Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments Involving Best Execution and Interpositioning, 18777-18779 [E9-9374]

Download as PDF mstockstill on PROD1PC66 with NOTICES Federal Register / Vol. 74, No. 78 / Friday, April 24, 2009 / Notices commodity-based product should enhance competition among market participants and thereby benefit investors and the marketplace. The Commission believes that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,28 which sets forth Congress’s finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. The Exchange will make available, through the facilities of the CTA, the last sale price information for the Shares. In addition, the Exchange will disseminate each day through the facilities of the CTA the number of Shares outstanding and the ITV on a per-Share basis at least every 15 seconds from 9:30 a.m. to 4 p.m. ET. The Web site for the Trust, which will be publicly accessible, contains information related to the NAV, including the Bid-Asked Price, the Creation Basket Deposit, calculation information and data related to the premium or discount of the Bid-Asked Price against the NAV, the Prospectus, and other applicable quantitative information, including trading volume data, NAV, and closing prices. Shortly after 4 p.m. ET each business day, the Trust will disseminate the NAV for the Shares, and the Creation Basket Deposit. Information on silver prices and markets is available on public Web sites and through professional and subscription services, and investors may obtain on a 24-hour basis silver pricing information based on the spot price of an ounce of silver from various financial information service providers. Complete real-time data for silver futures contracts and options prices traded on the COMEX is available by subscription from information services such as Reuters or Bloomberg, and information on silver is available from published or other public sources. NYMEX also provides delayed futures and options information free of charge. Furthermore, the Commission believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately. The Commission notes that the Exchange has represented that the Trustee will calculate, and the Trust will disseminate, the NAV per Share daily, and make the NAV available to all market participants at the same time. In 28 15 U.S.C. 78k–1(a)(1)(C)(iii). VerDate Nov<24>2008 16:20 Apr 23, 2009 Jkt 217001 addition, NYSE Arca Equities Rule 8.201(i) provides that, in connection with trading in an underlying physical commodity, related commodity futures or options on commodity futures, or any other related commodity derivative, including Commodity-Based Trust Shares, an ETP Holder acting as a Market Maker (as defined in NYSE Arca Equities Rule 1.1(u)) in the Shares is restricted from using any material nonpublic information received from any person associated with such ETP Holder regarding by such person in the underlying physical commodity, related commodity futures or options on commodity futures, or other related commodity derivatives. The Commission also believes that the Exchange’s trading halt rules are reasonably designed to prevent trading in the Shares when transparency is impaired. NYSE Arca Equities Rule 8.201(e)(2) provides that, when the Exchange is the listing market, if the value of the underlying commodity or ITV is no longer calculated or available on at least a 15-second delayed basis, the Exchange would consider suspending trading in the Shares. The Exchange has further represented that trading on the Exchange in the Shares may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which conditions in the underlying silver market have caused disruptions and/or lack of trading; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. In addition, trading in Shares will be subject to trading halts caused by extraordinary market volatility pursuant to the Exchange’s ‘‘circuit breaker’’ rule. NYSE Arca Equities Rule 8.201(e)(2) also provides that the Exchange may seek to delist the Shares in the event the value of the underlying silver or the ITV is no longer calculated or available as required. The Commission further believes that the trading rules and procedures to which the Shares will be subject pursuant to this proposal are consistent with the Act. The Exchange has represented that any securities listed pursuant to this proposal will be deemed equity securities, and subject to existing Exchange rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Exchange’s surveillance procedures are adequate to deter and PO 00000 Frm 00095 Fmt 4703 Sfmt 4703 18777 detect violations of Exchange rules and applicable federal securities laws. (2) The Exchange will distribute an Information Bulletin, the contents of which are more fully described above, to ETP Holders in connection with the trading of the Shares. This approval order is conditioned on the Exchange’s representations. The Commission finds good cause, pursuant to Section 19(b)(2) of the Act,29 for approving the proposed rule change prior to the 30th day after the date of publication of notice in the Federal Register. The Exchange’s proposal to list and trade the Shares does not present any novel or significant regulatory issues. Previously, the Commission approved a proposal by the Exchange to list and trade shares of another trust that holds silver bullion pursuant to NYSE Arca Equities Rule 8.201.30 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,31 that the proposed rule change (SR–NYSEArca– 2009–28) be, and it hereby is, approved on an accelerated basis. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.32 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–9385 Filed 4–23–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59788; File No. SR–FINRA– 2007–024] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments Involving Best Execution and Interpositioning April 17, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 29 15 U.S.C. 78s(b)(2). Securities Exchange Act Release No. 58956 (November 14, 2008), 73 FR 71074 (November 24, 2008) (SR–NYSEArca–2008–124) (approving listing and trading of shares of the iShares Silver Trust). See also Securities Exchange Act Release No. 53521 (March 20, 2006); 71 FR 14967 (March 24, 2006) (SR–Amex-2005–072) (approving listing and trading of shares of the iShares Silver Trust on the American Stock Exchange LLC). 31 15 U.S.C. 78s(b)(2). 32 17 CFR 200.30–3(a)(12). 30 See E:\FR\FM\24APN1.SGM 24APN1 18778 Federal Register / Vol. 74, No. 78 / Friday, April 24, 2009 / Notices (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on November 27, 2007, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. On April 13, 2009, FINRA filed Amendment No. 1 to the proposed rule change. 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 FINRA is proposing to amend NASD Rule 2320 to update members’ best execution obligations involving interpositioning and to amend NASD Rule 3110(b), NASD IM–2320, and FINRA Rule 6635 to reflect the redesignation of certain paragraphs in NASD Rule 2320. The text of the proposed rule change is available on FINRA’s Web site at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. mstockstill on PROD1PC66 with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASD Rule 2320(b) (the ‘‘Interpositioning Rule’’) requires that, when interposing a third party between a member and the best available market for a security, the member must show that the total cost or proceeds of the transaction were better than the prevailing inter-dealer market. Accordingly, it is a violation of the Interpositioning Rule if a member interposes a third party and the total cost of the transaction is equal to or greater than that of the prevailing inter1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Nov<24>2008 16:20 Apr 23, 2009 Jkt 217001 dealer market or the total proceeds of the transaction were equal to or less than that of the prevailing inter-dealer market. Although unclear from the legislative history of the Interpositioning Rule, it appears that the intent of requiring a ‘‘better than’’ standard, rather than an ‘‘equal to’’ standard, was to deter members from interposing a third party in transactions that should be sent directly to a market maker.3 Since the adoption of the Interpositioning Rule in 1968, there have been substantial changes to the ways in which markets function, including technological advances, increased market transparency in the equities markets, and the development of electronic communication networks and order routing services. These changes enable firms, under certain circumstances, to use intermediaries and third parties to improve the handling of orders with no additional cost to the customer. Firms are now frequently able to send an order to a third party with minimal or no delay in the execution of the customer’s order and with no additional cost to the customer. In addition, there are occasions when the use of a third party may be necessary to effectuate the execution of an order. For example, a firm may need to involve a third party if it receives an order for a foreign security that may not trade in the United States and the firm lacks the ability to execute the order without involving another broker-dealer. The language of the Interpositioning Rule could be read to include such circumstances, even if the customer incurs no additional cost or the cost is necessary to effectuate the trade. FINRA believes that the current language of the Interpositioning Rule does not reflect the reality of recent technological advances in order handling and that the rule could be read to prohibit conduct that does not adversely affect the 3 In the mid-1980s, as part of extensive amendments to NASD rules, several changes to the Interpositioning Rule were proposed but never adopted. See NASD Notice to Members 89–20 (February 17, 1989); NASD Notice to Members 86– 9 (February 7, 1986). One of the proposed changes, which is similar to the current proposed rule change, would have prohibited interpositioning unless a member could demonstrate that the price paid or received by the customer was ‘‘better than or equal to’’ the prevailing inter-dealer price. One commenter to that proposal, the Securities Industry Association, which merged with the Bond Market Association to form the Securities Industry and Financial Markets Association, supported the proposal, noting that if a member deems it advantageous for legitimate business reasons to buy or sell a security from a non-market maker and the customer receives a price equal to the inter-dealer price, the customer would not be prejudiced. PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 customer and, in some cases, benefits the customer. The proposed rule change is intended to address the potential overbreadth of the current Interpositioning Rule while making clear that interpositioning third parties in a way that results in customer harm is still prohibited. The proposed rule change would replace the current Interpositioning Rule with a more general statement that the factors enumerated in Rule 2320(a) apply to those situations contemplated by the Interpositioning Rule (i.e., orders routed to third parties between a member and the best available market). Rule 2320(a) states that members and persons associated with a member must use reasonable diligence to ascertain the best market for a security when handling transactions for or with a customer or a customer of another broker-dealer. Among the factors to be considered in determining whether a member has used reasonable diligence to ascertain the best market for a security, are: (1) The character of the market for the security, e.g., price, volatility, relative liquidity, and pressure on available communications; (2) the size and type of transaction; (3) the number of markets checked; (4) accessibility of the quotation; and (5) the terms and conditions of the order which result in the transaction, as communicated to the member and persons associated with the member. In addition, Rule 2320(a) requires members and persons associated with a member to buy or sell in the best market ‘‘so that the resultant price to the customer is as favorable as possible under prevailing market conditions.’’ Rather than focusing exclusively on cost, as the current Interpositioning Rule does, the proposed rule change would apply the standards in Rule 2320(a) to the execution of all orders, including those involving interposed third parties. Thus, although the cost (or, as phrased in 2320(a), the resultant price) to a customer would remain a crucial factor in determining whether a member has fulfilled its best execution obligations under Rule 2320, particularly in the context of retail customer order executions, the proposed rule change would allow an analysis of a variety of factors, based on the terms of the customer’s order and instructions, rather than focusing solely on cost any time a member interposes a third party between the member and the best available market for a security.4 4 A member’s best execution obligations under NASD Rule 2320 require a member to buy or sell a security in the best market for the subject security ‘‘so that the resultant price to the customer is as E:\FR\FM\24APN1.SGM 24APN1 Federal Register / Vol. 74, No. 78 / Friday, April 24, 2009 / Notices However, interpositioning that is unnecessary or violates a member’s general best execution obligations— either because of unnecessary costs to the customer or improperly delayed executions—would still be prohibited. The effective date of the proposed rule change will be the date of Commission approval. FINRA will announce the approval in a Regulatory Notice within 30 days following Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,5 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. FINRA believes that the proposed rule change will allow for a determination of best execution to be based on all of the facts and circumstances surrounding an order rather than a singular focus on one aspect of the transaction. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. mstockstill on PROD1PC66 with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and favorable as possible under prevailing market conditions.’’ However, other FINRA rules also apply when handling customer orders. For example, NASD Rule 2440 and FINRA Rule 2010 prohibit members from charging customers more than a fair commission or service charge, taking into consideration all relevant circumstances. If a member interposes a third party that charges a commission or service charge, the member must ensure that the total resulting commissions or service charges paid by the customer are fair. Consequently, unnecessarily interposing a third party in a transaction and passing on to a customer a fee charged by that third party would violate NASD Rule 2440 and FINRA Rule 2010. 5 15 U.S.C. 78o–3(b)(6). VerDate Nov<24>2008 16:20 Apr 23, 2009 Jkt 217001 publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. 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–FINRA–2007–024 on the subject line. 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–FINRA–2007–024. 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 FINRA. 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 publicly available. All PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 18779 submissions should refer to File Number SR–FINRA–2007–024 and should be submitted on or before May 15, 2009. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.6 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–9374 Filed 4–23–09; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59784; File No. SR–FINRA– 2009–019] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Adopt FINRA Rules 1010 (Electronic Filing Requirements for Uniform Forms) and 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4) in the Consolidated FINRA Rulebook April 17, 2009. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 7, 2009, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) (f/k/a National Association of Securities Dealers, Inc. (‘‘NASD’’)) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt, subject to certain amendments, NASD Rules 1140 (Electronic Filing Rules) and 3080 (Disclosure to Associated Persons When Signing Form U–4) as FINRA rules in the consolidated FINRA rulebook. The proposed rule change would renumber NASD Rule 1140 as FINRA Rule 1010 (Electronic Filing Requirements for Uniform Forms) and NASD Rule 3080 as FINRA Rule 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4) in the consolidated FINRA rulebook. 6 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\24APN1.SGM 24APN1

Agencies

[Federal Register Volume 74, Number 78 (Friday, April 24, 2009)]
[Notices]
[Pages 18777-18779]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-9374]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59788; File No. SR-FINRA-2007-024]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Amendments Involving Best Execution and 
Interpositioning

April 17, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 18778]]

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 27, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. On April 13, 
2009, FINRA filed Amendment No. 1 to the proposed rule change. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend NASD Rule 2320 to update members' best 
execution obligations involving interpositioning and to amend NASD Rule 
3110(b), NASD IM-2320, and FINRA Rule 6635 to reflect the redesignation 
of certain paragraphs in NASD Rule 2320.
    The text of the proposed rule change is available on FINRA's Web 
site at https://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA 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

    NASD Rule 2320(b) (the ``Interpositioning Rule'') requires that, 
when interposing a third party between a member and the best available 
market for a security, the member must show that the total cost or 
proceeds of the transaction were better than the prevailing inter-
dealer market. Accordingly, it is a violation of the Interpositioning 
Rule if a member interposes a third party and the total cost of the 
transaction is equal to or greater than that of the prevailing inter-
dealer market or the total proceeds of the transaction were equal to or 
less than that of the prevailing inter-dealer market.
    Although unclear from the legislative history of the 
Interpositioning Rule, it appears that the intent of requiring a 
``better than'' standard, rather than an ``equal to'' standard, was to 
deter members from interposing a third party in transactions that 
should be sent directly to a market maker.\3\ Since the adoption of the 
Interpositioning Rule in 1968, there have been substantial changes to 
the ways in which markets function, including technological advances, 
increased market transparency in the equities markets, and the 
development of electronic communication networks and order routing 
services. These changes enable firms, under certain circumstances, to 
use intermediaries and third parties to improve the handling of orders 
with no additional cost to the customer. Firms are now frequently able 
to send an order to a third party with minimal or no delay in the 
execution of the customer's order and with no additional cost to the 
customer. In addition, there are occasions when the use of a third 
party may be necessary to effectuate the execution of an order. For 
example, a firm may need to involve a third party if it receives an 
order for a foreign security that may not trade in the United States 
and the firm lacks the ability to execute the order without involving 
another broker-dealer. The language of the Interpositioning Rule could 
be read to include such circumstances, even if the customer incurs no 
additional cost or the cost is necessary to effectuate the trade. FINRA 
believes that the current language of the Interpositioning Rule does 
not reflect the reality of recent technological advances in order 
handling and that the rule could be read to prohibit conduct that does 
not adversely affect the customer and, in some cases, benefits the 
customer.
---------------------------------------------------------------------------

    \3\ In the mid-1980s, as part of extensive amendments to NASD 
rules, several changes to the Interpositioning Rule were proposed 
but never adopted. See NASD Notice to Members 89-20 (February 17, 
1989); NASD Notice to Members 86-9 (February 7, 1986). One of the 
proposed changes, which is similar to the current proposed rule 
change, would have prohibited interpositioning unless a member could 
demonstrate that the price paid or received by the customer was 
``better than or equal to'' the prevailing inter-dealer price. One 
commenter to that proposal, the Securities Industry Association, 
which merged with the Bond Market Association to form the Securities 
Industry and Financial Markets Association, supported the proposal, 
noting that if a member deems it advantageous for legitimate 
business reasons to buy or sell a security from a non-market maker 
and the customer receives a price equal to the inter-dealer price, 
the customer would not be prejudiced.
---------------------------------------------------------------------------

    The proposed rule change is intended to address the potential 
overbreadth of the current Interpositioning Rule while making clear 
that interpositioning third parties in a way that results in customer 
harm is still prohibited. The proposed rule change would replace the 
current Interpositioning Rule with a more general statement that the 
factors enumerated in Rule 2320(a) apply to those situations 
contemplated by the Interpositioning Rule (i.e., orders routed to third 
parties between a member and the best available market). Rule 2320(a) 
states that members and persons associated with a member must use 
reasonable diligence to ascertain the best market for a security when 
handling transactions for or with a customer or a customer of another 
broker-dealer. Among the factors to be considered in determining 
whether a member has used reasonable diligence to ascertain the best 
market for a security, are: (1) The character of the market for the 
security, e.g., price, volatility, relative liquidity, and pressure on 
available communications; (2) the size and type of transaction; (3) the 
number of markets checked; (4) accessibility of the quotation; and (5) 
the terms and conditions of the order which result in the transaction, 
as communicated to the member and persons associated with the member. 
In addition, Rule 2320(a) requires members and persons associated with 
a member to buy or sell in the best market ``so that the resultant 
price to the customer is as favorable as possible under prevailing 
market conditions.''
    Rather than focusing exclusively on cost, as the current 
Interpositioning Rule does, the proposed rule change would apply the 
standards in Rule 2320(a) to the execution of all orders, including 
those involving interposed third parties. Thus, although the cost (or, 
as phrased in 2320(a), the resultant price) to a customer would remain 
a crucial factor in determining whether a member has fulfilled its best 
execution obligations under Rule 2320, particularly in the context of 
retail customer order executions, the proposed rule change would allow 
an analysis of a variety of factors, based on the terms of the 
customer's order and instructions, rather than focusing solely on cost 
any time a member interposes a third party between the member and the 
best available market for a security.\4\

[[Page 18779]]

However, interpositioning that is unnecessary or violates a member's 
general best execution obligations--either because of unnecessary costs 
to the customer or improperly delayed executions--would still be 
prohibited.
---------------------------------------------------------------------------

    \4\ A member's best execution obligations under NASD Rule 2320 
require a member to buy or sell a security in the best market for 
the subject security ``so that the resultant price to the customer 
is as favorable as possible under prevailing market conditions.'' 
However, other FINRA rules also apply when handling customer orders. 
For example, NASD Rule 2440 and FINRA Rule 2010 prohibit members 
from charging customers more than a fair commission or service 
charge, taking into consideration all relevant circumstances. If a 
member interposes a third party that charges a commission or service 
charge, the member must ensure that the total resulting commissions 
or service charges paid by the customer are fair. Consequently, 
unnecessarily interposing a third party in a transaction and passing 
on to a customer a fee charged by that third party would violate 
NASD Rule 2440 and FINRA Rule 2010.
---------------------------------------------------------------------------

    The effective date of the proposed rule change will be the date of 
Commission approval. FINRA will announce the approval in a Regulatory 
Notice within 30 days following Commission approval.

2. Statutory Basis

    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\5\ 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. FINRA believes that the proposed rule change will 
allow for a determination of best execution to be based on all of the 
facts and circumstances surrounding an order rather than a singular 
focus on one aspect of the transaction.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2007-024 on the subject line.

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-FINRA-2007-024. 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 FINRA. 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 publicly available. All 
submissions should refer to File Number SR-FINRA-2007-024 and should be 
submitted on or before May 15, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9374 Filed 4-23-09; 8:45 am]
BILLING CODE 8010-01-P
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