Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices 54649 

4 15 U.S.C. 78f. 

5 15 U.S.C. 78f(b)(1), (5). 

6 17 CFR 200.30–3(a)(12). 

1On July 26, 2007, the Commission approved a 

proposed rule change filed by the NASD to amend 

the NASD’s Certificate of Incorporation to reflect its 

name change to Financial Industry Regulatory 

Authority, Inc., or FINRA, in connection with the 

Continued 

• In order to limit the influence that 

a single affiliated group of members 

might exercise over the Exchange, 

Section 4.4 of the By-Laws is being 

amended to provide that in a contested 

election for Member Representative 

Directors, an Exchange Member, either 

alone or together with its affiliates, may 

not cast votes representing more than 

20% of the votes cast for a candidate, 

and any votes cast by the Exchange 

Member, either alone or together with 

its affiliates, in excess of such 20% 

limitation shall be disregarded. 

• The Exchange is amending Section 

4.14 of the By-Laws to make it clear that 

the Exchange’s Nominating Committee 

must nominate the person nominated by 

Boston Options Exchange Regulation 

LLC’s Nominating Committee for service 

on the Exchange Board as a 

representative of participants in the 

Boston Options Exchange unless that 

person is not eligible for service under 

Section 4.3 of the By-Laws (as would be 

the case, for example, if the nominee 

was subject to a statutory 

disqualification). Similarly, the 

Exchange is amending Section 3.1 of the 

By-Laws to make it clear that NASDAQ 

OMX, as the sole stockholder of the 

Exchange, shall vote for the election of 

the director candidates nominated or 

voted on through the processes 

established by Article IV of the ByLaws, except in the case of a person not 

eligible for service under Section 4.3 of 

the By-Laws. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,4

in general, and with Section 6(b)(1) and 

(b)(5) of the Act,5 in particular, in that 

the proposal enables the Exchange to be 

so organized as to have the capacity to 

be able to carry out the purposes of the 

Act and to comply with and enforce 

compliance by Exchange Members and 

persons associated with Exchange 

Members with provisions of the Act, the 

rules and regulations thereunder, and 

the rules of the Exchange; and is 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

regulating, clearing, settling, processing 

information with respect to, and 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange 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, as amended. 

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 (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–BSE–2008–45 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–BSE–2008–45. 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 (http://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 the filing also will be available 

for inspection and copying at the 

principal office of the self-regulatory 

organization. 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–BSE– 

2008–45 and should be submitted on or 

before October 14, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–22014 Filed 9–19–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58532; File No. SR–NASD– 

2007–041] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc. (f/k/a National 

Association of Securities Dealers, 

Inc.); Order Approving Proposed Rule 

Change, as Modified by Amendment 

No. 2, To Amend the Minimum PriceImprovement Standards Set Forth in 

NASD Interpretive Material (‘‘IM’’) 

2110–2 

September 12, 2008. 

I. Introduction 

On June 27, 2007, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) (n/k/a Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’)) 1


sroberts on PROD1PC70 with NOTICES
54650 Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices 

consolidation of the member firm regulatory 

functions of NASD and NYSE Regulation, Inc. See 

Securities Exchange Act Release No. 56146 (July 26, 

2007), 72 FR 42190 (August 1, 2007) (SR–NASD– 

2007–053). 

2 15 U.S.C. 78s(b)(1). 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 56297 

(August 21, 2007), 72 FR 49337 (August 28, 2007) 

(notice of filing of SR–NASD–2007–041) (‘‘Release 

No. 34–56297’’). 

5See Letter to Secretary, Commission, from Jess 

Haberman, Compliance Director, Fidessa Corp., 

dated September 5, 2007 (‘‘Fidessa Corp. Letter’’). 

6See Letter from Andrea Orr, FINRA, to Nancy M. 

Morris, Secretary, Commission, dated November 1, 

2007 (‘‘FINRA Response Letter’’). 

7On May 20, 2008, FINRA filed Amendment No. 

1 to the proposed rule change. Amendment No. 2 

superseded and replaced Amendment No. 1. 

8See Securities Exchange Act Release No. 58114 

(July 7, 2008), 73 FR 40407 (‘‘Release No. 34– 

58114’’). 

9See Letter from R. Cromwell Coulson, Chief 

Executive Officer, Pink OTC Markets Inc. (‘‘Pink 

OTC’’), to Secretary, Commission, dated September 

3, 2008. (‘‘Pink OTC Letter’’). 

10See Securities Exchange Act Release No. 55351 

(February 26, 2007), 72 FR 9810 (March 5, 2007) 

(order approving SR–NASD–2005–146) (‘‘Release 

No. 34–55351’’). 

11Currently, IM–2110–2 generally prohibits a 

member from trading for its own account in an 

exchange-listed security at a price that is equal to 

or better than an unexecuted customer limit order 

in that security, unless the member immediately 

thereafter executes the customer limit order at the 

price at which it traded for its own account or 

better. 

12See NASD Rule 6610(d) for definition of ‘‘OTC 

equity security.’’ 

13See NASD Notice to Members 07–19 (April 

2007). 

14See Securities Exchange Act Release No. 56103 

(July 19, 2007), 72 FR 40918 (July 25, 2007) (notice 

of filing and immediate effectiveness of SR–NASD– 

2007–039). See also Securities Exchange Act 

Release No. 56822 (November 20, 2007), 72 FR 

67326 (November 28, 2007) (notice of filing and 

immediate effectiveness of SR–FINRA–2007–023); 

and Securities Exchange Act Release No. 57133 

(January 11, 2008), 73 FR 3500 (January 18, 2008) 

(notice of filing and immediate effectiveness of SR– 

FINRA–2007–038). Modifications to the priceimprovement standards applicable to NMS stocks 

approved in Release No. 34–55351 became effective 

on July 26, 2007. See FINRA Member Alert dated 

June 20, 2007. 

15The proposed minimum price-improvement 

provisions in this proposed rule change do not 

supersede, alter or otherwise affect any of the 

minimum pricing increment restrictions under Rule 

612 of Regulation NMS. Rule 612 of Regulation 

NMS prohibits market participants from displaying, 

ranking, or accepting bids or offers, orders, or 

indications of interest in any NMS stock priced in 

an increment smaller than $0.01 if the bid or offer, 

order, or indication of interest is priced equal to or 

greater than $1.00 per share. If the bid or offer, 

order, or indication of interest in any NMS stock 

is priced less than $1.00 per share, the minimum 

pricing increment is $0.0001. See Securities 

Exchange Act Release No. 51808 (June 9, 2005), 70 

FR 37496 (June 29, 2005) (Regulation NMS 

Adopting Release). 

16For customer limit orders in securities for 

which there is no published inside market, the 

minimum amount of price improvement required 

would default to the same tiered minimum price 

improvement standards. 

17See Rule 600(b)(47) of Regulation NMS for 

definition of ‘‘NMS stock.’’ 17 CFR 242.600(b)(47). 

filed with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),2 and 

Rule 19b–4 thereunder,3 a proposed rule 

change to amend the minimum priceimprovement standards set forth in 

NASD Interpretive Material (‘‘IM’’) 

2110–2. The proposed rule change was 

published for comment in the Federal 

Register.4 The Commission received one 

commenter letter on the original 

proposal,5 to which FINRA responded 

in a letter to the Commission, dated 

November 1, 2007.6

On June 26, 2008, FINRA filed 

Amendment No. 2 to the proposed rule 

change to address an inconsistency in 

the application of the proposed 

minimum price-improvement 

provisions identified by the 

commenter.7 Amendment No. 2 was 

published for comment in the Federal 

Register on July 14, 2008.8 The 

Commission received one additional 

comment letter on the proposed rule 

change.9 This order approves the 

proposed rule change, as modified by 

Amendment No. 2. 

II. Description of the Proposed Rule 

Change 

A. Background 

On February 26, 2007, the 

Commission approved the NASD’s 

proposed rule change 10 that expanded 

the scope of IM–2110–2 11 (referred to as 

the Manning Rule) to apply to over-thecounter (‘‘OTC’’) equity securities.12 In 

Release No. 34–55351, the Commission 

also approved, for both National Market 

System (‘‘NMS’’) and OTC equity 

securities, the minimum level of priceimprovement that a member must 

provide to trade ahead of an unexecuted 

customer limit order (‘‘priceimprovement standards’’). 

In Release No. 34–55351, the priceimprovement standards were modified 

so that for customer limit orders priced 

greater than or equal to $1.00 that are at 

or inside the best inside market, the 

minimum amount of price improvement 

required is $0.01. For customer limit 

orders priced less than $1.00 that are at 

or inside the best inside market, the 

minimum amount of price improvement 

required is the lesser of $0.01 or onehalf (1⁄2) of the current inside spread. 

For customer limit orders priced outside 

the best inside market, the member is 

required to execute the incoming order 

at a price at or inside the best inside 

market for the security. For customer 

limit orders in securities for which there 

is no published inside market, the 

minimum amount of price improvement 

required is $0.01. 

The rule changes adopted in Release 

No. 34–55351 initially were scheduled 

to become effective on July 26, 2007.13

However, following the filing of the 

instant proposed rule change, SR– 

NASD–2007–041, FINRA filed a 

proposed rule change to delay 

implementation of the application of 

IM–2110–2 to OTC equity securities, 

until 60 days after Commission approval 

of SR–NASD–2007–041.14

B. NASD 2007–041 

In SR–NASD–2007–041, FINRA 

proposed to amend the minimum priceimprovement standards set forth in IM– 

2110–2 to include new tiered standards 

that vary according to the price of the 

customer limit order. FINRA proposed 

to revise the minimum priceimprovement standards to address three 

issues. First, because the minimum 

price improvement standards are 

determined based on the lesser of a 

specified amount ($.01) or one-half (1⁄2) 

of the inside spread, the specified 

amount acts as an ‘‘upper limit’’ on the 

minimum price improvement 

requirement. FINRA believed that the 

specified amount or upper limit on the 

minimum price improvement 

requirement (i.e., $.01) is 

disproportionately high for securities 

trading below $.01 and that it should 

vary proportionately with the amount of 

the limit order price. FINRA proposed 

that, for customer limit orders priced 

less than $.01 but greater than or equal 

to $0.001, the minimum amount of price 

improvement required would be the 

lesser of $0.001 or one-half (1⁄2) of the 

current inside spread. For customer 

limit orders priced less than $.001 but 

greater than or equal to $0.0001, the 

minimum amount of price improvement 

required would be the lesser of $0.0001 

or one-half (1⁄2) of the current inside 

spread. For customer limit orders priced 

less than $.0001 but greater than or 

equal to $0.00001, the minimum 

amount of price improvement required 

would be the lesser of $0.00001 or onehalf (1⁄2) of the current inside spread.15

Finally, for customer limit orders priced 

less than $.00001, the minimum amount 

of price improvement required would be 

the lesser of $0.00001 or one-half (1⁄2) of 

the current inside spread.16

In addition, FINRA proposed that the 

current minimum price improvement 

standard for limit orders priced greater 

than or equal to $1.00 would be $.01, 

and this standard would apply 

uniformly to NMS stocks 17 and OTC 

equity securities. However, given that 

subpenny quoting and trading is 

permissible in OTC equity securities 


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices 54651 

18Other than the proposed distinction to address 

permissible subpenny quoting and trading in OTC 

equity securities priced over $1.00, the proposed 

price-improvement standards would apply 

uniformly to NMS stocks and OTC equity securities. 

See supra note 14. 

19See Fidessa Corp. letter, supra note 5. 

20See FINRA Response Letter, supra note 6. 

21 Id. 

22The Fidessa Corp. Letter also sought 

clarification on the required price-improvement 

when the limit order is priced outside the inside 

market for the security, to which FINRA responded 

in the FINRA Response Letter that the minimum 

amount of price improvement required must either 

meet the same tiered minimum price improvement 

standards or the member must trade at a price at 

or inside the best inside market for the security. 

FINRA stated that firms need only to meet one of 

the minimum price-improvement options provided 

for limit orders priced outside the inside market 

and may do so on a trade-by-trade basis. 

23FINRA further clarified that this statement 

refers to the firm’s methodology for executing 

multiple orders triggered by IM–2110–2 when their 

size exceeds the size of the firm’s proprietary order 

that triggered the customer limit order protection 

obligation. Telephone conference, September 11, 

2008, between Stephanie Dumont, Vice President 

and Director of Capital Markets Policy, FINRA, and 

Nancy Sanow, Assistant Director, Division of 

Trading and Markets, Commission. 

24See Pink OTC Letter, supra note 9. 

priced at or over $1.00 (and therefore 

subpenny spreads are possible), FINRA 

believed that the minimum price 

improvement standard should be 

adjusted to also include a measure 

based on the inside spread, consistent 

with the standards for customer limit 

orders priced below $1.00. Accordingly, 

FINRA proposed that for customer limit 

orders in OTC equity securities priced 

greater than or equal to $1.00, the 

minimum amount of price improvement 

required should be the lesser of $0.01 or 

one-half (1⁄2) of the current inside 

spread.18

Finally, FINRA proposed to change 

the minimum price-improvement 

standard for limit orders priced outside 

the inside market. According to FINRA, 

although trades typically occur at or 

inside the best inside market, firms may 

trade proprietarily outside the best 

inside market for a variety of reasons, 

such as where there is little or no depth 

at the inside market or the inside market 

is manual or not easily accessible. 

Under current requirements, such trades 

could trigger execution obligations with 

respect to all limit orders priced outside 

the inside market, no matter how far 

outside the inside market the limit order 

is priced. FINRA provided an example 

that assumed that the best inside market 

for a security is $.50 to $.51. The 

member displays a quote to buy at $.49 

and also holds a customer limit order to 

buy priced at $.45. The member’s 

quotation is accessed by another brokerdealer and the member buys at $.49. 

Under current requirements, the 

member would be required to fill the 

customer’s purchase order at $.45 

because it had not purchased at the 

inside market of $.50. Stating that it did 

not believe that this was an appropriate 

result, FINRA proposed that, where the 

limit order is priced outside the inside 

market for the security, the minimum 

amount of price improvement required 

must either meet the same tiered 

minimum price improvement standards 

set forth above or the member must 

trade at a price at or inside the best 

inside market for the security. FINRA 

believed that this would continue to 

require an appropriate amount of price 

improvement for a member to trade 

ahead of a customer limit order, 

irrespective of whether the limit order is 

priced inside or outside the best inside 

market. 

The Commission received one 

comment letter in response to Release 

No. 34–56297.19 The Fidessa Corp. 

Letter supported the proposed rule 

change, although the commenter 

suggested modifying and clarifying the 

proposal. In this regard, the commenter 

noted an inconsistency in the 

application of the proposed minimum 

price-improvement standards in lowpriced securities when the customer 

limit order and the proprietary trade fall 

into different minimum price 

improvement tiers (e.g., a customer limit 

order to sell is priced at $1.00 and the 

proprietary trade is at $.998). The 

commenter provided an example that 

assumed that the best inside market for 

an NMS stock is $.996 to $1.00 and a 

firm is holding customer limit orders to 

sell at prices of $.998 and $1.00. If the 

firm sells for its own account at $.996, 

only customer limit orders to sell priced 

below $.998 and from $1.00 up to, but 

not including, $1.006 would be 

protected due to the firm’s $.996 

triggering proprietary trade. As a result, 

the firm would not have an obligation 

under IM–2110–2 to protect the more 

aggressively priced $.998 customer limit 

order to sell (i.e., the minimum price 

improvement standard applicable to 

that order is the lesser of $.01 or onehalf (1⁄2) of the current inside spread 

($.002 (1⁄2 of $.004)), such that the $.996 

proprietary trade would only trigger 

customer limit orders priced less than 

$.998), but would have an obligation to 

protect the $1.00 customer limit order to 

sell (i.e., the minimum price 

improvement standard applicable to 

that order is $.01 such that a $.996 

proprietary trade would trigger 

customer limit orders priced at $1.00 up 

to, but not including, $1.006). The 

commenter suggested instead that 

FINRA base the minimum priceimprovement standard on the trade 

price rather than the customer limit 

order price. 

FINRA responded that the 

commenter’s suggested approach could 

have unintended consequences in its 

application and would require 

significant reprogramming by member 

firms to implement, and therefore 

initially did not propose any revisions 

to the proposal.20 FINRA explained that 

member firms could choose to provide 

protection voluntarily for more 

aggressively priced customer limit 

orders that fall within gaps.21

Subsequently, however, FINRA 

proposed in Amendment No. 2. to 

require, and codify, as part of IM–2110– 

2, that any more aggressively priced 

customer limit orders also must receive 

limit order protection. Under 

Amendment No. 2, firms would be 

required to protect any more 

aggressively priced customer limit 

orders triggered under IM–2110–2, even 

if those limit orders were not directly 

triggered by the minimum price 

improvement standards of IM–2110–2.22

FINRA explained, however, that it 

would not mandate any particular order 

handling procedures or execution 

priorities among protected orders. 

Rather, a firm could choose any 

reasonable methodology for the way in 

which it executes multiple orders 

triggered by IM–2110–2, provided that 

the firm ensures that such methodology 

is applied consistently and complies 

with applicable rules and regulations.23

Using the example above, once the 

limit order priced at $1.00 is activated 

upon the execution of the firm’s trade at 

$.996 (i.e., it is activated because it is 

within .01 of the price of the firm’s 

trade), a firm may implement a 

methodology that executes all more 

aggressively priced customer limit 

orders first (i.e., the limit order priced 

at $.998) before executing the limit 

order priced at $1.00. The proposed 

requirements would only apply in the 

limited circumstance where a firm has 

a limit order that is protected by IM– 

2110–2, but more aggressively priced 

customer limit orders are not protected. 

Therefore, in the above example, if the 

firm was only holding a customer limit 

order to sell of $.998 (and not a 

customer limit order of $1.00), the $.998 

order would not be triggered by the 

proposed requirements. 

The Commission received one 

comment letter in response to Release 

No. 34–58114.24 The Pink OTC Letter 

supported the proposed rule change, as 

modified by Amendment No. 2, stating 

that it was necessary to correct the 

anomalous situation where inferior 


sroberts on PROD1PC70 with NOTICES
54652 Federal Register / Vol. 73, No. 184 / Monday, September 22, 2008 / Notices 

25Pink OTC attached a study of its 2006 

Minimum Quote Increment Tier Pilot Program. 

(‘‘Pink OTC Pilot Program’’) According to Pink 

OTC, the study showed that minimum tier sizes 

implemented during the Pink OTC Pilot Program 

did not result in artificial widening of spreads or 

degradation of market quality. 

26See 15 U.S.C. 78o–3(b)(6). 

27 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

28See Release No. 34–55351, supra note 10. 

29See supra note 13. 

30 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 58103 

(July 3, 2008), 73 FR 40403. 

4See letter from Amal Aly, Managing Director 

and Associate General Counsel, Securities Industry 

and Financial Markets Association (‘‘SIFMA’’), to 

Florence E. Harmon, Acting Secretary, Commission, 

dated August 4, 2008 (‘‘SIFMA letter’’). 

priced customer limit orders are 

protected over superior priced limit 

orders, and that ‘‘adoption of SR– 

NASD–2007–041 without correction of 

this anomalous situation would disrupt 

the orderly functioning of the market for 

OTC Equity Securities.’’ 

The Pink OTC Letter also 

recommended more broadly that the 

minimum increments of IM–2110–2 be 

considered as part of an amendment 

that would mandate minimum quote 

increment tier sizes for OTC equity 

securities.25 The Pink OTC Letter urged 

that minimum increments for price 

improvement should mirror minimum 

quote increment tier sizes established 

on the Pink Quote interdealer quotation 

system to create ‘‘a level playing field 

for all market participants and improve 

investor confidence in the market.’’ 

III. Discussion and Commission’s 

Findings 

The Commission has reviewed 

carefully the proposed rule change, as 

modified by Amendment No. 2, and the 

two comment letters it received, and 

finds that the proposed rule change, as 

modified by Amendment No. 2, is 

consistent with the Act and the rules 

and regulations thereunder applicable to 

a national securities association, 

including the provisions of Section 

15A(b)(6) of the Act,26 which requires, 

among other things, that FINRA rules be 

designed to promote just and equitable 

principles of trade, to foster cooperation 

and coordination with the persons 

engaged in regulating, clearing, settling, 

processing transactions in securities, 

and, in general, to protect investors and 

the public interest.27

The Commission previously approved 

revisions to IM–2110–2 to apply the 

Manning Rule to OTC equity 

securities,28 and notes that FINRA 

delayed its implementation pending 

Commission approval of the instant 

proposed rule change, as amended.29

FINRA’s proposal would revise the 

current price-improvement standards by 

adding a number of tiers to the 

minimum price-improvement standard 

for customer limit orders priced below 

$.01; adjusting the price-improvement 

standards to also include a measure 

based on one-half of the current inside 

spread for customer limit orders in OTC 

equity securities when such limit orders 

are priced greater than or equal to $1.00; 

and changing the price improvement 

standards for limit orders priced outside 

the inside market. The Commission 

believes that these revisions to IM– 

2110–2 are appropriate and reasonably 

designed to protect customer limit 

orders in both NMS stocks and OTC 

equity securities. 

Fidessa Corp. suggested that the 

minimum price-improvement standards 

should be based on the security’s trade 

price rather than the limit order price of 

the customer limit order. The 

commenter observed that anomalies can 

occur at the periphery of the minimum 

price improvement tiers for low-priced 

securities when the minimum priceimprovement requirement is based on 

the order’s price. 

In the FINRA Response Letter, FINRA 

responded that Fidessa Corp.’s proposed 

alternative approach would address 

some of the potential anomalies in the 

application of the proposed rule, but 

could have unintended consequences in 

its application and would require 

significant reprogramming by the firms 

to implement. Instead, FINRA revised 

its proposal, in Amendment No. 2, to 

require firms to institute written 

policies and procedures to fill those 

more aggressively priced customer limit 

orders ahead of other less aggressively 

priced limit orders covered by the Rule. 

This approach was supported by Pink 

OTC. 

The Commission believes that the 

revisions in Amendment No. 2 are 

reasonably designed to eliminate the 

anomalies that can occur in the case of 

limit orders with prices that straddle the 

proposed minimum price-improvement 

tiers. Although Pink OTC urged that 

amendments to IM–2110–2 should be 

complemented by additional provisions 

mandating minimum quote increment 

tier sizes for OTC equity securities, the 

Commission considers this 

recommendation to be beyond the scope 

of the proposed rule change before it. 

Accordingly, the Commission believes 

that the proposed rule change strikes a 

reasonable balance between protecting 

customer limit orders and enhancing the 

opportunity for investors to receive 

superior-priced limit order executions 

in OTC equity securities. 

For the reasons described above, the 

Commission believes that the proposed 

rule change is consistent with the Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule change (SR–NASD–2007– 

041), as modified by Amendment No. 2, 

be, and it hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.30

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–22011 Filed 9–19–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58533; File No. SR–FINRA– 

2008–036] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change Relating to 

Incorporated NYSE Rules 

September 12, 2008 

I. Introduction 

On July 3, 2008, 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 amend certain rules of the 

New York Stock Exchange LLC 

(‘‘NYSE’’) that relate to member firm 

conduct, and that have been 

incorporated into the FINRA rulebook 

(‘‘Incorporated NYSE Rules’’). The 

proposed rule change was published for 

comment in the Federal Register on July 

14, 2008.3 The Commission received 

one comment letter regarding the 

proposal.4 This order approves the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

Currently, the FINRA rulebook 

consists of rules of the National 

Association of Securities Dealers, Inc. 

(‘‘NASD Rules’’), and the Incorporated 

NYSE Rules. The Incorporated NYSE 

Rules apply only to firms that are 

members of FINRA and the NYSE 

(‘‘Dual Members’’). FINRA is currently 

developing a consolidated rulebook 

which will consist only of FINRA rules. 

In the interim period, FINRA proposes 


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