Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend NASD Interpretive Material (IM) 2110-2 (Trading Ahead of Customer Limit Order), 7718-7719 [E9-3426]
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Federal Register / Vol. 74, No. 32 / Thursday, February 19, 2009 / Notices
Comments may be submitted by any of
the following methods:
Electronic Comments
• 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
Number SR–DTC–2009–04 on the
subject line.
sroberts on PROD1PC70 with NOTICES
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–DTC–2009–04. 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
Section, 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 DTC and on
DTC’s Web site at https://www.dtcc.com/
downloads/legal/rule_filings/2009/dtc/
2009-04.pdf. 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–DTC–
2009–04 and should be submitted on or
before March 12, 2009.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.4
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–3429 Filed 2–18–09; 8:45 am]
BILLING CODE 8011–01–P
4 17
CFR 200.30–3(a)(12).
VerDate Nov<24>2008
17:38 Feb 18, 2009
Jkt 217001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59382; File No. SR–FINRA–
2008–064]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Approving
Proposed Rule Change To Amend
NASD Interpretive Material (IM) 2110–2
(Trading Ahead of Customer Limit
Order)
February 11, 2009.
I. Introduction
On December 17, 2008, 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
19b–4 thereunder,2 a proposed rule
change to amend NASD Interpretive
Material (IM) 2110–2 (Trading Ahead of
Customer Limit Order) with respect to
the determination of the minimum price
improvement obligation in an OTC
equity security priced below $1.00
where there is no published current
inside spread or there is only a onesided quote. The proposed rule change
was published for comment in the
Federal Register on December 31,
2008.3 The Commission received no
comment letters on the proposed rule
change.
II. Description of the Proposed Rule
Change
IM–2110–2 (commonly referred to as
the ‘‘Manning Rule’’) generally prohibits
a member from trading for its own
account at prices that would satisfy a
customer’s limit order unless the
member immediately thereafter executes
the customer limit order at the price at
which it traded for its own account or
at a better price. Under amendments to
IM–2110–2 that the Commission
approved on September 12, 2008,4 and
that became effective on November 11,
2008,5 IM–2110–2 sets forth the
minimum level of price improvement,
depending on the price of the customer
limit order, that a member must provide
in order to trade ahead of an unexecuted
customer limit order without triggering
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59138
(December 22, 2008), 73 FR 80482.
4 See Securities Exchange Act Release No. 58532
(September 12, 2008), 73 FR 54649 (September 22,
2008) (order approving SR–NASD–2007–041).
5 See Regulatory Notice 08–49 (September 2008).
2 17
PO 00000
Frm 00061
Fmt 4703
Sfmt 4703
the protections provided by the
Manning Rule.
The minimum price improvement
tiers set forth in IM–2110–2 are as
follows:
(1) For customer limit orders priced
greater than or equal to $1.00, the
minimum amount of price improvement
required is $0.01 for NMS stocks and
the lesser of $0.01 or one-half (1⁄2) of the
current inside spread for OTC equity
securities;
(2) For customer limit orders priced
greater than or equal to $.01 and less
than $1.00, the minimum amount of
price improvement required is the lesser
of $0.01 or one-half (1⁄2) of the current
inside spread;
(3) For customer limit orders priced
less than $.01 but greater than or equal
to $0.001, the minimum amount of price
improvement required is the lesser of
$0.001 or one-half (1⁄2) of the current
inside spread;
(4) For customer limit orders priced
less than $.001 but greater than or equal
to $0.0001, the minimum amount of
price improvement required is the lesser
of $0.0001 or one-half (1⁄2) of the current
inside spread;
(5) For customer limit orders priced
less than $.0001 but greater than or
equal to $0.00001, the minimum
amount of price improvement required
is the lesser of $0.00001 or one-half (1⁄2)
of the current inside spread;
(6) For customer limit orders priced
less than $.00001, the minimum amount
of price improvement required is the
lesser of $0.000001 or one-half (1⁄2) of
the current inside spread; and
(7) For customer limit orders priced
outside the best inside market, the
minimum amount of price improvement
required must either meet the
requirements set forth above or the
member must trade at a price at or
inside the best inside market for the
security.
Therefore, if a firm is holding a
customer limit order to buy priced at
$.75 and the applicable minimum price
improvement standard is $.01, the firm
would be permitted to buy at $.76 or
higher without triggering the
requirements of IM–2110–2.
The proposed rule change is intended
to provide members with an alternative
method of calculating the minimum
price improvement in cases where a
member receives a limit order for an
OTC equity security priced below $1.00
and there is no quoted market. The
minimum price-improvement standards
are either a fixed amount as noted above
or one-half (1⁄2) of the current inside
spread. However, where there is no
current inside spread, the minimum
price-improvement standard defaults to
E:\FR\FM\19FEN1.SGM
19FEN1
Federal Register / Vol. 74, No. 32 / Thursday, February 19, 2009 / Notices
the fixed amount which, in certain
circumstances, can lead to an
anomalous result. For example, where a
member receives a customer limit order
priced at $.01 and there is no current
published inside spread, the minimum
price-improvement standard would still
be equal to $.01, which would require
the member to sell at $.00 ($.01 minus
$.01) or buy at $.02 ($.01 plus $.01) to
avoid triggering the customer limit order
(depending on whether the customer
order is a buy or sell order). Therefore,
the current rule could have unduly
harsh results, particulary in cases where
the price is near the edge of a tier and
there is no quoted market.
Accordingly, FINRA proposes to
amend IM–2110–2 to provide that, for
the purpose of determining the
minimum price improvement obligation
where there is no published current
inside spread, member firms may
calculate a current inside spread by
contacting and obtaining priced
quotations from at least two unaffiliated
dealers. FINRA believes that obtaining
priced quotations from at least two
unaffiliated dealers provides an
adequate proxy for an inside spread
typically displayed for an OTC equity
security, and notes that members are
free to contact more than two
unaffiliated dealers. FINRA also notes
that, once the member has obtained bid
and ask prices from at least two
unaffiliated dealers, the proposed rule
requires that the highest bid and lowest
offer obtained must be used as the basis
for calculating the current inside spread
for purposes of determining the
member’s minimum price improvement
obligation. In addition, where there is a
one-sided quote, the proposed rule
change permits a member to determine
the current inside spread by using the
best price obtained from at least two
unaffiliated dealers on the other side of
the quote.
Members must document: (1) The
name of each dealer contacted; and (2)
the quotations received that were used
as the basis for determining the current
inside spread. FINRA represents that the
proposed rule change would apply
solely to minimum price-improvement
calculations under IM–2110–2 and
would not implicate other rules or
requirements (e.g., Three Quote Rule).
sroberts on PROD1PC70 with NOTICES
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
VerDate Nov<24>2008
17:38 Feb 18, 2009
Jkt 217001
securities association.6 In particular, the
Commission finds that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,7 which requires, among other
things, that FINRA rules must 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
proposed rule change provides a
reasonable method of calculating the
current inside spread under IM–2110–2
for OTC equity securities priced below
$1.00 where there is no current
published inside spread or there is only
a one-sided quote. The Commission
notes that FINRA members that use the
proposed method of calculating the
current inside spread are required to
document the name of each dealer
contacted and the quotations received
for the purposes of determining the
current inside spread. The Commission
believes that the documentation
requirement is important to allow
proper oversight of calculating the
current inside spread, when there is no
current published inside spread, or
there is only a one-sided quote, in an
OTC equity security priced below $1.00.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,8 that the
proposed rule change (SR–FINRA–
2008–064) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–3426 Filed 2–18–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59377; File No. SR–ISE–
2009–04]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change Relating to the $1 Strike
Program
February 10, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
6 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
7 15 U.S.C. 78o–3(b)(6).
8 15 U.S.C. 78s(b)(2).
9 17 CFR 200.30–3(a)(12).
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
7719
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
21, 2009, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change, on February
9, 2009, filed Amendment No. 1 to the
proposed rule change, and on February
10, 2009 filed partial Amendment No. 2
to the proposed rule change, as
described in Items I, II, and III below,
which items have been prepared by the
self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The ISE proposes to expand the $1
Strike Program. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.ise.com), at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to expand the $1 Strike
Program (the ‘‘Program’’).3 The Program
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 The Commission approved the Program as a
pilot on June 16, 2003. See Exchange Act Release
No. 48033 (June 16, 2003), 68 FR 37036 (June 20,
2003). The pilot was subsequently extended
through June 5, 2008. See Exchange Act Release
Nos. 49827 (June 8, 2004), 69 FR 33966 (June 17,
2004) (Extending the pilot until August 5, 2004);
50060 (July 22, 2004), 69 FR 45864 (July 30, 2004)
(Extending the pilot for 10 months until June 5,
2005); 51769 (May 31, 2005), 70 FR 33232 (June 7,
2005) (Extending the pilot until June 5, 2006);
53806 (May 15, 2006), 71 FR 29694 (Extending the
2 17
E:\FR\FM\19FEN1.SGM
Continued
19FEN1
]]>Agencies
[Federal Register Volume 74, Number 32 (Thursday, February 19, 2009)]
[Notices]
[Pages 7718-7719]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-3426]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59382; File No. SR-FINRA-2008-064]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend NASD
Interpretive Material (IM) 2110-2 (Trading Ahead of Customer Limit
Order)
February 11, 2009.
I. Introduction
On December 17, 2008, 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 19b-4 thereunder,\2\ a
proposed rule change to amend NASD Interpretive Material (IM) 2110-2
(Trading Ahead of Customer Limit Order) with respect to the
determination of the minimum price improvement obligation in an OTC
equity security priced below $1.00 where there is no published current
inside spread or there is only a one-sided quote. The proposed rule
change was published for comment in the Federal Register on December
31, 2008.\3\ The Commission received no comment letters on the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 59138 (December 22,
2008), 73 FR 80482.
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
IM-2110-2 (commonly referred to as the ``Manning Rule'') generally
prohibits a member from trading for its own account at prices that
would satisfy a customer's limit order unless the member immediately
thereafter executes the customer limit order at the price at which it
traded for its own account or at a better price. Under amendments to
IM-2110-2 that the Commission approved on September 12, 2008,\4\ and
that became effective on November 11, 2008,\5\ IM-2110-2 sets forth the
minimum level of price improvement, depending on the price of the
customer limit order, that a member must provide in order to trade
ahead of an unexecuted customer limit order without triggering the
protections provided by the Manning Rule.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 58532 (September 12,
2008), 73 FR 54649 (September 22, 2008) (order approving SR-NASD-
2007-041).
\5\ See Regulatory Notice 08-49 (September 2008).
---------------------------------------------------------------------------
The minimum price improvement tiers set forth in IM-2110-2 are as
follows:
(1) For customer limit orders priced greater than or equal to
$1.00, the minimum amount of price improvement required is $0.01 for
NMS stocks and the lesser of $0.01 or one-half (\1/2\) of the current
inside spread for OTC equity securities;
(2) For customer limit orders priced greater than or equal to $.01
and less than $1.00, the minimum amount of price improvement required
is the lesser of $0.01 or one-half (\1/2\) of the current inside
spread;
(3) For customer limit orders priced less than $.01 but greater
than or equal to $0.001, the minimum amount of price improvement
required is the lesser of $0.001 or one-half (\1/2\) of the current
inside spread;
(4) For customer limit orders priced less than $.001 but greater
than or equal to $0.0001, the minimum amount of price improvement
required is the lesser of $0.0001 or one-half (\1/2\) of the current
inside spread;
(5) For customer limit orders priced less than $.0001 but greater
than or equal to $0.00001, the minimum amount of price improvement
required is the lesser of $0.00001 or one-half (\1/2\) of the current
inside spread;
(6) For customer limit orders priced less than $.00001, the minimum
amount of price improvement required is the lesser of $0.000001 or one-
half (\1/2\) of the current inside spread; and
(7) For customer limit orders priced outside the best inside
market, the minimum amount of price improvement required must either
meet the requirements set forth above or the member must trade at a
price at or inside the best inside market for the security.
Therefore, if a firm is holding a customer limit order to buy
priced at $.75 and the applicable minimum price improvement standard is
$.01, the firm would be permitted to buy at $.76 or higher without
triggering the requirements of IM-2110-2.
The proposed rule change is intended to provide members with an
alternative method of calculating the minimum price improvement in
cases where a member receives a limit order for an OTC equity security
priced below $1.00 and there is no quoted market. The minimum price-
improvement standards are either a fixed amount as noted above or one-
half (\1/2\) of the current inside spread. However, where there is no
current inside spread, the minimum price-improvement standard defaults
to
[[Page 7719]]
the fixed amount which, in certain circumstances, can lead to an
anomalous result. For example, where a member receives a customer limit
order priced at $.01 and there is no current published inside spread,
the minimum price-improvement standard would still be equal to $.01,
which would require the member to sell at $.00 ($.01 minus $.01) or buy
at $.02 ($.01 plus $.01) to avoid triggering the customer limit order
(depending on whether the customer order is a buy or sell order).
Therefore, the current rule could have unduly harsh results,
particulary in cases where the price is near the edge of a tier and
there is no quoted market.
Accordingly, FINRA proposes to amend IM-2110-2 to provide that, for
the purpose of determining the minimum price improvement obligation
where there is no published current inside spread, member firms may
calculate a current inside spread by contacting and obtaining priced
quotations from at least two unaffiliated dealers. FINRA believes that
obtaining priced quotations from at least two unaffiliated dealers
provides an adequate proxy for an inside spread typically displayed for
an OTC equity security, and notes that members are free to contact more
than two unaffiliated dealers. FINRA also notes that, once the member
has obtained bid and ask prices from at least two unaffiliated dealers,
the proposed rule requires that the highest bid and lowest offer
obtained must be used as the basis for calculating the current inside
spread for purposes of determining the member's minimum price
improvement obligation. In addition, where there is a one-sided quote,
the proposed rule change permits a member to determine the current
inside spread by using the best price obtained from at least two
unaffiliated dealers on the other side of the quote.
Members must document: (1) The name of each dealer contacted; and
(2) the quotations received that were used as the basis for determining
the current inside spread. FINRA represents that the proposed rule
change would apply solely to minimum price-improvement calculations
under IM-2110-2 and would not implicate other rules or requirements
(e.g., Three Quote Rule).
III. Discussion and Commission's Findings
After careful review, the Commission 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.\6\ In particular, the Commission finds that the proposed
rule change is consistent with the provisions of Section 15A(b)(6) of
the Act,\7\ which requires, among other things, that FINRA rules must
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.
---------------------------------------------------------------------------
\6\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
The Commission believes that the proposed rule change provides a
reasonable method of calculating the current inside spread under IM-
2110-2 for OTC equity securities priced below $1.00 where there is no
current published inside spread or there is only a one-sided quote. The
Commission notes that FINRA members that use the proposed method of
calculating the current inside spread are required to document the name
of each dealer contacted and the quotations received for the purposes
of determining the current inside spread. The Commission believes that
the documentation requirement is important to allow proper oversight of
calculating the current inside spread, when there is no current
published inside spread, or there is only a one-sided quote, in an OTC
equity security priced below $1.00.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (SR-FINRA-2008-064) be, and
hereby is, approved.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------
\9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-3426 Filed 2-18-09; 8:45 am]
BILLING CODE 8011-01-P
