Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices 23459 

3 15 U.S.C. 78f. 

4 15 U.S.C. 78f(b)(4). 

5 15 U.S.C. 78s(b)(3)(A). 

6 17 CFR 19b–4(f)(2). [sic] 

7 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

Premium Products, retire a pilot 

program capping fees for use of the 

Exchange’s Facilitation Mechanism and 

eliminate a volume-based fee rebate for 

Electronic Access Members. Those 

changes became operative on May 1, 

2009. 

In SR–ISE–2009–21, the Exchange 

adopted the term ‘Singly Listed Indexes’ 

on its Schedule of fees. The Exchange 

now proposes to make a clarifying 

change by identifying the ‘Singly Listed 

Indexes’ on its fee schedule with the 

ticker symbols for those products. The 

Exchange also proposes to adopt the 

term ‘Singly Listed ETFs’ on its fee 

schedule and identify those products by 

their ticker symbols. Finally, the 

Exchange proposes to revert back to 

identifying by ticker symbols those 

products to which the Exchange’s 

Payment for Order Flow fee does not 

apply. 

(b) Basis—The Exchange believes that 

the proposed rule change is consistent 

with the objectives of Section 6 of the 

Act,3 in general, and furthers the 

objectives of Section 6(b)(4),4 in 

particular, in that it is designed to 

provide for the equitable allocation of 

reasonable dues, fees and other charges 

among its members and other persons 

using its facilities. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose 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 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 19(b)(3) of 

the Act 5 and Rule 19b–4(f)(2) 6

thereunder. At any time within 60 days 

of the filing of such proposed rule 

change, the Commission may summarily 

abrogate such rule change if it appears 

to the Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposal 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–ISE–2009–26 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–ISE–2009–26. 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 such filing also will be 

available for inspection and copying at 

the principal office of ISE. 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–ISE–2009–26 and should be 

submitted on or before June 9, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–11617 Filed 5–18–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59908; File No. SR–BX– 

2009–021] 

Self-Regulatory Organizations; 

NASDAQ OMX BX, Inc.; Notice of Filing 

of Proposed Rule Change To Amend 

the Restated Certificate of 

Incorporation and By-Laws of 

NASDAQ OMX BX, Inc. 

May 12, 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 29, 

2009, NASDAQ OMX BX, Inc. (‘‘BX’’ or 

‘‘Exchange’’) 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 the Exchange. 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 

BX is filing this proposed rule change 

with regard to proposed changes to its 

Restated Certificate of Incorporation and 

By-Laws. The proposed rule change will 

be implemented as soon as practicable 

following approval by the Commission. 

The text of the proposed rule change is 

available at http:// 

nasdaqomxbx.cchwallstreet.com, at 

BX’s principal office, 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, BX 

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. BX has prepared 

summaries, set forth in Sections A, B, 

mstockstill on PROD1PC66 with NOTICES

23460 Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices 

3Securities Exchange Act Release No. 55293 

(February 14, 2007), 72 FR 8033 (February 22, 2007) 

(SR–NYSE–2006–120). 

4NYSE Group, Inc., the former public holding 

company of NYSE Euronext’s U.S. exchanges. 

5New York Stock Exchange LLC (‘‘NYSE’’), a 

registered national securities exchange. 

6NYSE Market, Inc., a subsidiary of NYSE to 

which it has delegated certain operational 

authority. 

7NYSE Regulation, Inc., a subsidiary of NYSE to 

which it has delegated certain operational 

authority. 8Archipelago Holdings, Inc., formerly the public 

holding company of the entities now known as 

NYSE Arca, Inc. and NYSE Arca Equities, Inc. 9NYSE Arca, Inc., a registered national securities 

exchange. 10NYSE Arca Equities, Inc., a subsidiary of NYSE 

Arca to which it has delegated certain operational 

authority. 11 15 U.S.C. 78j–1(m). 

12SR–NASDAQ–2009–042 (April 29, 2009). 

PHLX expects to file a similar proposed rule change 

in the near future. 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On August 29, 2008, BX was acquired 

by NASDAQ OMX. Following that 

acquisition, BX—together with The 

NASDAQ Stock Market LLC (the 

‘‘NASDAQ Exchange’’) and NASDAQ 

OMX PHLX, Inc. (formerly the 

Philadelphia Stock Exchange, Inc. and 

also an exchange subsidiary of 

NASDAQ OMX, and referred to herein 

as ‘‘PHLX’’)—has been evaluating means 

to realize synergies in the operations of 

these three exchanges while 

maintaining the separate identity and 

member representation structures of 

each. 

In making this evaluation, BX and its 

sister exchanges have given 

consideration to the experiences of their 

respective boards and have reviewed the 

governance documents of other 

exchanges. In particular, BX and the 

other exchanges have reviewed the 

board structures established by NYSE 

Euronext and its exchange subsidiaries. 

In Securities Exchange Act Release No. 

55293,3 the Commission approved a 

structure in which certain committees of 

the board of directors of NYSE 

Euronext, the public holding company, 

perform functions for exchange 

subsidiaries, which do not themselves 

have these committees. Specifically, the 

Commission’s approval order states that 

‘‘the NYSE Euronext board of directors 

will have an audit committee, a human 

resource and compensation committee, 

and a nominating and governance 

committee. Each of the audit committee, 

human resource and compensation 

committee, and nominating and 

governance committee of the NYSE 

Euronext board of directors will consist 

solely of directors meeting the 

independence requirements of NYSE 

Euronext. These committees also will 

perform relevant functions for NYSE 

Group,4 the Exchange,5 NYSE Market,6

NYSE Regulation,7 Archipelago,8 NYSE 

Arca,9 and NYSE Arca Equities,10 as 

well as other subsidiaries of NYSE 

Euronext, except that the board of 

directors of NYSE Regulation will 

continue to have its own compensation 

committee and nominating and 

governance committee.’’ 

BX and the other exchanges owned by 

NASDAQ OMX have also considered 

the experience of the NASDAQ 

Exchange in operating as a subsidiary of 

a public company since 2006. During 

the period, the board of each of the 

NASDAQ Exchange and its parent 

corporation (currently NASDAQ OMX, 

and formerly The Nasdaq Stock Market, 

Inc.) has appointed its own audit 

committee and management 

compensation committee. However, 

these committees at the NASDAQ 

Exchange level have generally found 

themselves duplicating the work of 

other committees at the exchange or 

holding company level. The NASDAQ 

OMX audit committee has broad 

authority to review the financial 

information that will be provided to 

shareholders and others, systems of 

internal controls, and audit, financial 

reporting and legal and compliance 

processes. Because NASDAQ OMX’s 

financial statements are prepared on a 

consolidated basis that includes the 

financial results of NASDAQ OMX’s 

subsidiaries, including BX and the other 

exchange subsidiaries, the NASDAQ 

OMX audit committee’s purview 

necessarily includes these subsidiaries. 

The committee is composed of four or 

five directors, all of whom must be 

independent under the standards 

established by Section 10A(m) of the 

Act 11 and Rule 4200(a) of the NASDAQ 

Exchange. All committee members must 

be able to read and understand financial 

statements, and at least one member 

must have past employment experience 

in finance or accounting, requisite 

professional certification in accounting, 

or any other comparable experience or 

background that results in the 

individual’s financial sophistication. 

By contrast, the audit committee of 

the NASDAQ Exchange has a more 

limited role, focused solely on the 

exchange entity and its subsidiaries that 

operate as facilities of the NASDAQ 

Exchange. As described in the current 

By-Laws of the NASDAQ Exchange 

(which are, in this respect, virtually 

identical to the current By-Laws of BX), 

the primary functions of the audit 

committee are (i) Oversight over 

financial reporting, (ii) oversight over 

the systems of internal controls 

established by management and the 

Board and the legal and compliance 

process, (iii) selection and evaluation of 

independent auditors, and (iv) direction 

and oversight of the internal audit 

function. However, to the extent that the 

committee reviews financial and 

accounting matters, its activities are 

duplicative of the activities of the 

NASDAQ OMX audit committee, which 

is also charged with providing oversight 

over financial reporting and 

independent auditor selection for 

NASDAQ OMX and all of its 

subsidiaries, including the NASDAQ 

Exchange, BX, and PHLX and their 

subsidiaries. Similarly, the NASDAQ 

OMX audit committee has general 

responsibility for oversight over internal 

controls and direction and oversight 

over the internal audit function for 

NASDAQ OMX and all of its 

subsidiaries. Thus, the responsibilities 

of the exchanges’ audit committees are 

fully duplicated by the responsibilities 

of the NASDAQ OMX audit committee. 

Accordingly, the NASDAQ Exchange is 

proposing to allow the elimination of its 

audit committee by amending Article 

III, Section 5 of the By-Laws.12

Similarly, drawing upon the model 

established by NYSE Euronext and the 

experience of the NASDAQ Exchange, 

BX is likewise proposing to allow the 

elimination of its audit committee by 

amending Section 4.13 of its By-Laws. 

BX believes, however, that even in 

light of the NASDAQ OMX audit 

committee’s overall responsibilities for 

internal controls and the internal audit 

function, it is nevertheless important for 

the BX Board to maintain its own 

independent oversight over BX’s 

controls and internal audit matters 

relating to BX’s operations. In this 

regard, BX notes that its regulatory 

oversight committee currently has broad 

authority to oversee the adequacy and 

effectiveness of BX’s regulatory and selfregulatory organization responsibilities, 

and is therefore able to maintain 

oversight over controls in tandem with 

the NASDAQ OMX audit committee’s 

overall control oversight 

responsibilities. Similarly, it is already 

the practice of NASDAQ OMX’s Internal 

mstockstill on PROD1PC66 with NOTICES

Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices 23461 

13See e-mail from John Yetter, Vice President and 

Deputy General Counsel, NASDAQ OMX Group, 

Inc., to Christopher W. Chow, Special Counsel, 

Commission, dated May 5, 2009. 

14The position of Chief Executive Officer of BX 

is currently vacant, pending selection of a 

successor. 

15Staff Directors are directors of BX that are also 

serving as officers. Since the BX Board would not 

be responsible for setting the compensation of any 

Staff Directors who are also officers of NASDAQ 

OMX, they would be permitted to participate in 

discussions concerning compensation of BX 

employees, but would recuse themselves from a 

vote on the subject to allow the determination to be 

made by directors that are not officers or employees 

of BX. If a Staff Director was not also an employee 

of NASDAQ OMX, that Staff Director would also 

absent himself or herself from any deliberations 

regarding his or her compensation. 

16 In this filing, BX is also amending its Restated 

Certificate of Incorporation and By-laws to reflect 

the name change of The Nasdaq Stock Market, Inc. 

to The NASDAQ OMX Group, Inc. See Article 

Fourth of Restated Certificate of Incorporation; 

Section 9.4 of the By-Laws. 

17 15 U.S.C. 78f(b). 

18 15 U.S.C. 78(b)(1). 

19 15 U.S.C. 78f(b)(5). 

Audit Department (‘‘Department’’),13

which performs internal audit functions 

for all NASDAQ OMX subsidiaries, to 

report to the BX regulatory oversight 

committee on all internal audit matters 

relating to BX. This practice will be 

formally reflected in the Department’s 

written procedures. In addition, to 

ensure that the BX Board retains 

authority to direct the Department’s 

activities with respect to BX, the 

Department’s written procedures will be 

amended to stipulate that the BX 

regulatory oversight committee may, at 

any time, direct the Department to 

conduct an audit of a matter of concern 

to it and report the results of the audit 

both to the BX regulatory oversight 

committee and the NASDAQ OMX audit 

committee. 

BX also proposes to amend Section 

4.13 of the By-Laws in order to follow 

the NYSE Euronext model with respect 

to allowing the elimination of its 

compensation committee and the 

performance of its function by the 

NASDAQ OMX compensation 

committee and/or subsidiary boards. 

The NASDAQ OMX By-Laws provide 

that its compensation committee 

considers and recommends 

compensation policies, programs, and 

practices for employees of NASDAQ 

OMX. Because many employees 

performing work for BX are also 

employees of NASDAQ OMX, its 

compensation committee already 

performs these functions for such 

employees. Moreover, certain of its 

senior officers are also officers of 

NASDAQ OMX and other NASDAQ 

OMX subsidiaries because their 

responsibilities relate to multiple 

entities within the NASDAQ OMX 

corporate structure. Accordingly, 

NASDAQ OMX pays these individuals 

and establishes compensation policy for 

them. Most notably, the former Chief 

Executive Officer of BX was also an 

‘‘executive officer’’ of NASDAQ OMX 

within the meaning of NASDAQ 

Exchange Rule 4350.14 Under that rule, 

the compensation of executive officers 

of an issuer of securities, such as the 

common stock of NASDAQ OMX, that 

is listed on the NASDAQ Exchange, 

must be determined by, or 

recommended to the board of directors 

for determination by, a majority of 

independent directors or a 

compensation committee comprised 

solely of independent directors. 

Accordingly, the NASDAQ OMX board 

of directors and/or its compensation 

committee was legally required to 

establish the compensation for this 

individual. Although the individual 

recently resigned his positions with 

NASDAQ OMX and its subsidiaries in 

order to pursue another opportunity, it 

is likely that his successor as Chief 

Executive Officer of BX will serve in a 

similar position at NASDAQ OMX and 

therefore be subject to comparable 

compensation requirements. 

To the extent that policies, programs, 

and practices must also be established 

for any BX officers or employees who 

are not also NASDAQ OMX officers or 

employees, the BX Board will perform 

such actions without the use of a 

compensation committee (but subject to 

the recusal of Staff Directors) 15 unless 

the persons in question are also 

employees of Boston Options Exchange 

Regulation LLC (‘‘BOXR’’). BOXR is the 

subsidiary of BX that has been delegated 

responsibility to regulate the market 

operated by Boston Options Exchange 

Group LLC (‘‘BOX’’), an options 

exchange that is a facility of BX but in 

which neither BX nor any of its affiliates 

has a financial interest. Section 17 of the 

By-Laws of BOXR (which are part of its 

Limited Liability Company Agreement) 

provides that the compensation of 

BOXR’s officers shall be determined by 

the BOXR Board. Because of BOXR’s 

special status as a regulatory subsidiary, 

this provision will remain operative 

following the implementation of the 

rule change proposed by this filing. 

Finally, it should be noted that as 

already provided in the By-Laws, the 

regulatory oversight committee of the 

BX Board must be informed about the 

compensation and promotion or 

termination of the BX chief regulatory 

officer and the reasons therefor, to allow 

it to provide oversight over decisions 

affecting this key officer.16

2. Statutory Basis 

BX believes that its proposal is 

consistent with Section 6(b) of the Act 17

in general, and furthers the objectives 

of: (1) Section 6(b)(1) of the Act,18

which requires a national securities 

exchange to be so organized and have 

the capacity to carry out purposes of the 

Act and to enforce compliance by its 

members and persons associated with 

its members with the provisions of the 

Act; and (2) Section 6(b)(5) of the Act,19

in that it is designed, among other 

things, to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, 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. 

Specifically, the proposed rule change 

will allow BX to eliminate two Board 

committees whose roles are limited by 

BX’s status as a wholly owned 

subsidiary of NASDAQ OMX, thereby 

allowing directors to focus greater 

attention on matters falling directly 

within the purview of the Board, 

including regulatory quality, market 

structure, new product initiatives, and 

review of proposed rule changes. The 

filing also updates the corporate name 

of NASDAQ OMX in the Restated 

Certificate of Incorporation and ByLaws. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

BX 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: 

mstockstill on PROD1PC66 with NOTICES

23462 Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices 

20 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. 59672 

(April 1, 2009), 74 FR 15806 (April 7, 2009). 

4See letters from: (1) Seth E. Lipner, Professor of 

Law, Zicklin School of Business, Baruch College, 

dated April 3, 2009 (‘‘Lipner letter’’); (2) Joseph M. 

Licare, St. John’s University School of Law, 

Securities Arbitration Clinic, to Elizabeth M. 

Murphy, Secretary, Commission, dated April 28, 

2009 (‘‘Securities Arbitration Clinic letter’’); (3) 

Brian N. Smiley, Esquire, President, Public 

Investors Arbitration Bar Association, to Elizabeth 

M. Murphy, Secretary, Commission, dated April 28, 

2009 (‘‘PIABA letter’’); (4) Steven B. Caruso, 

Maddox Hargett & Caruso, P.C., dated April 29, 

2009 (‘‘Caruso letter’’); and 5) Scot Bernstein, dated 

May 1, 2009 (‘‘Bernstein letter’’). 

5FINRA describes the eligibility rule using the 

rule number from the Customer Code for simplicity. 

However, the proposal also applies to the identical 

eligibility rule of the Industry Code. See Rule 

13206. 

6See also Rule 13206(c) of the Industry Code. 

7 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case 

involved claims under Section 10(b) of the Act. 

8Rule 10307(a) (Tolling of Time Limitation(s) for 

the Institution of Legal Proceedings and Extension 

of Time Limitation(s) for Submission to Arbitration) 

states in relevant part that: 

Where permitted by applicable law, the time 

limitations which would otherwise run or accrue 

for the institution of legal proceedings shall be 

tolled where a duly executed Submission 

Agreement is filed by the Claimant(s). The tolling 

shall continue for such period as the Association 

shall retain jurisdiction upon the matter submitted. 

(A) By order approve the 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–BX–2009–021 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–BX–2009–021. 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 Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–BX–2009–021 and should 

be submitted on or before June 8, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–11609 Filed 5–18–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59906; File No. SR–FINRA– 

2009–013] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change To 

Amend the Tolling Provisions in Rules 

12206 and 13206 of the Codes of 

Arbitration Procedure for Customer 

and Industry Disputes 

May 12, 2009. 

On March 11, 2009, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change pursuant to 

Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’),1 and 

Rule 19b–4 thereunder.2 The proposed 

rule change was published for comment 

in the Federal Register on April 7, 

2009.3 The Commission received five 

comments on the proposed rule 

change.4 This order approves the 

proposed rule change. 

I. Description of the Proposed Rule 

Change 

FINRA proposed to amend the tolling 

provisions in Rules 12206 and 13206 of 

the Code of Arbitration Procedure for 

Customer Disputes (‘‘Customer Code’’) 

and for Industry Disputes (‘‘Industry 

Code’’), respectively, to clarify that the 

rules toll the applicable statutes of 

limitation when a person files an 

arbitration claim with FINRA. 

Currently, Rule 12206, the ‘‘eligibility 

rule,’’ provides that, ‘‘no claim shall be 

eligible for submission to arbitration 

under the Code where six years have 

elapsed from the occurrence or event 

giving rise to the claim.’’ 5 The 

eligibility rule does not extend 

applicable statutes of limitation, but 

Rule 12206(c) does provide that, ‘‘where 

permitted by applicable law, when a 

claimant files a statement of claim in 

arbitration, any time limits for the filing 

of the claim in court will be tolled while 

FINRA retains jurisdiction of the 

claim.’’ 6 This means that, where 

permitted by applicable law, state 

statutes of limitation will be tolled (i.e., 

temporarily suspended) when a person 

files an arbitration claim with FINRA. 

For many years, FINRA has 

interpreted the rule to mean that any 

applicable statutes of limitation would 

be tolled in all cases when a person files 

an arbitration claim with FINRA. In 

Friedman v. Wheat First Securities, Inc., 

however, the court found that the 

phrase ‘‘where permitted by applicable 

law,’’ means that state or federal law, as 

applicable, must permit tolling 

expressly, or the period will not be 

tolled.7 In light of the court’s 

interpretation of the phrase and the 

negative effect it could have on 

investors’ arbitration claims, FINRA 

proposed to remove the phrase, ‘‘where 

permitted by applicable law,’’ from 

Rules 12206(c) and 13206(c) to make 

tolling automatic as part of the 

arbitration agreement. 

The Friedman court granted the 

defendant’s request to dismiss the 

plaintiff’s complaint on statute of 

limitations grounds. In arguing against 

dismissal, the plaintiff sought to rely on 

old Rule 10307(a) 8 of the Code of 

Arbitration Procedure, which was 

updated and is currently designated as 

Rules 12206(c) and 13206(c) of the 

Customer Code and Industry Code, 

respectively, to support his position that 

mstockstill on PROD1PC66 with NOTICES