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08-68 FINRA Requests Comment on Proposed FINRA Rule Addressing the Circulation of Rumors; Comment Period Expires: December 18, 2008
Circulation of Rumors
Request for Comment
Consolidated FINRA Rulebook
Referenced Rules & Notices
FINRA Rule 6140
NASD Rule 5120
Incorporated NYSE Rule 435(5)
Circulation of Rumors
As part of the process of developing a new, consolidated rulebook (the Consolidated FINRA Rulebook), FINRA is requesting comment on a proposed FINRA Rule relating to the circulation of rumors. The proposed rule is based on FINRA Rule 6140 and Incorporated NYSE Rule 435(5).1
Questions concerning this Notice should be directed to Brant Brown, Associate General Counsel, Office of General Counsel, at (202) 728-6927.
FINRA encourages all interested parties to comment on the proposal. Comments must be received by December 18, 2008.
Member firms and other interested parties can submit their comments using the following methods:
Marcia E. Asquith
Office of the Corporate Secretary
1735 K Street, NW
Washington, DC 20006-1506
To help FINRA process and review comments more efficiently, persons should use only one method to comment on the proposal.
Important Notes: The only comments that FINRA will consider are those submitted pursuant to the methods described above. All comments received in response to this Notice will be made available to the public on the FINRA Web site. Generally, FINRA will post comments on its site one week after the end of the comment period.2
Before becoming effective, a proposed rule change must be authorized for filing with the SEC by the FINRA Board of Governors, and then must be approved by the SEC, following publication for public comment in the Federal Register.3
Background & Discussion
FINRA is proposing Rule 2030, a new, stand-alone rule, that combines aspects of Incorporated NYSE Rule 435(5) and FINRA Rule 6140(e) and that extends the prohibition on the origination or circulation of rumors to cover all securities.4 FINRA is proposing to replace Rule 6140(e) and Incorporated NYSE Rule 435(5), as well as the Interpretation to Incorporated NYSE Rule 435(5), with the following:
Rule 2030. Circulation of Rumors
No member shall originate or circulate in any manner a rumor concerning any security which the member knows or has reasonable grounds for believing is false or misleading or would improperly influence the market price of such security. A member must promptly report to FINRA any circumstance which reasonably would lead the member to believe that any such rumor might have been originated or circulated.
The proposed rule includes standards and obligations derived from both existing rules. Aspects of the proposed rule are described more fully below.
Request for Comment
In connection with the proposal, FINRA is requesting comment on certain aspects of proposed Rule 2030. Specifically, FINRA is requesting comment on the following:
In addition to the specific questions listed above, FINRA is also interested in any other issues that commenters may wish to address relating to the proposal.
1 The current FINRA rulebook includes, (1) NASD Rules; and (2) rules incorporated from NYSE (Incorporated NYSE Rules). While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE (Dual Members). The new FINRA Rules will apply to all member firms, unless such rules have a more limited application by their terms. For more information about the rulebook consolidation process, see FINRA Information Notice 03/12/08 (Rulebook Consolidation Process).
2 FINRA will not edit personal identifying information, such as names or email addresses, from submissions. Persons should submit only information that they wish to make publicly available. See NASD Notice to Members 03-73 (November 2003) (NASD Announces Online Availability of Comments) for more information.
3 Section 19 of the Securities Exchange Act of 1934 (Exchange Act) permits certain limited types of proposed rule changes to take effect upon filing with the SEC. The SEC has the authority to summarily abrogate these types of rule changes within 60 days of filing. See Exchange Act Section 19 and rules thereunder.
4 The SEC recently approved the adoption of NASD Rule 5120 as FINRA Rule 6140, without substantive change, effective December 15, 2008. See Regulatory Notice 08-57 (October 2008). Although NASD Rule 5120 remains in effect until December 15, 2008, references in this Notice are to new FINRA Rule 6140.
5 See NASD Notice to Members 75-42 (June 10, 1975); NASD Notice to Members 74-52 (December 20, 1974).