FINRA proposes to amend its rule relating to trade reporting OTC transactions in equity securities.  FINRA seeks to: 

• clarify the existing exception for transactions that are part of a distribution of securities and impose certain notice requirements on members relying on the exception for transactions that are part of an “unregistered secondary distribution”; and
• expressly exclude from the trade reporting requirements transfers of equity securities for the purpose of creating or redeeming instruments such as ADRs and ETFs.

FINRA proposes that the changes to FINRA Rules 6282, 6380A, 6380B and 6622 become effective 90 days following SEC approval.

Background.   Firms are required to report OTC transactions in equity securities to FINRA unless they fall within an express exception.  In general, when members report OTC trades, FINRA facilitates the public dissemination of the trade information and/or assesses regulatory transaction fees along with the Trading Activity Fee. 

• Certain transactions and transfers are not reported to FINRA at all - e.g., trades executed and reported through an exchange and transfers made pursuant to an asset purchase agreement that has been approved by a bankruptcy court. 
• Others must be reported to FINRA for regulatory transaction fee assessment purposes only - e.g., away from the market sales and transfers in connection with certain corporate control transactions.
  • Note:  Members must have pols and procedures and internal controls in place to determine whether a transaction qualifies for an exception under the rules.

FINRA proposes to amend its rules to clarify that for purposes of this trade reporting exception, “distribution” has the meaning set forth under SEC Regulation M.  A “distribution” is defined under Rule 100 of Regulation M as “an offering of securities, whether or not subject to registration under the Securities Act, that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods.”

For further details, go to:   [FINRA Rule Filing 11-27, 6/10/11]