Self-Regulatory Organizations; National Association of Securities Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); Order Approving Proposed Rule Change and Amendment No. 1 Thereto To Expand the Scope of NASD Rule 2440 and Interpretive Material 2440-1 Relating to Fair Prices and Commissions To Apply to All Securities Transactions, 35180-35181 [E8-13945]
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35180
Federal Register / Vol. 73, No. 120 / Friday, June 20, 2008 / Notices
discriminatory.15 eSignal asserted that
Nasdaq’s proposal unreasonably
discriminated against smaller market
data distributors.16 Google, however,
expressed strong support for the
proposal and noted its enthusiasm
regarding the opportunity to give more
of its users access to real-time financial
information online.17
The Commission notes that Nasdaq
amended the proposed rule change so
that its fees would be imposed only for
a four-month pilot period. On June 4,
2008, the Commission published for
public comment a draft approval order
that sets forth a market-based approach
for analyzing proposals by selfregulatory organizations to impose fees
for ‘‘non-core’’ market data products
that would encompass the Nasdaq Last
Sale Data Feeds.18 The Commission
believes that Nasdaq’s proposal is
consistent with the Act for the reasons
noted preliminarily in the Draft
Approval Order. Pending review by the
Commission of comments received on
the Draft Approval Order, and final
Commission action thereon, the
Commission believes that approving
Nasdaq’s proposal on a pilot basis
would be beneficial to investors and in
the public interest, in that it should
result in broad public dissemination of
real-time pricing information. Therefore,
the Commission is approving Nasdaq’s
proposed fees for a four-month pilot
beginning July 1, 2008. The broader
approach ultimately taken by the
Commission with respect to non-core
market data fees will necessarily guide
Commission action regarding fees for
the Nasdaq Last Sale Data Feeds beyond
the four-month pilot period.
The Commission finds good cause for
approving the proposed rule change, as
modified by Amendment Nos. 1 and 2
thereto, before the thirtieth day after the
date of publication of notice of filing
thereof in the Federal Register . As
noted above, accelerating approval of
this proposal should benefit investors
by facilitating their prompt access to
widespread, free, real-time pricing
information contained in the Nasdaq
Last Sale Data Feeds. In addition, the
Commission notes that the proposal is
approved only on a four-month pilot
period while the Commission analyzes
comments on the Draft Approval Order.
Therefore, the Commission finds good
15 See
SIFMA Letter.
eSignal Letter.
17 See Google Letter.
18 See Securities Exchange Act Release No. 57917
(June 4, 2008), 73 FR 32751 (June 10, 2008) (Notice
of Proposed Order Approving Proposal by NYSE
Arca, Inc. to Establish Fees for Certain Market Data
and Request for Comment) (‘‘Draft Approval
Order’’).
jlentini on PROD1PC65 with NOTICES
16 See
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16:53 Jun 19, 2008
Jkt 214001
cause, consistent with Section 19(b)(2)
of the Act, to approve the proposed rule
change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
2, including whether Amendment No. 2
is consistent with the Act. Comments
may be submitted by any of the
following methods:
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–NASDAQ–2006–060 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–NASDAQ–2006–060. 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 (https://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, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
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 available publicly. All
submissions should refer to File
Number SR–NASDAQ–2006–060 and
should be submitted on or before July
11, 2008.
Frm 00065
Fmt 4703
By the Commission.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–13955 Filed 6–19–08; 8:45 am]
BILLING CODE 8010–01–P
Electronic Comments
PO 00000
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,19 that the
proposed rule change (SR–NASDAQ–
2006–060), as modified by Amendment
Nos. 1 and 2, be, and it hereby is,
approved on an accelerated basis until
October 31, 2008.
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57964; File No. SR–NASD–
2006–005]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc. (n/k/a Financial Industry
Regulatory Authority, Inc.); Order
Approving Proposed Rule Change and
Amendment No. 1 Thereto To Expand
the Scope of NASD Rule 2440 and
Interpretive Material 2440–1 Relating to
Fair Prices and Commissions To Apply
to All Securities Transactions
June 13, 2008.
I. Introduction
On January 19, 2006, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’) (n/k/a Financial Industry
Regulatory Authority, Inc. (‘‘FINRA’’))
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
19b–4 thereunder,2 a proposed rule
change to expand the coverage of NASD
Rule 2440 and Interpretive Material
(‘‘IM’’) 2440 relating to fair prices and
commissions, to all securities
transactions that involve members and
their customers.3 The proposed rule
change was published for comment in
the Federal Register on April 4, 2006.4
The Commission received two comment
letters regarding the proposal.5 NASD
19 15
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 IM–2440–1, which was designated as IM–2440
at the time of this filing, was proposed to be renumbered in SR–NASD–2003–141, which was filed
before this proposal was filed and approved while
this proposal was pending. See Securities Exchange
Act Release No. 55638 (April 16, 2007), 72 FR
20150 (April 23, 2007) (SR–NASD–2003–141).
4 See Securities Exchange Act Release No. 53562
(March 29, 2006), 71 FR 16849.
5 See submission via SEC WebForm from Dan
Mayfield, President, Sanderlin Securities, dated
April 6, 2006 (‘‘First Commenter’’); letter from Mary
C.M. Kuan, Vice President and Assistant General
Counsel, The Bond Market Association, to Nancy
1 15
E:\FR\FM\20JNN1.SGM
20JNN1
Federal Register / Vol. 73, No. 120 / Friday, June 20, 2008 / Notices
responded to the comment letters on
October 2, 2006.6 On May 30, 2008,
FINRA filed Amendment No. 1 to the
proposed rule change.7 This order
approves the proposed rule change, as
modified by Amendment No. 1.
II. Description of the Proposed Rule
Change
FINRA proposes to amend NASD Rule
2440, which requires that a member
charge fair commissions and service
charges, and buy or sell securities at fair
prices, in over-the-counter (‘‘OTC’’)
securities transactions with a customer.
FINRA also proposes to amend IM–
2440–1, which provides further
guidance on the commissions and prices
that a member may charge a customer in
an OTC transaction. Specifically, FINRA
proposes to expand the scope of Rule
2440 and IM–2440–1 to include all
securities transactions involving
members and their customers, including
transactions between members and their
customers that are executed on an
exchange.8
jlentini on PROD1PC65 with NOTICES
III. Summary of Comments
The Commission received two
comment letters in response to the
proposed rule change.9 One commenter,
using the example of a municipal bond
that had not sold in several years, stated
that the proposed rule was problematic
for the same reason that the existing rule
was problematic; specifically, that a
mark-up, especially in a highly illiquid
market, may have little relation to fair
pricing.10
The main concern the other
commenter raised was which selfregulatory organization had jurisdiction
over the pricing of an exchange
transaction.11 The commenter stated
that NASD did not explain how Rule
2440 would be applied to exchange
transactions.12 The commenter
questioned whether, under the proposal,
M. Morris, Secretary, Commission, dated May 4,
2006 (‘‘Second Commenter’’).
6 See letter from Stephanie M. Dumont, Vice
President and Associate General Counsel, NASD, to
Nancy M. Morris, Secretary, Commission, dated
October 2, 2006 (‘‘NASD letter’’).
7 In Amendment No. 1, FINRA clarified that the
proposed rule change will regulate the charges
imposed by members on customers for trades that
are executed on an exchange, and not the execution
prices that are obtained on the exchange. Because
the Amendment is technical in nature, it is not
subject to notice and comment.
8 The proposed amendments would only apply to
transactions between members and their customers,
and not to transactions among members.
Rule 2440 and IM–2440–1 do not currently apply
to municipal securities or exempt securities. This
would be unchanged by the proposal.
9 Supra note 5.
10 First Commenter at 1.
11 Second Commenter at 1.
12 Id. at 4.
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16:53 Jun 19, 2008
Jkt 214001
NASD and the exchanges would have
overlapping authority over exchange
transactions,13 as well as whether NASD
had authority under Section 15A of the
Act to regulate exchange transactions.14
The commenter noted that the proposal
would result in increased surveillance
by NASD of exchange transactions,
which NASD could use to justify
increasing its regulatory fees for brokerdealers.15 Finally, the commenter said
that, in the event the Commission
approves the proposal, it should require
NASD to enter into Rule 17d–2
agreements with the various exchanges
to minimize regulatory duplication.16
In response to the comment letters,
NASD said that the First Commenter’s
submission was not relevant to the
proposed rule change, and that the
Second Commenter only raised
procedural, not substantive, issues.17
According to NASD, the First
Commenter’s submission was not
germane to the proposed rule change, as
it dealt with municipal securities.18
NASD stated that Rule 2440 and IM–
2440–1 do not currently apply to
municipal securities, and will not apply
to municipal securities under the
proposed rule change.19
In response to the Second
Commenter, NASD said that its
regulatory jurisdiction is not limited to
OTC trading, but encompasses
members’ conduct on all markets with
respect to customer transactions.20 As
such, the application of Rule 2440 and
IM–2440–1 should not vary according to
where the order is ultimately
executed.21 According to NASD, the
proposal will not create duplicative
regulation, as it was not aware of
another SRO that had established
similar rules relating to a member’s
pricing of transactions with a
customer.22 NASD stated that a Rule
17d–2 agreement was thus inapplicable
in this context.23 Even if another SRO
maintained similar rules relating to the
pricing of customer transactions,
however, NASD said that some
regulatory overlap is inevitable, given
the existence of multiple SROs.24 NASD
also asserted that it did not intend to
change its current formula for
calculating regulatory fees for members,
13 Id.
at 3.
35181
and that the proposal would not extend
to non-members.25
IV. Discussion and Commission
Findings
The Commission has carefully
reviewed the proposed rule change, the
comment letters, and NASD’s response
to the comment letters, 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 26 and, in particular, Section
15A(b)(6) of the Act,27 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. The
Commission believes that the response
to comments addressed the concerns the
commenters raised. In addition, in
Amendment No. 1, FINRA stated that
the proposed rule change will apply to
charges imposed by members on
customers for trades that are executed
on an exchange, and not to the
execution prices that are obtained on
the exchange.
The proposed rule change extends
broker-dealer fair pricing obligations to
all securities transactions between
members and their customers, except for
those transactions involving municipal
and exempt securities. By extending the
requirement to charge fair commissions
and mark-ups to customers in
connection with exchange transactions,
in addition to OTC transactions, the
proposed rule change should enhance
investor protection.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–NASD–2006–
005), as modified by Amendment No. 1
be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–13945 Filed 6–19–08; 8:45 am]
BILLING CODE 8010–01–P
14 Id.
15 Id.
16 Id.
at 4.
letter at 1, 4.
18 Id. at 1–2.
19 Id. at 2.
20 Id. at 3.
21 Id.
22 Id.
23 Id. at 4.
24 Id. at 3–4.
17 NASD
PO 00000
Frm 00066
Fmt 4703
25 Id.
at 4.
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).
27 15 U.S.C. 78o–3(b)(6).
28 17 CFR 200.30–3(a)(12).
26 In
Sfmt 4703
E:\FR\FM\20JNN1.SGM
20JNN1
]]>Agencies
[Federal Register Volume 73, Number 120 (Friday, June 20, 2008)]
[Notices]
[Pages 35180-35181]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-13945]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57964; File No. SR-NASD-2006-005]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.);
Order Approving Proposed Rule Change and Amendment No. 1 Thereto To
Expand the Scope of NASD Rule 2440 and Interpretive Material 2440-1
Relating to Fair Prices and Commissions To Apply to All Securities
Transactions
June 13, 2008.
I. Introduction
On January 19, 2006, the National Association of Securities
Dealers, Inc. (``NASD'') (n/k/a Financial Industry Regulatory
Authority, Inc. (``FINRA'')) 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 19b-4
thereunder,\2\ a proposed rule change to expand the coverage of NASD
Rule 2440 and Interpretive Material (``IM'') 2440 relating to fair
prices and commissions, to all securities transactions that involve
members and their customers.\3\ The proposed rule change was published
for comment in the Federal Register on April 4, 2006.\4\ The Commission
received two comment letters regarding the proposal.\5\ NASD
[[Page 35181]]
responded to the comment letters on October 2, 2006.\6\ On May 30,
2008, FINRA filed Amendment No. 1 to the proposed rule change.\7\ This
order approves the proposed rule change, as modified by Amendment No.
1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ IM-2440-1, which was designated as IM-2440 at the time of
this filing, was proposed to be re-numbered in SR-NASD-2003-141,
which was filed before this proposal was filed and approved while
this proposal was pending. See Securities Exchange Act Release No.
55638 (April 16, 2007), 72 FR 20150 (April 23, 2007) (SR-NASD-2003-
141).
\4\ See Securities Exchange Act Release No. 53562 (March 29,
2006), 71 FR 16849.
\5\ See submission via SEC WebForm from Dan Mayfield, President,
Sanderlin Securities, dated April 6, 2006 (``First Commenter'');
letter from Mary C.M. Kuan, Vice President and Assistant General
Counsel, The Bond Market Association, to Nancy M. Morris, Secretary,
Commission, dated May 4, 2006 (``Second Commenter'').
\6\ See letter from Stephanie M. Dumont, Vice President and
Associate General Counsel, NASD, to Nancy M. Morris, Secretary,
Commission, dated October 2, 2006 (``NASD letter'').
\7\ In Amendment No. 1, FINRA clarified that the proposed rule
change will regulate the charges imposed by members on customers for
trades that are executed on an exchange, and not the execution
prices that are obtained on the exchange. Because the Amendment is
technical in nature, it is not subject to notice and comment.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
FINRA proposes to amend NASD Rule 2440, which requires that a
member charge fair commissions and service charges, and buy or sell
securities at fair prices, in over-the-counter (``OTC'') securities
transactions with a customer. FINRA also proposes to amend IM-2440-1,
which provides further guidance on the commissions and prices that a
member may charge a customer in an OTC transaction. Specifically, FINRA
proposes to expand the scope of Rule 2440 and IM-2440-1 to include all
securities transactions involving members and their customers,
including transactions between members and their customers that are
executed on an exchange.\8\
---------------------------------------------------------------------------
\8\ The proposed amendments would only apply to transactions
between members and their customers, and not to transactions among
members.
Rule 2440 and IM-2440-1 do not currently apply to municipal
securities or exempt securities. This would be unchanged by the
proposal.
---------------------------------------------------------------------------
III. Summary of Comments
The Commission received two comment letters in response to the
proposed rule change.\9\ One commenter, using the example of a
municipal bond that had not sold in several years, stated that the
proposed rule was problematic for the same reason that the existing
rule was problematic; specifically, that a mark-up, especially in a
highly illiquid market, may have little relation to fair pricing.\10\
---------------------------------------------------------------------------
\9\ Supra note 5.
\10\ First Commenter at 1.
---------------------------------------------------------------------------
The main concern the other commenter raised was which self-
regulatory organization had jurisdiction over the pricing of an
exchange transaction.\11\ The commenter stated that NASD did not
explain how Rule 2440 would be applied to exchange transactions.\12\
The commenter questioned whether, under the proposal, NASD and the
exchanges would have overlapping authority over exchange
transactions,\13\ as well as whether NASD had authority under Section
15A of the Act to regulate exchange transactions.\14\ The commenter
noted that the proposal would result in increased surveillance by NASD
of exchange transactions, which NASD could use to justify increasing
its regulatory fees for broker-dealers.\15\ Finally, the commenter said
that, in the event the Commission approves the proposal, it should
require NASD to enter into Rule 17d-2 agreements with the various
exchanges to minimize regulatory duplication.\16\
---------------------------------------------------------------------------
\11\ Second Commenter at 1.
\12\ Id. at 4.
\13\ Id. at 3.
\14\ Id.
\15\ Id.
\16\ Id. at 4.
---------------------------------------------------------------------------
In response to the comment letters, NASD said that the First
Commenter's submission was not relevant to the proposed rule change,
and that the Second Commenter only raised procedural, not substantive,
issues.\17\ According to NASD, the First Commenter's submission was not
germane to the proposed rule change, as it dealt with municipal
securities.\18\ NASD stated that Rule 2440 and IM-2440-1 do not
currently apply to municipal securities, and will not apply to
municipal securities under the proposed rule change.\19\
---------------------------------------------------------------------------
\17\ NASD letter at 1, 4.
\18\ Id. at 1-2.
\19\ Id. at 2.
---------------------------------------------------------------------------
In response to the Second Commenter, NASD said that its regulatory
jurisdiction is not limited to OTC trading, but encompasses members'
conduct on all markets with respect to customer transactions.\20\ As
such, the application of Rule 2440 and IM-2440-1 should not vary
according to where the order is ultimately executed.\21\ According to
NASD, the proposal will not create duplicative regulation, as it was
not aware of another SRO that had established similar rules relating to
a member's pricing of transactions with a customer.\22\ NASD stated
that a Rule 17d-2 agreement was thus inapplicable in this context.\23\
Even if another SRO maintained similar rules relating to the pricing of
customer transactions, however, NASD said that some regulatory overlap
is inevitable, given the existence of multiple SROs.\24\ NASD also
asserted that it did not intend to change its current formula for
calculating regulatory fees for members, and that the proposal would
not extend to non-members.\25\
---------------------------------------------------------------------------
\20\ Id. at 3.
\21\ Id.
\22\ Id.
\23\ Id. at 4.
\24\ Id. at 3-4.
\25\ Id. at 4.
---------------------------------------------------------------------------
IV. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change, the
comment letters, and NASD's response to the comment letters, 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 \26\ and, in particular, Section
15A(b)(6) of the Act,\27\ 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. The Commission
believes that the response to comments addressed the concerns the
commenters raised. In addition, in Amendment No. 1, FINRA stated that
the proposed rule change will apply to charges imposed by members on
customers for trades that are executed on an exchange, and not to the
execution prices that are obtained on the exchange.
---------------------------------------------------------------------------
\26\ 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).
\27\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
The proposed rule change extends broker-dealer fair pricing
obligations to all securities transactions between members and their
customers, except for those transactions involving municipal and exempt
securities. By extending the requirement to charge fair commissions and
mark-ups to customers in connection with exchange transactions, in
addition to OTC transactions, the proposed rule change should enhance
investor protection.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASD-2006-005), as modified by
Amendment No. 1 be, and it hereby is, approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Florence E. Harmon,
Acting Secretary.
---------------------------------------------------------------------------
\28\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. E8-13945 Filed 6-19-08; 8:45 am]
BILLING CODE 8010-01-P
