding close-outs,
would significantly compress the timing to initiate and complete a
close-out by allowing a close-out notice to be issued the day after the
purchaser's original settlement date, with the last day by which the
purchasing dealer must complete a close-out on an open transaction
being reduced to 20 calendar days.
    With the vast majority of municipal securities in book entry form
and DTCC's continued efforts to promote dematerialization, the MSRB is
proposing that firms should no longer have to provide a 10-day delivery
window before implementing an execution period. The MSRB believes a
three-day delivery window would be sufficient as the majority of inter-
dealer fails are resolved within days of the original settlement and/or
a fail situation is known prior to the original settlement date.
    Additionally, the current rule requires that the earliest day that
can be specified as the execution date is 11 days after telephonic
notice. The proposed amendments would amend the current allowable
execution time frame from 11 days to four days after electronic
notification. Accelerating the execution date could improve a firm's
likelihood of finding a security for a buy-in, lower overall counter-
party risk and may further reduce accrual, capital and other expenses.
    Under the proposed rule change, a purchasing dealer notifying the
selling dealer of an intent to close out an inter-dealer fail would
continue to prompt DTCC to ``exit'' the position from CNS and the two
parties are responsible for effecting the close-out. Because a
municipal security may not be available

for purchase, incorporating the buy-in procedures of a registered
clearing agency will often not solve the inter-dealer fail. The MSRB
expects firms to not solely rely upon the CNS system or the services of
a registered clearing agency to resolve inter-dealer fails and take
prompt action to close out inter-dealer fails in a timely manner. Under
the proposed rule change, regardless of the date the positions are
exited from CNS, the inter-dealer fail must be resolved within 20
calendar days of the purchasing dealer's original settlement date. The
MSRB is also proposing to retire the Manual on Close-Out
Procedures.\11\
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    \11\ See Manual on Close-Out Procedures. The Manual on Close-Out
Procedures would be retired because such procedures would be
outdated and, given the proposed rule change's overall simplicity,
developing an updated version of the manual is not warranted.
---------------------------------------------------------------------------

Proposed Amendments to MSRB Rule G-12(h)
    Rule G-12, on uniform practice, establishes uniform industry
practices for processing, clearance and settlement of transactions in
municipal securities between a broker, dealer or municipal securities
dealer and any other broker, dealer or municipal securities dealer. The
proposed amendments would amend Rule G-12(h) by requiring close-outs to
be settled no later than 20 calendar days after the settlement date.
The proposed amendments to G-12(h)(i)(B) would allow for the close-out
process to continue to provide three options to the purchasing dealer.
The three options include: (1) Purchase (``buy-in'') at the current
market all or any part of the securities necessary to complete the
transaction for the account and liability of the seller; (2) accept
from the seller in satisfaction of the seller's obligation under the
original contract (which shall be concurrently cancelled) the delivery
of municipal securities that are comparable to those originally bought
in quantity, quality, yield or price, and maturity, with any additional
expenses or any additional cost of acquiring such substituted
securities being borne by the seller; or (3) require the seller to
repurchase the securities on terms which provide that the seller pay an
amount which includes accrued interest and bear the burden of any
change in market price or yield.
    Firms must coordinate internally to determine which of the three
close-out options are appropriate for any given fail-to-deliver
situation. While a buy-in may be the most preferred method, Rule G-
12(h) provides two other options to a purchaser in the event a buy-in
is not feasible. Firms are reminded that, regardless of the option
agreed upon by the counterparties, including a cancelation of the
original transaction, the close-out transaction is reportable to the
Real-time Transaction Reporting System (``RTRS'') as currently required
pursuant to Rule G-14.
    Additionally, the proposed amendments to Rule G-12(h)(i)(A) would
allow a purchaser to notify the seller of the purchaser's intent to
close-out the transaction the first business day following the
purchaser's original transaction settlement date, instead of waiting
five business days as currently required in Rule G-12(h)(i)(A).
    Currently Rule G-12(h) references use of the telephone and mail as
part of the notification process. The proposed amendments would update
Rule G-12(h) throughout, to reflect modern communication methods and
widely-used industry practices that would facilitate more timely and
efficient close-outs. For example, DTCC's SMART/Track is available for
use by any existing NSCC clearing firm or DTCC settling member,
allowing users to create, retransmit, respond, update, cancel and view
a notice.
    The proposed amendments to Rule G-12(h)(i)(D) would require sellers
to use their best efforts to locate the securities that are subject to
a close-out notice from a purchaser. The proposed amendments to Rule G-
12(h)(i)(E)(1) would also require the seller to bear any burden in the
market price, with any benefit from any change in the market price
remaining with the purchaser.
    The proposed amendments would also require a purchasing dealer that
has multiple counterparties, to utilize the FIFO (first-in-first-out)
method for determining the contract date for the failing quantity.
Amendments to Rule G-12(h)(iv) would require dealers to maintain all
records regarding the close-out transaction as part of the firm's books
and records.
Compliance Date
    As part of implementation of the proposed amendments, the MSRB
would allow for a 90-calendar day grace period for resolving all
outstanding inter-dealer fails. The MSRB understands that many of the
outstanding fails have been open for years and is concerned that such
fails could continue to exist until maturity unless dealers are
mandated to close-out all outstanding inter-dealer fails. While firms
may be reluctant to seek a solution other than a buy-in, the proposed
rule change provides alternative solutions that should be considered as
part of an inter-dealer fail resolution.
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with
Section 15B(b)(2)(C) of the Exchange Act,\12\ which provides that the
MSRB's rules shall:
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78o-4(b)(2)(C).

be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in municipal securities and
municipal financial products, to remove impediments to and perfect
the mechanism of a free and open market in municipal securities and
municipal financial products, and, in general, to protect investors,
---------------------------------------------------------------------------
municipal entities, obligated persons, and the public interest.

    The MSRB believes that the proposed rule change would benefit
investors, dealers and issuers. Specifically, the MSRB believes that
dealers may benefit from clarifications and revisions that more closely
reflect actual market practices. In addition, dealers may be able to
more quickly and efficiently resolve inter-dealer fails, which may
reduce dealer risk, reduce the likelihood and duration that dealers are
required to pay ``substitute interest'' to customers and reduce
systemic risk. The MSRB believes that the proposed rule change may also
reduce the likelihood and duration of firm short positions that
allocate to customer long positions, reduce investor tax exposure and
increase investor confidence in the market. Issuers and the market as a
whole may benefit from increased investor confidence.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Section 15B(b)(2)(C) of the Exchange Act \13\ requires that MSRB
rules not be designed to impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. In
determining whether these standards have been met, the MSRB was guided
by the Board's Policy on the Use of Economic Analysis in MSRB
Rulemaking.\14\ In accordance with this policy, the Board has evaluated
the potential impacts on competition of the proposed rule change,
including in comparison to reasonable alternative regulatory
approaches, relative to the baseline. The MSRB also considered other
economic

impacts of the proposed rule change and has addressed any comments
relevant to these impacts in other sections of this document.
---------------------------------------------------------------------------

    \13\ Id.
    \14\ Policy on the Use of Economic Analysis in MSRB Rulemaking,
available at, http://www.msrb.org/About-MSRB/Financial-and-Other-Information/FinancialPolicies/Economic-Analysis-Policy.aspx.
---------------------------------------------------------------------------

    According to DTCC, during the period December 16, 2015 through
December 22, 2015, NSCC had an average of 500 end-of-day municipal
security interdealer fails in CNS with an average total daily value of
$54.0 million. Of that total, there were an average of 170 end-of-day
inter-dealer fails with an average total daily market value of $6.3
million that had been outstanding for more than 20 days.
    As discussed above, the MSRB believes that the proposed rule change
would benefit investors, dealers and issuers.
    The MSRB believes that the proposed rule change may
disproportionately impact some market participants including smaller
selling dealers that may have more difficulty locating securities owed,
selling dealers that frequently fail to deliver securities or who owe a
large number of securities, purchasing dealers that frequently fail to
resolve interdealer fails or do not have policies and procedures in
place to monitor interdealer fails and clearing firms that do not
regularly communicate fails to correspondents.
    The MSRB sought additional data that would support a quantitative
evaluation of the magnitude of any of these, or any other potential
burdens, but was unable to identify relevant data directly or through
the comment process. Therefore, at present, the MSRB is unable to
quantitatively evaluate the magnitude, if any, of any burden on
competition. However, the qualitative analysis and review of comments
received supports the MSRB's view that the proposed rule change will
not impose any additional burdens on competition, relative to the
baseline, that are not necessary or appropriate in furtherance of the
purposes of the Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The MSRB received four comment letters \15\ in response to the
Request for Comment \16\ on the draft amendments to Rule G-12(h) and
all four comment letters were in support of the shorter mandated
timeframes for resolving inter-dealer fails. Overall, the four
commenters were supportive of the Board's Request for Comment and the
Board's efforts to update close-out procedures, underscoring that
municipal securities may fail to settle due to operational or trading
desk errors, customer-based execution errors, failure to receive a
security, or a partial call between trade and settlement date. BDA,
NSCC and SIFMA noted that the draft amendments would decrease the costs
and risks associated with dealer fails, while providing investors
greater certainty.
---------------------------------------------------------------------------

    \15\ Comment letters were received in response to the Request
for Comment from: Bond Dealers of America, Letter from Michael
Nicholas, Chief Executive Officer, dated March 4, 2016 (``BDA'');
Breena LLC: Email from Geraldine Lettieri dated January 6, 2016
(``Breena''); National Securities Clearing Corporation, Letter from
Murray C. Pozmanter, Managing Director, dated January 12, 2016
(``NSCC''); and Securities Industry and Financial Markets
Association, Letter from Leslie M. Norwood, Managing Director and
Associate General Counsel, dated March 6, 2016 (``SIFMA'').
    \16\ MSRB Notice 2016-02, Request for Comment on Amendments to
MSRB Rule G-12 on Close-Out Procedures (January 6, 2016) (``Request
for Comment'').
---------------------------------------------------------------------------

    None of the commenters objected to the proposed requirement to
resolve all current outstanding transaction fails, though BDA requested
a longer grace period. None of the commenters objected to settling
money differences or expenses within five business days, with SIFMA
specifically supporting this requirement. SIFMA also supported
utilizing the FIFO method for determining which contract date to use
for the failing quantity when the fail is a result of multiple
transactions.
Shortening the Close-Out Period
    SIFMA and Breena suggested a tighter time frame to resolve a fail
of 15 and 10 days respectively, significantly less than the proposed
time frame of 30 calendar days, with SIFMA emphasizing that ``failed
transactions don't get better with age.''
    While SIFMA supports an even shorter time frame for close-outs,
they also suggest that the rule permit the buyer to grant the seller a
one-time 15-day extension, for an aggregate total of 30 days to close-
out an inter-dealer fail. While the Board commends these industry
participants on an aggressive time frame to resolve inter-dealer fails,
the Board is concerned that shortening the 30 calendar day period to 15
days may overburden smaller dealers who may not have the same resources
that would be required to locate a security and effectively close-out a
failed transaction in a shorter time frame. The MSRB believes it is
better to provide all dealers a fixed time frame that is sufficient to
complete the close-out process rather than a reduced time frame with an
additional permissive 15-day extension as suggested by SIFMA.
Therefore, the MSRB revised its original proposal in the Request for
Comment; the proposed rule change would require firms to complete a
close-out in 20 calendar days, which reflects not only the expressed
commitment and desire of the industry to expedite a close-out, but also
reduces the risk of placing an undue burden on smaller dealers.
Grace Period for Outstanding Fails
    Rather than the 90-day grace period proposed in the Request for
Comment, BDA recommended a 180-day grace period to allow the industry
ample time to resolve existing aged fails. As noted in the Request for
Comment, NSCC had an average of 170 end-of-day inter-dealer fails
outstanding for more than 20 days during the period December 15, 2015
to December 22, 2015. The Board believes that the industry will have
ample time to clean up the approximately 170 existing aged inter-dealer
fails given that dealers with failed transactions could begin working
on closing out those transactions immediately.
Documentation
    SIFMA requested guidance regarding the documentation needed for the
situation where one dealer is trying to resolve a fail, but the other
party is not willing to cooperate. The proposed rule change would
mandate that dealers utilize an inter-dealer communication system of
the registered clearing agency through which the transaction would be
compared to ensure consistency and which would provide a clear audit
trail. The MSRB does not believe any further guidance on documenting
the inter-dealer interaction is necessary at this point.
Partial Deliveries
    SIFMA noted that a purchasing dealer should not be required to
accept a partial delivery on an inter-dealer fail and would like to
have further dialog with the MSRB and DTCC on this issue. Currently CNS
will make a partial delivery if the full amount of securities is not
available through CNS and a buyer in CNS is not able to reject a
partial delivery from CNS and return the securities to CNS. According
to DTCC, partial deliveries have been occurring in CNS for 20 years.
The proposed rule change does not mandate acceptance of partial
deliveries and the close-out process is done outside of the CNS process
and the MSRB believes the comment was outside the scope of the proposed
rule change.
More Onus Placed on the Failing Dealer
    SIFMA noted that some of their members feel consideration should be

given to a simpler rule in which more onus is placed on the dealer that
fails to deliver the securities by forcing those dealers to take
responsibility for resolving the short, even suggesting the seller
break the trade or resolve a fail through a buy-back. Currently the
rule places more emphasis on the buyer, allowing the buyer to control
the execution and agree to the terms of the close-out in the event the
seller does not resolve the fail. SIFMA noted that it is not uncommon
for dealers to simply allow the delivery deadline to pass, thereby
forcing the buyers to do all the ``heavy lifting.'' In response to this
comment the proposed rule change would amend Rule G-12(h)(i)(D) to
specifically address ``seller's responsibilities,'' which will further
clarify that the seller is expected to use its best efforts to locate
the securities referenced in the notice. Currently, the Manual on
Close-out Procedures interprets any change in market price as
attributable to the seller. The proposed amendments would further
clarify that any financial burden as the result of the purchaser
effecting a ``buy-in'' is borne by the seller, but any benefit remains
with the purchaser.
Guidance for Customer Accounts
    SIFMA would like guidance on how to close-out a short position that
results from an inter-dealer fail when that position is in a customer's
self-directed account where the dealer may not have the discretion to
sell or cancel a position in that account or purchase a comparable
security for that account. The MSRB believes the guidance requested by
SIFMA is outside the scope of the Request for Comments because the
proposal does not impose an obligation on dealers to effect
transactions in customer accounts in order to resolve inter-dealer
fails and should a customer want to retain a position that effectively
requires a dealer to pay substitute interest, that issue is one outside
the scope of MSRB rules.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period of up to 90 days (i) as
the Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be 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_ADDRESS>Please include
File Number SR-MSRB-2016-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2016-07. 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
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the MSRB. 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-MSRB-2016-07 and should be
submitted on or before June 22, 2016.

    For the Commission, pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-12789 Filed 5-31-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 67 (Wednesday, April 8, 2015)]
[Notices]
[Pages 18924-18926]
[FR Doc No: 2015-08052]

=======================================================================
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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

[Docket No. FMCSA-2013-0124]

Qualification of Drivers; Application for Exemptions; Hearing

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.

ACTION: Notice of final disposition.

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SUMMARY: FMCSA announces its decision to grant requests from 51
individuals for exemptions from the Agency's physical qualifications
standard concerning hearing for interstate drivers. The current
regulation prohibits hearing impaired individuals from operating CMVs
in interstate commerce. After notice and opportunity for public
comment, the Agency concluded that granting exemptions for these
drivers to operate property-carrying CMVs will provide a level of
safety that is equivalent to or greater than the level of safety
maintained without the exemptions. The exemptions are valid for a 2-
year period and may be renewed, and the exemptions preempt State laws
and regulations.

DATES: The exemptions are effective April 8, 2015. The exemptions
expire on April 10, 2017.

FOR FURTHER INFORMATION CONTACT: Charles A. Horan, III, Director,
Office of Carrier, Driver and Vehicle Safety,<PHONE_NUMBER>,
<EMAIL_ADDRESS>FMCSA, Department of Transportation, 1200 New
Jersey Avenue SE., Room W64-224, Washington, DC 20590-0001. Office
hours are 8:30 a.m. to 5 p.m., e.t., Monday through Friday, except
Federal holidays.

SUPPLEMENTARY INFORMATION:

A. Electronic Access

    You may see all the comments online through the Federal Document
Management System (FDMS) at: http://www.regulations.gov.
    Docket: For access to the docket to read background documents or
comments, go to http://www.regulations.gov and/or Room W12-140 on the
ground level of the West Building, 1200 New Jersey Avenue SE.,
Washington, DC, between 9 a.m. and 5 p.m., e.t., Monday through Friday,
except Federal holidays.
    Privacy Act: In accordance with 5 U.S.C. 553(c), DOT solicits
comments from the public to better inform its rulemaking process. DOT
posts these comments, without edit, including any personal information
the commenter provides, to www.regulations.gov, as described in the
system of records notice (DOT/ALL-14 FDMS), which can be reviewed at
www.dot.gov/privacy.

B. Background

    Under 49 U.S.C. 31136(e) and 31315, FMCSA may grant an exemption
from the safety regulations for a 2-year period if it finds ``such
exemption would likely achieve a level of safety that is equivalent to
or greater than the level that would be achieved absent such
exemption.'' The statute also allows the Agency to renew exemptions at
the end of the 2-year period. The current provisions of the FMCSRs
concerning hearing state that a person is physically qualified to drive
a CMV if that person:

    First perceives a forced whispered voice in the better ear at
not less than 5 feet with or without the use of a hearing aid or, if
tested by use of an audiometric device, does not have an average
hearing loss in the better ear greater than 40 decibels at 500 Hz,
1,000 Hz, and 2,000 Hz with or without a hearing aid when the
audiometric device is calibrated to American National Standard
(formerly ASA Standard) Z24.5-1951.

49 CFR 391.41(b)(11). This standard was adopted in 1970, with a
revision in 1971 to allow drivers to be qualified under this standard
while wearing a hearing aid, 35 FR 6458, 6463 (April 22, 1970) and 36
FR 12857 (July 3, 1971).
    FMCSA grants 51 individuals an exemption from section 391.41(b)(11)
concerning hearing to enable them to operate property-carrying CMVs in
interstate commerce for a 2-year period. The Agency's decision on these
exemption applications is based on the current medical literature and
information and the ``Executive Summary on Hearing, Vestibular Function
and Commercial Motor Driving Safety'' (the 2008 Evidence Report)
presented to FMCSA on August 26, 2008. The evidence report reached two
conclusions regarding the matter of hearing loss and CMV driver safety:
(1) No studies that examined the relationship between hearing loss and
crash risk exclusively among CMV drivers were identified; and (2)
evidence from studies of the private driver license holder population
does not support the contention that individuals with hearing
impairment are at an increased risk for a crash. In addition, the
Agency reviewed each applicant's driving record found in the CDLIS,\1\
for CDL holders, and inspections recorded in MCMIS.\2\ For non-CDL
holders, the Agency reviewed the driving records from the State
licensing agency. Each applicant's record demonstrated a safe driving
history. The Agency believes the drivers covered by the exemptions do
not pose a risk to public safety.
---------------------------------------------------------------------------

    \1\ Commercial Driver License Information System (CDLIS) is an
information system that allows the exchange of commercial driver
licensing information among all the States. CDLIS includes the
databases of 51 licensing jurisdictions and the CDLIS Central Site,
all connected by a telecommunications network.
    \2\ Motor Carrier Management Information System (MCMIS) is an
information system that captures data from field offices through
SAFETYNET, CAPRI, and other sources. It is a source for FMCSA
inspection, crash, compliance review, safety audit, and registration
data.
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C. Comments

    On February 14, 2014, FMCSA published a notice of receipt of
exemption applications and requested public comment on 51 individuals.
The comment period ended on March 17, 2014. In response to the notice,
FMCSA received one comment from Ann Sherman, who supports the idea of
deaf drivers having the opportunity to get training and seek employment
``like everyone else''. FMCSA has determined that the following 51
applicants should be granted an exemption:

D. Exemptions Granted

    Following individualized assessments of the exemption applications,
FMCSA grants exemptions from 49 CFR 391.41(b)(11) to 51 individuals.
Under current FMCSA regulations, all of the 51 drivers receiving
exemptions from 49 CFR 391.41(b)(11) would have been considered
physically qualified to drive a CMV in interstate commerce except that
they do not meet the hearing requirement. FMCSA has determined that the
following 51 applicants should be granted an exemption:

Brooks Andresen

    Mr. Andresen, 34, holds a driver's license in Utah.

Alexey Belousov

    Mr. Belousov, 37, holds a driver's license in Maryland.

Richard Boggs

    Mr. Boggs, 37, holds a driver's license in Ohio.

Conley Bowling

    Mr. Bowling, 35, holds a driver's license in Kentucky.

Marquarius Boyd

    Mr. Boyd, 23, holds a driver's license in Mississippi.

Charles Breidenthal

    Mr. Breidenthal, 62, holds a driver's license in California.

Adam Brown

    Mr. Brown, 32, holds a driver's license in Texas.

Kwinton C. Carpenter

    Mr. Carpenter, 29, holds a driver's license in Ohio.

Ronald Dillon, Jr.

    Mr. Dillon, 49, holds a driver's license in California.

Clark Dobson

    Mr. Dobson, 50, holds a driver's license in California.

Louis Dominik

    Mr. Dominik, 54, holds a driver's license in Texas.

Kareem M. Douglas

    Mr. Douglas, 39, holds a driver's license in Ohio.

Craig Eberhart

    Mr. Eberhart, 43, holds a driver's license in Pennsylvania.

Anthony Farinacci

    Mr. Farinacci, 50, holds a driver's license in Ohio.

Timothy D. Finley

    Mr. Finley, 48, holds a driver's license in California.

Danny E. Fisk

    Mr. Fisk, 57, holds a driver's license in Colorado.

Christopher Fitzwater

    Mr. Fitzwater, 27, holds a driver's license in Virginia.

Kenneth Frilando

    Mr. Frilando, 46, holds a driver's license in New York.

Timothy Gallagher

    Mr. Gallagher, 51, holds a driver's license in Pennsylvania.

John R. Harper, Jr.

    Mr. Harper, 33, holds a driver's license in Illinois.

Kenneth E. Harris

    Mr. Harris, 39, holds a driver's license in Missouri.

Susan D. Helgerson

    Ms. Helgerson, 49, holds a driver's license in Wisconsin.

Kimberly Hicks

    Ms. Hicks, 47, holds a driver's license in Illinois.

Devon T. Hinds

    Mr. Hinds, 56, holds a driver's license in Colorado.

Ryan S. Howard

    Mr. Howard, 41, holds a driver's license in New York.

Gregory Ingram

    Mr. Ingram, 28, holds a driver's license in North Carolina.

Bernard LaFayette

    Mr. LaFayette, 59, holds a driver's license in California.

Christopher Lucki

    Mr. Lucki, 32, holds a driver's license in Illinois.

Joshua Matlow

    Mr. Matlow, 34, holds a driver's license in Texas.

Kathy Mazique

    Ms. Mazique, 31, holds a driver's license in Illinois.

David W. McCoy

    Mr. McCoy, 63, holds a driver's license in California.

Clair Mitcham

    Ms. Mitcham, 56, holds a driver's license Texas.

Jeffrey S. Moore

    Mr. Moore, 35, holds a driver's license in Pennsylvania.

Christopher Morgan

    Mr. Morgan, 25, holds a driver's license in Massachusetts.

Quinton Murphy

    Mr. Murphy, 32, holds a driver's license in Wisconsin.

William Noble

    Mr. Noble, 63, holds a driver's license in New York.

Veniamin Panteleimonov

    Mr. Panteleimonov, 34, holds a driver's license in California.

Kelly Pulvermacher

    Mr. Pulvermacher, 27, holds a driver's license in Wisconsin.

Jeremy Reams

    Mr. Reams, 37, holds a driver's license in Kentucky.

Victor M. Robinson

    Mr. Robinson, 31, holds a driver's license in Louisiana.

Darrin A. Rutley

    Mr. Rutley, 32, holds a driver's license in New York.

Samuel Sherman

    Mr. Sherman, 36, holds a driver's license in Minnesota.

Andrey Shevchenko

    Mr. Shevchenko, 22, holds a driver's license in Minnesota.

Ronald K. Smith, Jr.

    Mr. Smith, 33, holds a driver's license in Texas.

Willine D. Smith

    Ms. Smith, 52, holds a Class B commercial driver's license (CDL) in
Florida.

William Templeton

    Mr. Templeton, 44, holds a driver's license in Georgia.

Timothy A. Terpak

    Mr. Terpak, 28, holds a driver's license in Pennsylvania.

Jeremy L. Thrush

    Mr. Thrush, 27, holds a driver's license in Pennsylvania.

Carlos A. Torres

    Mr. Torres, 30, holds a driver's license in Florida.

John K. Turner, III

    Mr. Turner, 49, holds a driver's license in Colorado.

Chad Weaver

    Mr. Weaver, 32, holds a driver's license in Georgia.

E. Basis For Exemption

    Under 49 U.S.C. 31136(e) and 31315, FMCSA may grant an exemption
from the hearing standard in 49 CFR 391.41(b)(11) if the exemption is
likely to achieve an equivalent or greater level of safety than would
be achieved without the exemption. With the exemption, applicants can
drive in interstate commerce. Thus, the Agency's analysis focuses on
whether an equal or greater level of safety is likely to be achieved by
permitting each of these

drivers to drive in interstate commerce as opposed to restricting him
or her to driving in intrastate commerce. The driver must comply with
the terms and conditions of the exemption. This includes reporting any
crashes or accidents as defined in 49 CFR 390.5 and reporting all
citations and convictions for disqualifying offenses under 49 CFR part
383 and 49 CFR 391.

Conclusion

    The Agency is granting exemptions from the hearing standard, 49 CFR
391.41(b)(11), to 51 individuals based on a thorough evaluation of each
driver's safety experience. Safety analysis of information relating to
these 51 applicants meets the burden of showing that granting the
exemptions would achieve a level of safety that is equivalent to or
greater than the level that would be achieved without the exemption. By
granting the exemptions, the CMV industry will gain 51 additional CMV
drivers. In accordance with 49 U.S.C. 31315, each exemption will be
valid for 2 years from the effective date with annual recertification
required unless revoked earlier by FMCSA. The exemption will be revoked
if the following occurs: (1) The person fails to comply with the terms
and conditions of the exemption; (2) the exemption has resulted in a
lower level of safety than was maintained prior to being granted; or
(3) continuation of the exemption would not be consistent with the
goals and objectives of 49 U.S.C. 31136 and 31315.
    FMCSA exempts the following 51 drivers for a period of 2 years from
the physical qualification standard concerning hearing: Brooks Andresen
(UT); Alexey Belousov (MD); Richard Boggs (OH); Conley Bowling (KY);
Marquarius Boyd (MS); Charles Breidenthal (CA); Adam Brown (TX);
Kwinton Carpenter (OH); Ronald Dillon, Jr. (CA); Clark Dobson (CA);
Louis Dominik (TX); Kareem M. Douglas (OH); Craig Eberhart (PA);
Anthony Farinacci (OH); Timothy D. Finley (CA); Danny E. Fisk (CO);
Christopher Fitzwater (VA); Kenneth Frilando (NY); Timothy Gallagher
(PA); John R. Harper, Jr. (IL); Kenneth E. Harris (MO); Susan D.
Helgerson (WI); Kimberly Hicks (IL); Devon T. Hinds (CO); Ryan S.
Howard (NY); Gregory Ingram (NC); Bernard LaFayette (CA); Christopher
Lucki (IL); Joshua Matlow (TX); Kathy Mazique (IL); David W. McCoy
(CA); Clair Mitcham (TX); Jeffrey S. Moore (PA); Christopher Morgan
(MA); Quinton Murphy (WI); William Noble (NY); Veniamin Panteleimonov
(CA); Kelly Pulvermacher (WI); Jeremy Reams (KY); Victor M. Robinson
(LA); Darrin A. Rutley (NY); Samuel Sherman (MN); Andrey Shevchenko
(MN); Ronald K. Smith, Jr. (TX); Willine D. Smith (FL); William
Templeton (GA); Timothy A. Terpak (PA); Jeremy L. Thrush (PA); Carlos
A. Torres (FL); John K. Turner, III (CO); and Chad Weaver (GA).

    Issued on: April 2, 2015.
Larry W. Minor,
Associate Administrator for Policy.
[FR Doc. 2015-08052 Filed 4-7-15; 8:45 am]
 BILLING CODE 4910-EX-P


[Federal Register: July 27, 2006 (Volume 71, Number 144)]
[Notices]
[Page 42693-42694]
[DOCID:fr27jy06-89]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54185; File No. SR-CHX-2005-34]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Regarding Cancellation of the Stock Leg of a Stock-Option Order

 July 20, 2006.
    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 November 14, 2005, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') 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 the CHX. On July 11,
2006, the Exchange submitted Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, CHX made minor revisions to the proposed
rule text and clarified certain details of its proposal.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend its rules to permit cancellation of
the stock leg of a stock-option order if market conditions in a non-
Exchange market prevent the options leg of the order from being
executed at the agreed-upon price.
    The text of the proposed rule change is available on CHX's Web site
(http://www.chx.com), at the CHX's Office of the Secretary, 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, the CHX 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. The Exchange 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
    According to the Exchange, stock-option orders are relied on
frequently by options market makers as part of their legitimate hedging
strategies. The typical stock-option order involves an order to buy or
sell a stated number of shares of an underlying security, coupled with
the purchase or sale of option contracts, puts or calls on the opposite
side of the market from the underlying security.
    Certain CHX floor participants receive stock-option related order
flow from off-floor participants who are options market makers on
options exchanges such as the Chicago Board Options Exchange
(``CBOE''). Specifically, the stock leg of a stock-option order is
routed to the CHX for execution, while the options leg(s) is executed
on an options exchange.
    The CHX states that, because stock-option orders are complex
transactions (often with multiple parties) and markets are volatile,
with quotations moving quickly and often, many times the options leg of
the transaction does not occur, in which case the off-floor participant
requests that the CHX floor participant cancel the transaction's stock
leg. The proposed rule change would permit cancellation of the stock
leg of a stock-option order if market conditions in the non-Exchange
market prevented the execution of the options leg of a transaction.\4\
The proposed rule

is based on (and virtually identical to) CBOE Rule 6.48(b)(ii), which
permits cancellation of the options leg of a stock-option order.\5\
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    \4\ The types of market conditions that would be sufficient to
justify cancellation of the Exchange leg of a multi-market order
include a sudden change in the price of the options involved in the
transaction prior to execution of the trade and a trading halt or
systems failure that precludes immediate execution of the options
leg at the agreed upon price.
    \5\ According to CHX, the stock leg of a stock-option order is
always presented to the CHX with an identified buyer and seller who
have agreed to the terms of the trade. Both buyer and seller are
aware of the possibility that the stock leg of a stock-option order
may be cancelled on the CHX if the corresponding options leg is
cancelled on an options market. The CHX states that, because both
the buyer and seller would be identified when the stock leg is
presented to the CHX, there would be no possibility that another CHX
member's order could be matched against a stock-option order.
Accordingly, the CHX believes that there would be no risk that an
investor's order could be involuntarily cancelled without notice to
the investor; the CHX thus believes that this pattern and practice
amply satisfies the requirements of proposed Interpretation and
Policy .01(d).
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    It is important to note that the proposed rule change would require
that the CHX floor participant maintain records ``sufficient to
establish that market conditions in a non-Exchange market prevented the
execution of the option leg(s).'' The CHX believes this requirement
would give the CHX Department of Market Regulation the ability to
oversee the cancellation of stock leg orders, to ensure against abusive
trade reporting practices.\6\
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    \6\ The recordkeeping requirement would permit the CHX
Department of Market Regulation to monitor patterns that may
develop, as well as the overall quantity of trade cancellations, to
help deter members from simply canceling orders for the sake of
convenience. The Exchange believes that the recordkeeping
requirement would help ensure that the volume of transactions
reported is accurate and complete and not overstated.
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2. Statutory Basis
    The Exchange believes that its proposal, as amended, is consistent
with Section 6(b) of the Act \7\ in general, and furthers the
objectives of Section 6(b)(5) of the Act \8\ in particular, in that it
is designed to promote just and equitable principles of trade, to
remove impediments to, and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest by promoting consistency between the
Exchange and options markets relating to cancellation of the components
of stock-option orders.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as
amended, would impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the CHX consents, the Commission will:
    A. By order approve such proposed rule change, as amended; or
    B. Institute proceedings to determine whether the proposed rule
change should be 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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-CHX-2005-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2005-34. 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. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. 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 publicly available. All submissions should refer to
File Number SR-CHX-2005-34 and should be submitted on or before August
17, 2006.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-11980 Filed 7-26-06; 8:45 am]

BILLING CODE 8010-01-P