Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Notices 25793 

6 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition and capital formation. See 

15 U.S.C. 78c(f). 

7 15 U.S.C. 78o–3(b)(4). 

8See FINRA By-Laws, Article VII, Section 4 and 

XXII, Section 2(a). 

9See FINRA By-Laws, Article I(z), Article I(dd), 

Article I(xx) (defining Small Firm Governor, MidSize Firm Governor, and Large-Firm Governor), and 

Article VII, Section 4(a). 

10See proposed FINRA Regulation By-Laws, 

Article IV, Section 4.2 (Number of Directors). 

11See proposed FINRA Regulation By-Laws, 

Article IV, Section 4.3(a) (Qualifications). 

12See id. 

13See Consolidation Approval Order, supra note 

4. 

14See, e.g., Securities Exchange Act Release No. 

58324 (August 7, 2008), 73 FR 46936, 46941 

(August 12, 2008) (SR–BSE–2008–02, SR–BSE– 

2008–23, SR–BSE–2008–25, SR–BSECC–2008–01). 

15 15 U.S.C. 78o–3(b)(6). 

16 15 U.S.C. 78s(b)(2). 

17 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5As defined in BATS Rule 1.5(bb). 

6As defined in BATS Rule 2.11. 

III. Discussion and Commission’s 

Findings 

After careful review of the proposed 

rule change, the Commission finds that 

the proposed rule change is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.6 In particular, the 

Commission finds that the proposed 

rule change is consistent with the 

provisions of Section 15A(b)(4) of the 

Act,7 which requires that FINRA rules 

be designed to assure a fair 

representation of FINRA’s members in 

the selection of its directors and the 

administration of its affairs. 

The FINRA By-Laws provide that the 

FINRA Board currently must consist of 

the Chief Executive Officer of FINRA, 

the Chief Executive Officer of NYSE 

Regulation, eleven Public Governors 

and ten Industry Governors, including a 

Floor Member Governor, an 

Independent Dealer/Insurance Affiliate 

Governor, an Investment Company 

Affiliate Governor, three Small Firm 

Governors, one Mid-Size Firm 

Governor, and three Large-Firm 

Governors.8 The Small Firm Governors, 

Mid-Size Firm Governor, and LargeFirm Governors are elected by members 

of FINRA according to their 

classification as a Small Firm, Mid-Size 

Firm or Large Firm.9

The proposed rule change would 

provide that the FINRA Regulation 

Board continue to consist of between 5 

and 15 members,10 and that FINRA 

Regulation Board members be elected 

by, and drawn exclusively from, the 

FINRA Board. Additionally, the 

proposed rule change would require 

that the FINRA Regulation Board, like 

the FINRA Board, have a greater number 

of Public Directors than Industry 

Directors.11 In addition, to ensure fair 

representation on the FINRA Regulation 

Board, the proposed rule change also 

would require that at least two, and not 

less than 20%, of the Directors of the 

FINRA Regulation Board be Small, MidSize, or Large Firm Governors.12 The 

Commission notes that it previously 

found the composition of the FINRA 

Board to be consistent with the fair 

representation requirement of Section 

15A(b)(4) of the Act.13 The Commission 

further notes that it has previously 

found a requirement that at least 20% of 

directors represent the exchange’s 

members to be consistent with the fair 

representation requirement applicable 

to national securities exchanges under 

Section 6(b)(3) of the Act.14

Accordingly, the Commission believes 

that the requirement that the FINRA 

Regulation Board be composed of at 

least two, and not less than 20%, of 

FINRA Regulation’s Directors be Small 

Firm, Mid-Size Firm or Large-Firm 

Governors is consistent with Section 

15A(b)(4) of the Act. 

The Commission also finds that the 

proposed rule change is consistent with 

the provisions of Section 15A(b)(6) of 

the Act,15 which requires, among other 

things, that FINRA rules must be 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, and, in general, to protect 

investors and the public interest. The 

Commission believes that the proposed 

changes to the FINRA Regulation ByLaws should allow the FINRA 

Regulation Board to operate in a more 

effective and efficient manner by, 

among other things, having a similar 

composition and a complementary 

governance structure to the FINRA 

Board. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,16 that the 

proposed rule change (SR–FINRA– 

2009–020) be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.17

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–12444 Filed 5–28–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59967; File No. SR–BATS– 

2009–015] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend BATS Rule 

11.13, Entitled ‘‘Order Execution’’ 

May 21, 2009. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 19, 

2009, BATS Exchange, Inc. (‘‘BATS’’ or 

the ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Exchange has 

designated this proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(6)(iii) 

thereunder,4 which renders it effective 

upon filing with the Commission. 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 

The Exchange is proposing to amend 

BATS Rule 11.13, entitled ‘‘Order 

Execution,’’ to provide Users 5 of the 

Exchange with another option with 

respect to the Exchange’s method of 

processing the unfilled balance of a 

limit order that returns to the Exchange 

and is posted to the BATS Book after 

being routed away to one or more away 

Trading Centers 6 for execution. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.batstrading.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

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25794 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Notices 

7As defined in BATS Rule 1.5(d). 

8Market orders are also routed away, pursuant to 

Rule 11.13(a)(2)(A), however the Exchange is not 

proposing any changes to the treatment of routed 

market orders at this time. 

9See, e.g., NASDAQ Rule 4758(a)(1)(A)(ii). 

10 15 U.S.C. 78f(b). 

11 15 U.S.C. 78f(b)(5). 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6). 

14 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6)(iii) requires that a self-regulatory 

organization submit to the Commission written 

notice of its intent to file the proposed rule change, 

along with a brief description and text of the 

proposed rule change, at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Commission deems this 

requirement to have been satisfied. 15 Id. 16See supra note 9. 17See SR–BATS–2009–015, Item 7. 18For the purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

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

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to provide Users of the 

Exchange with another option with 

respect to the Exchange’s method of 

processing the unfilled balance of a 

limit order that returns to the Exchange 

and is posted to the BATS Book after 

being routed away to one or more away 

Trading Centers for execution. 

Specifically, the Exchange will allow 

Users to designate an order as eligible 

for re-routing after being posted to the 

BATS Book if another Trading Center 

has locked or crossed the posted order. 

The Exchange currently allows Users 

to submit various types of limit orders 

to the Exchange that are processed 

pursuant to Rules 11.13(a)(1) and 

11.13(a)(2)(B), as set forth below. Rule 

11.13(a)(1) describes the process by 

which an incoming order would execute 

against the BATS Book.7 To the extent 

an order has not been executed in its 

entirety against the BATS Book, Rule 

11.13(a)(2)(B) then describes the process 

of routing marketable limit orders 8 to 

one or more Trading Centers, including 

a description of how the Exchange treats 

any unfilled balance that returns to the 

Exchange following the first attempt to 

fill the order through the routing 

process. If not filled through routing, 

and based on the order instructions, the 

unfilled balance of the order may be 

posted to the BATS Book. The Exchange 

is proposing to permit Users to 

designate the order as eligible to be 

routed away from the Exchange, after 

being posted, to the extent another 

Trading Center locks or crosses the 

posted order. The Exchange believes 

that the proposed change to Rule 11.13 

will give additional flexibility with 

respect to the treatment of their orders 

and may result in such orders being 

executed more quickly. The proposed 

option to route a posted order to a 

locking or crossing market is offered by 

at least one of the Exchange’s 

competitors.9

2. Statutory Basis 

The rule change proposed in this 

submission is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

exchange, and, in particular, with the 

requirements of Section 6(b) of the 

Act.10 Specifically, the proposed change 

is consistent with Section 6(b)(5) of the 

Act,11 because it would promote just 

and equitable principles of trade, 

remove impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system, and, in 

general, protect investors and the public 

interest, by allowing Users to instruct 

the Exchange to route a posted order 

away from the Exchange to the extent 

another market has locked or crossed 

such order. This functionality will allow 

the Exchange to seek to execute the 

resting order if market conditions have 

changed since such order was originally 

posted. 

B. Self-Regulatory Organization’s 

Statement of Burden on Competition 

The Exchange does not believe that 

the proposed rule change imposes any 

burden on competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing rule change 

does not: (1) Significantly affect the 

protection of investors or the public 

interest; (2) impose any significant 

burden on competition; and (3) become 

operative for 30 days after the date of 

this filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 12 and Rule 

19b 4(f)(6) thereunder.13

A proposed rule change filed under 

Rule 19b–4(f)(6) normally may not 

become operative prior to 30 days after 

the date of filing.14 However, Rule 

19b 4(f)(6)(iii)15 permits the 

Commission to designate a shorter time 

if such action is consistent with the 

protection of investors and the public 

interest. The Exchange has requested 

that the Commission waive the 30-day 

operative delay. The Commission notes 

that BATS’ proposal is substantially 

similar to the rules of another national 

securities exchanges and does not raise 

any new substantive issues.16 BATS 

expects to have operational and 

technological changes in place to 

support the proposed rule change on 

May 22, 2009.17 In addition, BATS 

states that the proposed functionality is 

completely optional, and will not 

require any programming changes by 

Users of the Exchange unless they 

choose to use the new functionality. 

Based on the foregoing, the Commission 

believes that waiving the 30-day 

operative delay is consistent with the 

protection of investors and the public 

interest and hereby designates the 

proposal operative upon filing.18

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 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 

No. SR–BATS–2009–015 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

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Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Notices 25795 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Exchange Act Rel. No. 59754 (Apr. 13, 

2009), 74 FR 18007 (Apr. 20, 2009). 

4The current FINRA rulebook consists of (1) 

FINRA Rules; (2) NASD Rules; and (3) rules 

incorporated from NYSE (‘‘Incorporated NYSE 

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

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

The FINRA Rules apply to all FINRA members, 

unless such rules have a more limited application 

by their terms. For more information about the 

rulebook consolidation process, see FINRA 

Information Notice, March 12, 2008 (Rulebook 

Consolidation Process). 

5See Securities Exchange Act Release No. 40659 

(Nov. 10, 1998), 63 FR 64136 (Nov. 18, 1998) (Order 

Approving Proposed Rule Change Relating to 

Mutual Fund Breakpoint Sales). 

6NASD Special Notice to Members 02–85, NASD 

Requires Immediate Member Firm Action Regarding 

Mutual Fund Purchases and Breakpoint Schedules 

(December 2002). 

7See Joint SEC/NASD/NYSE Report of 

Examinations of Broker/Dealers Regarding 

Discounts on Front-End Sales Charges on Mutual 

Funds (March 2003), available at http:// 

www.finra.org/Industry/Issues/Breakpoints/ 

P006438. 

8See Report of the Joint NASD/Industry Task 

Force on Breakpoints (July 2003), available at 

http://www.finra.org/Industry/Issues/Breakpoints/ 

P006422. 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File No. 

SR–BATS–2009–015. 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 BATS. 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 No. 

SR–BATS–2009–015 and should be 

submitted on or before June 19, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–12446 Filed 5–28–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59961; File No. SR–FINRA– 

2009–018] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Granting 

Approval of Proposed Rule Change To 

Adopt IM–2830–1 (‘‘Breakpoint’’ Sales) 

in the Consolidated FINRA Rulebook 

May 21, 2009. 

On March 26, 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’’) 

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 Notice of the 

proposal was published for comment in 

the Federal Register on April 20, 2009.3

The Commission received no comments 

on the proposed rule change. This order 

approves the proposed rule change. 

I. Description of the Proposed Rule 

Change 

As part of the process of developing 

a new consolidated rulebook 

(‘‘Consolidated FINRA Rulebook’’),4

FINRA proposed to adopt NASD IM– 

2830–1 (‘‘Breakpoint’’ Sales), 

renumbered as FINRA Rule 2342, into 

the Consolidated FINRA Rulebook with 

the minor changes discussed below. 

NASD IM–2830–1 prohibits sales of 

mutual fund shares in amounts below a 

‘‘breakpoint’’ if such sales are made ‘‘so 

as to share in the higher sales charges.’’ 

In the context of mutual fund sales, a 

‘‘breakpoint’’ is that point at which the 

sales charge is reduced for quantity 

purchases of fund shares. 

The application of the standard in 

NASD IM–2830–1 depends on the facts 

and circumstances of particular 

transactions to determine whether a 

member executed a transaction for the 

purpose of earning a higher sales charge. 

In 1998, NASD IM–2830–1 was 

amended to address the use of modern 

portfolio investment strategies that 

utilize many different mutual funds 

with varying investment objectives.5

The amendments specify more precisely 

those facts and circumstances that 

FINRA will consider when examining 

whether trades that miss breakpoints, 

but are made pursuant to bona fide asset 

allocation programs, may have violated 

NASD IM–2830–1. In making such 

determinations, the rule provides that 

FINRA will consider, among other 

things, whether a member has retained 

records that demonstrate that the trade 

was executed in accordance with a bona 

fide asset allocation program that the 

member offers to its customers which is 

designed to meet their diversification 

needs and investment goals, and under 

which the member discloses to its 

customers that they may not qualify for 

breakpoint reductions that are otherwise 

available. 

Breakpoint issues have been of 

concern to the regulatory community. 

On December 23, 2002, FINRA issued 

Special Notice to Members 02–85, 

which reminded firms of their 

obligation to apply correctly breakpoint 

discounts to front-end sales load mutual 

fund transactions.6 In 2003, the staffs of 

FINRA, the SEC, and the NYSE 

conducted examinations of brokerdealers to assess their ability to deliver 

breakpoint discounts and memorialized 

the findings of those examinations in a 

joint report.7 Concurrently, FINRA staff 

and industry members formed a joint 

task force to consider issues regarding 

breakpoints. The joint task force issued 

a report in July 2003 containing 

recommendations for the industry to 

facilitate the accurate delivery of 

breakpoint discounts.8

FINRA proposed to adopt NASD IM– 

2830–1 as FINRA Rule 2342, stating it 

believes this rule continues to be an 

important tool in regulating members’ 

sales of mutual fund shares to ensure 

that they are not sold in dollar amounts 

just below breakpoints so as to share in 

higher sales charges. FINRA proposed to 

eliminate references to ‘‘just and 

equitable principles of trade’’ and make 

other minor changes to the text to reflect 

that it would be a stand-alone rule, 

rather than Interpretive Material, and to 

eliminate certain redundant text that is 

inconsistent with a rules-based format. 

FINRA stated that it will announce 

the implementation date of the 

proposed rule change in a Regulatory 

Notice to be published no later than 90 

days following Commission approval. 

mstockstill on PROD1PC66 with NOTICES