Legal Alerts

The SEC Approves Proposed Amendments to FINRA Rule 6440

03.05.13

In February 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”)’s proposed rule change for FINRA Rule 6440 (Trading and Quotation Halt in OTC Equity Securities) was approved by the Securities and Exchange Commission (the “Commission”). In so approving, the Commission found that the rule change, which is a response to the growth of foreign securities markets, “is consistent with the requirements of Section 15A(b) of the Act and the rules and regulations thereunder.”1 Overall, the amendments will promote the protection of U.S. investors and the public interest, produce fair and informative quotations, and prevent fictitious or misleading quotations for OTC Equity Securities. 

The following changes will be made to Rule 6440:

  • Amend Rule 6440(a)(1) to permit FINRA to initiate a trading and quotation halt as a result of a Foreign Regulatory Halt when the foreign halt is imposed for news pending.2 This rule change will greatly increase coordination of trading halts across markets and will enable FINRA to initiate trading and quotation halts under a broader set of circumstances, reducing the potential that investors may trade on incomplete or inaccurate information. In addition, the change will substantially improve the ease at which trading can occur in foreign securities markets, and will reduce instances of potentially material disparities in information regarding the security and instances of fraudulent or manipulative trading in the security.
  • Amend Rule 6440(b)(1) to provide that upon notice (and not simply receipt of information), of a Foreign Regulatory Halt or Derivative Halt from (i) the national or foreign securities exchange or market on which the OTC Equity Security or the security underlying the OTC ADR is listed or registered; (ii) a regulatory authority overseeing such issuer, exchange, or market; or (iii) another reliable third-party source where FINRA can validate the information provided, FINRA will initiate a trading and quotation halt in the OTC Equity Security. This change will allow FINRA to initiate a halt more promptly when such a halt is warranted. 
  • Amend Rule 6440(b)(3) to provide that for halts as a result of an Extraordinary Event Halt, trading and quotations in the OTC market for the OTC Equity Security may resume when FINRA determines that the basis for the halt no longer exists, or when 10 business days have elapsed from the date FINRA initiated the trading and quotation halt in the security, whichever occurs first. In addition, FINRA will be permitted to extend the Extraordinary Event Halt for subsequent periods of up to 10 business days each if, at the time of any extension, FINRA finds that the extraordinary event is ongoing and determines that the continuation of the halt beyond the prior 10 business day period is necessary in the public interest and for the protection of investors, particularly in situations where concerns regarding settlement and clearance, pricing, or other extraordinary events can take time to be resolved. These durational changes will improve the production of fair and informative quotations and prevent fictitious or misleading quotations.

1 See Securities and Exchange Commission Release No. 34-68874; File No. SR-FINRA-2012-010 (proposed rule change). FINRA rule 6420 defines “OTC Equity Security” as any equity security that is not an ‘NMS stock’ as outlined in rule 600(b)(47) of the SEC Regulation NMS.
2 Notably, there will be no changes to the section relating to FINRA’s halt authority where the Foreign Regulatory Halt is imposed solely for a regulatory filing deficiency or operational reasons.

Contact
LaFromboise, Antoine J.
Communications and Brand Manager
T 612.371.3269

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.

Operators

AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.