Federal Register: May 13, 2008 (Volume 73, Number 93)
DOCID: fr13my08-99 FR Doc E8-10594
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-57784; File No. SR-FINRA-2007-039]
NOTICE: NOTICES
DOCID: fr13my08-99
ACTION: Self-Regulatory Organizations; Proposed Rule Changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change as Modified by Amendment Nos. 1 and 2 Thereto To Establish an Exemption for Certain Regulation NMS-Compliant Intermarket Sweep Orders from the Requirements in IM-2110-2 (Trading Ahead of Customer Limit Order) and Rule 2111 (Trading Ahead of Customer Market Orders)
DOCUMENT SUMMARY:
May 6, 2008.
I. Introduction
On December 21, 2007, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')), filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b4 thereunder,\2\ a
proposed rule change to establish an exemption for certain Regulation
NMScompliant Intermarket Sweep Orders (``ISOs'') from the requirements
governing trading ahead of customer limit orders and customer market
orders. On February 11, 2008, FINRA filed Amendment No. 1 to the
proposed rule change. The proposed rule change, as amended, was
published for comment in the Federal Register on March 5, 2008.\3\ The
Commission received one comment letter regarding the proposal.\4\ FINRA
responded to the comment letter on March 26, 2008.\5\ On April 30,
2008, FINRA filed Amendment No. 2 to the proposed rule change.\6\ \1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 57388 (February 27, 2008), 73 FR 11963.
\4\ See submission via SEC WebForm from Craig Carlino, Monroe Securities, dated March 13, 2008.
\5\ See letter from Andrea D. Orr, Assistant General Counsel,
FINRA, to Nancy M. Morris, Secretary, Commission, dated March 26, 2008 (``FINRA letter'').
\6\ In Amendment No. 2, FINRA deleted definitions that were
either unnecessary or duplicative from the proposed rule text.
Because the Amendment is technical in nature, it is not subject to notice and comment.
[[Page 27588]]
This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2.
II. Description of the Proposed Rule Change
FINRA is proposing to establish an exemption for certain Regulation
NMScompliant ISOs \7\ from the Rule and the Interpretive Material
(``IM'') that govern trading ahead of customer limit orders and
customer market orders. Under the proposed rule, a member will be
exempt from its obligations with respect to trading for its own account
if an ISO is routed in compliance with Rule 600(b)(30)(ii) of
Regulation NMS, and the customer limit order or market order is
received after the member routed the ISO. The exemption will also apply
if the member executes an ISO to facilitate a customer limit order or
market order, and the customer has consented to not receiving the better prices obtained by the ISO.
\7\ Regulation NMS defines an ISO as a limit order for an NMS
stock that meets the following requirements: (i) When routed to a
trading center, the limit order is identified as an intermarket
sweep order; and (ii) simultaneously with the routing of the limit
order identified as an intermarket sweep order, one or more
additional limit orders, as necessary, are routed to execute against
the full displayed size of any protected bid, in the case of a limit
order to sell, or the full displayed size of any protected offer, in
the case of a limit order to buy, for the NMS stock with a price
that is superior to the limit price of the limit order identified as
an intermarket sweep order. These additional routed orders also must
be marked as intermarket sweep orders. See 17 CFR 242.600(b)(30).
In its filing with the Commission, FINRA stated that the proposed
exemption is similar to an exemption adopted by the New York Stock
Exchange LLC to its Rule 92 (Limitations on Members' Trading Because of
Customers' Orders). The ISO exemption to Rule 92 was approved by the Commission on July 5, 2007.\8\
\8\ See Securities Exchange Release No. 56017 (July 5, 2007), 72 FR 38110 (July 12, 2007) (SRNYSE200721).
III. Summary of Comments
The Commission received one comment letter in response to the
proposed rule change.\9\ The commenter stated that the implementation
of IM21102 will reduce liquidity and result in inferior executions
for public investors who own nonpenny stock OTC securities.\10\ The
commenter also objected to the change to the definition of the size of
the order on which terms and conditions may be negotiated.\11\ \9\ Supra note 4.
\10\ Id. at 12.
\11\ Id. at 2.
FINRA responded to the comment letter on March 26, 2008.\12\ FINRA
stated that the comment letter was not germane to the proposed rule
change, as it did not pertain to the proposed ISO exemption.\13\
According to FINRA, the comments related to a rule change, previously
approved by the Commission,\14\ which expanded IM21102 to apply to OTC equity securities.\15\
\12\ Supra note 5.
\13\ Id. at 1.
\14\ See Securities Exchange Act Release No. 55351 (February 26, 2007), 72 FR 09810 (March 5, 2007) (SRNASD2005146).
\15\ FINRA letter at 2.
IV. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change, the
comment letter, and FINRA's response to the comment letter, and finds
that the proposed rule change is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities association \16\ and, in particular, Section
15A(b)(6) of the Act,\17\ which requires, among other things, that
FINRA rules be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.
\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o3(b)(6).
The Commission believes that it is reasonable for FINRA to amend IM21102 and Rule 2111 to exempt members when routing certain Regulation NMScompliant ISOs. The proposed rule change should enable members to comply with the ISO routing requirements of Rule 611 of Regulation NMS without violating IM21102 and Rule 2111 and, given the ISO routing exemption that currently exists under NYSE Rule 92, will subject ISO routing to consistent standards.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\18\ that the proposed rule change (SRFINRA2007039), as modified by Amendment Nos. 1 and 2, be, and it hereby is, approved.
\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\19\
\19\ 17 CFR 200.303(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E810594 Filed 51208; 8:45 am]
BILLING CODE 801001P
SUMMARY:
Financial Industry Regulatory Authority, Inc.,
DOCUMENT BODY 2:
May 6, 2008.
I. Introduction
On December 21, 2007, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')), filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b4 thereunder,\2\ a
proposed rule change to establish an exemption for certain Regulation
NMScompliant Intermarket Sweep Orders (``ISOs'') from the requirements
governing trading ahead of customer limit orders and customer market
orders. On February 11, 2008, FINRA filed Amendment No. 1 to the
proposed rule change. The proposed rule change, as amended, was
published for comment in the Federal Register on March 5, 2008.\3\ The
Commission received one comment letter regarding the proposal.\4\ FINRA
responded to the comment letter on March 26, 2008.\5\ On April 30,
2008, FINRA filed Amendment No. 2 to the proposed rule change.\6\ \1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 57388 (February 27, 2008), 73 FR 11963.
\4\ See submission via SEC WebForm from Craig Carlino, Monroe Securities, dated March 13, 2008.
\5\ See letter from Andrea D. Orr, Assistant General Counsel,
FINRA, to Nancy M. Morris, Secretary, Commission, dated March 26, 2008 (``FINRA letter'').
\6\ In Amendment No. 2, FINRA deleted definitions that were
either unnecessary or duplicative from the proposed rule text.
Because the Amendment is technical in nature, it is not subject to notice and comment.
[[Page 27588]]
This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2.
II. Description of the Proposed Rule Change
FINRA is proposing to establish an exemption for certain Regulation
NMScompliant ISOs \7\ from the Rule and the Interpretive Material
(``IM'') that govern trading ahead of customer limit orders and
customer market orders. Under the proposed rule, a member will be
exempt from its obligations with respect to trading for its own account
if an ISO is routed in compliance with Rule 600(b)(30)(ii) of
Regulation NMS, and the customer limit order or market order is
received after the member routed the ISO. The exemption will also apply
if the member executes an ISO to facilitate a customer limit order or
market order, and the customer has consented to not receiving the better prices obtained by the ISO.
\7\ Regulation NMS defines an ISO as a limit order for an NMS
stock that meets the following requirements: (i) When routed to a
trading center, the limit order is identified as an intermarket
sweep order; and (ii) simultaneously with the routing of the limit
order identified as an intermarket sweep order, one or more
additional limit orders, as necessary, are routed to execute against
the full displayed size of any protected bid, in the case of a limit
order to sell, or the full displayed size of any protected offer, in
the case of a limit order to buy, for the NMS stock with a price
that is superior to the limit price of the limit order identified as
an intermarket sweep order. These additional routed orders also must
be marked as intermarket sweep orders. See 17 CFR 242.600(b)(30).
In its filing with the Commission, FINRA stated that the proposed
exemption is similar to an exemption adopted by the New York Stock
Exchange LLC to its Rule 92 (Limitations on Members' Trading Because of
Customers' Orders). The ISO exemption to Rule 92 was approved by the Commission on July 5, 2007.\8\
\8\ See Securities Exchange Release No. 56017 (July 5, 2007), 72 FR 38110 (July 12, 2007) (SRNYSE200721).
III. Summary of Comments
The Commission received one comment letter in response to the
proposed rule change.\9\ The commenter stated that the implementation
of IM21102 will reduce liquidity and result in inferior executions
for public investors who own nonpenny stock OTC securities.\10\ The
commenter also objected to the change to the definition of the size of
the order on which terms and conditions may be negotiated.\11\ \9\ Supra note 4.
\10\ Id. at 12.
\11\ Id. at 2.
FINRA responded to the comment letter on March 26, 2008.\12\ FINRA
stated that the comment letter was not germane to the proposed rule
change, as it did not pertain to the proposed ISO exemption.\13\
According to FINRA, the comments related to a rule change, previously
approved by the Commission,\14\ which expanded IM21102 to apply to OTC equity securities.\15\
\12\ Supra note 5.
\13\ Id. at 1.
\14\ See Securities Exchange Act Release No. 55351 (February 26, 2007), 72 FR 09810 (March 5, 2007) (SRNASD2005146).
\15\ FINRA letter at 2.
IV. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change, the
comment letter, and FINRA's response to the comment letter, and finds
that the proposed rule change is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities association \16\ and, in particular, Section
15A(b)(6) of the Act,\17\ which requires, among other things, that
FINRA rules be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.
\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o3(b)(6).
The Commission believes that it is reasonable for FINRA to amend IM21102 and Rule 2111 to exempt members when routing certain Regulation NMScompliant ISOs. The proposed rule change should enable members to comply with the ISO routing requirements of Rule 611 of Regulation NMS without violating IM21102 and Rule 2111 and, given the ISO routing exemption that currently exists under NYSE Rule 92, will subject ISO routing to consistent standards.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\18\ that the proposed rule change (SRFINRA2007039), as modified by Amendment Nos. 1 and 2, be, and it hereby is, approved.
\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\19\
\19\ 17 CFR 200.303(a)(12).
Nancy M. Morris,
Secretary.
[FR Doc. E810594 Filed 51208; 8:45 am]
BILLING CODE 801001P