Federal Register / Vol. 74, No. 108 / Monday, June 8, 2009 / Notices 27211 

7All representations and conditions contained in 

this application and the Prior Applications that 

require a Fund to disclose particular information in 

the Fund’s Prospectus and/or annual report shall 

remain effective with respect to the Fund until the 

time that the Fund complies with the disclosure 

requirements contained in the Summary Prospectus 

Rule. 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

fail to comply with Condition 18 of the 

Prior Orders. 

2. Applicants state that the concerns 

that sections 12(d)(1) was designed to 

prevent about undue influence, 

excessive layering of fees and overly 

complex structures, are not present in 

the India Portfolio and other passthrough investment vehicles used solely 

for purposes of achieving favorable tax 

treatment. Applicants represent that the 

India Fund is the sole legal and 

beneficial owner of the India Portfolio, 

thus eliminating any concerns regarding 

pyramiding of voting control; the 

Advisor and Subadvisor direct the 

portfolio management of both the India 

Fund and the India Portfolio, which is 

a pass-through investment vehicle, thus 

eliminating concerns over any undue 

influence of the Advisor or Subadvsior; 

and there is no layering of fees as a 

result of the India Fund operating 

through the India Portfolio. Applicants 

further represent that any Future Fund 

will operate through a wholly-owned 

investment vehicle that qualifies for 

pass-through tax and accounting 

treatment in a manner similar to that of 

the India Fund. Applicants believe that 

given the absence of section 12(d)(1) 

concerns in this structure, it will not 

create any additional section 12(d)(1) 

concerns if Acquiring Funds are 

permitted to acquire shares of the India 

Fund and any Future Fund subject to 

the terms and conditions of the Prior 

12(d)(1) Relief, as amended by this 

application. 

3. Applicants submit that the 

proposed amendment to Condition 18 of 

the Prior Orders addresses the concerns 

underlying the limits in section 12(d)(1) 

of the Act and that the requested 

exemption is consistent with the public 

interest and the protection of investors. 

Applicants state that all representations 

contained in the relevant Prior 

Applications relating to the operation of 

the India Fund will remain in effect and 

will apply to any Future Funds. 

Section 24(d) of the Act: 

4. Applicants seek to amend the Index 

Order to delete the relief granted from 

section 24(d) of the Act. Applicants 

state that the deletion of the exemption 

from section 24(d) that was granted in 

the Index Order is warranted because 

the adoption of the Summary 

Prospectus Rule should supplant any 

need by a Fund to use a product 

description. The deletion of the relief 

granted with respect to section 24(d) of 

the Act from the Index Order also will 

result in the deletion of related 

discussion in the Index Applications, 

revision of the Index Applications to 

delete references to product 

descriptions, including in the 

conditions, and the deletion of 

condition 6 to the Index Order. 

Conditions 

Applicants agree that any Order of the 

Commission granting the requested 

relief will be subject to the same 

conditions as those imposed by the 

Prior Orders, except for Condition 18 to 

the Prior Orders, which will be 

amended as follows: 

No Fund will acquire securities of any 

investment company or company relying on 

Section 3(c)(1) or 3(c)(7) of the Act in excess 

of limits contained in Section 12(d)(1)(A) of 

the Act, other than the India Portfolio or any 

similar wholly-owned subsidiary. 

In addition, with respect to the Index 

Order, condition 6 will be deleted and 

conditions 4 and 7 will be amended as 

follows: 7

4. The Web site for each Fund, which will 

be publicly accessible at no charge, will 

contain the following information, on a per 

Share basis, for each Fund: (a) the prior 

Business Day’s NAV and the reported closing 

price, and a calculation of the premium or 

discount of such price against such NAV; and 

(b) data in chart format displaying the 

frequency distribution of discounts and 

premiums of the daily closing price against 

the NAV, within appropriate ranges, for each 

of the four previous calendar quarters. 

7. Each Fund’s Prospectus will clearly 

disclose that, for purposes of the Act, 

Shares are issued by the Funds and that 

the acquisition of Shares by investment 

companies is subject to the restrictions 

of section 12(d)(1) of the Act, except as 

permitted by an exemptive order that 

permits registered investment 

companies to invest in a Fund beyond 

the limits of section 12(d)(1), subject to 

certain terms and conditions, including 

that the registered investment company 

enter into an agreement with the Fund 

regarding the terms of the investment. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–13204 Filed 6–5–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60018; File No. SR–CBOE– 

2009–031] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing of 

Proposed Rule Change Amending 

CBOE Rules Relating to the Penny 

Pilot Program 

June 1, 2009. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on May 28, 

2009, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘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 

The Exchange is proposing to amend 

CBOE rules relating to the Penny Pilot 

Program. The text of the rule proposal 

is available on the Exchange’s Web site 

(http://www.cboe.org/legal), at the 

Exchange’s Office of the Secretary and 

at the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of 

and basis for the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of these statements may be examined at 

the places specified in Item IV below. 

CBOE 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 

CBOE proposes to extend and expand 

the Penny Pilot Program, which 


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27212 Federal Register / Vol. 74, No. 108 / Monday, June 8, 2009 / Notices 

4CBOE’s rules also provide that for so long as 

SPDR options (SPY) and options on Diamonds 

(DIA) participate in the Penny Pilot Program, the 

minimum increments for Mini-SPX Index Options 

(XSP) and options on the Dow Jones Industrial 

Average (DJX), respectively, are $0.01 for all option 

series below $3, and $0.05 for all option series $3 

and above. See CBOE Rule 6.42.03. 

5CBOE has submitted five reports analyzing the 

Penny Pilot Program. See letters from CBOE’s 

President Edward Joyce to Elizabeth King, dated 

June 1, 2007, November 1, 2007, March 4, 2008, 

September 4, 2008, and March 9, 2009. 

6CBOE recognizes that it is difficult to discern the 

extent to which the reduction in volume in some 

Pilot classes may be attributable to the Penny Pilot, 

as opposed to some combination of the Penny Pilot 

and market conditions overall and/or conditions in 

a particular security. 

7See letter from Melissa MacGregor, Vice 

President and Assistant General Counsel, SIFMA, to 

Elizabeth King dated March 10, 2008. 

8The proposed roll-out schedule assumes that the 

new Linkage will be implemented in the 3rd quarter 

of 2009, and that this proposed rule change is 

approved on or about July 1, 2009. 

9The minimum increment breakpoint for XSP 

options and DJX options similarly would be 

reduced from $3 to $1. See CBOE Rule 6.42.03. 

10CBOE would use volume data from the Options 

Clearing Corporation. 

commenced on January 26, 2007. 

Presently, the Penny Pilot Program is in 

effect in fifty-eight multiply-listed 

option classes, representing 

approximately 53% of the national 

volume in April 2009.4 For all classes in 

the Program except for the QQQQs, the 

minimum increment for bids and offers 

is 0.01 for all option series below $3 

(including LEAPS), and $0.05 for all 

option series $3 and above (including 

LEAPS). For QQQQs, the minimum 

increment is $0.01 for all option series. 

The Penny Pilot Program is scheduled 

to expire on July 3, 2009. 

During the course of the Penny Pilot, 

CBOE has thoroughly analyzed the 

impact of penny quoting in the Pilot 

classes, including in such areas as 

average spread, average size, quote 

message traffic, and industry volume. 

CBOE has submitted several reports to 

the SEC describing the impact of the 

changes to the minimum increments in 

the Pilot classes, and has identified 

various trends that have manifested 

themselves.5 These trends include: a 

significant reduction in liquidity at the 

BBO; a decrease in volume in some 

classes 6; a dramatic rise in quote traffic; 

and a reduction in average spread 

width. With respect to quote traffic, five 

of seven options exchanges have set alltime peak message rates thus far in 

2009, three of which occurred in the 

past three weeks. 

In an effort to develop a long-term 

solution to the issue of penny pricing in 

options, last March 2008 CBOE 

proposed that the industry adopt a 

structure whereby option series of less 

than $1 premium value are quoted in 

penny increments, and series at $1 or 

above quoted in nickel increments. 

CBOE has explained the advantages of 

its proposal, which include: 

• Providing the benefits of penny 

quoting and trading in those option 

contracts that customers actually trade. 

61% of customer contract volume is in 

series priced up to $1. In the Penny 

Pilot classes, 52% of customer contract 

volume is in series priced up to $1; 

• Introducing penny increments in 

nearly all listed option classes; 

• Reducing the current dime 

increment to nickels in those same 

classes for series priced $1 and above; 

• Helping to reduce the explosion of 

quote traffic that would otherwise occur 

if the current $3 breakpoint was 

maintained as part of a large expansion; 

• Providing a simple and easily 

understood standard for investors as to 

which options are quoted in penny 

increments; and 

• Providing flexibility in that if it is 

determined that the benefits of penny 

quoting at a breakpoint higher than $1 

outweigh any negatives, modifying the 

breakpoint would be fairly easy to 

implement. 

CBOE’s proposal to reduce the $3 

breakpoint to $1 for the Penny Pilot 

classes has been endorsed by the Equity 

Options Committee of SIFMA, which 

has stated that ‘‘retail order flow is far 

more likely to concentrate activity in 

low premium options as opposed to 

those with much larger premium 

levels.’’ 7 CBOE reiterated its long-term 

solution to the issue of penny pricing in 

options in its September 4, 2008, and 

March 9, 2009 Penny Pilot Report to the 

SEC. 

CBOE believed then and continues to 

believe that developing a long-term 

solution is necessary so that the 

exchanges, its members, market data 

vendors, and other market participants 

can make informed decisions regarding 

systems and capacity planning. 

Accordingly, CBOE proposes to extend 

the Pilot Program through December 31, 

2010. CBOE also proposes to 

significantly expand Pilot Program to all 

equity and ETF option classes, such that 

at the end of a brief roll-out period all 

equity and ETF option classes would be 

included in the Penny Pilot Program. 

Moreover, in all Pilot classes, option 

series of less than $1 premium value 

would be quoted in penny increments, 

and series at $1 or above would be 

quoted in nickel increments. 

Specifically, CBOE proposes the 

following 8: 

• Extend the existing Penny Pilot 

Program until 60 days following SEC 

approval of this rule change, at which 

time the minimum increment 

‘‘breakpoint’’ would be reduced from $3 

to $1 in all Penny Pilot classes, such 

that all option series of less than $1 

premium value are quoted in penny 

increments with all series $1 and above 

quoted in nickel increments. Although 

all series in the QQQQ currently are 

quoted in penny increments, CBOE 

believes that the same $1 breakpoint 

standard should apply in the QQQQs as 

well.9

• 90 days following SEC approval of 

this rule change, an additional forty-two 

classes would be added to the Penny 

Pilot Program bringing the total number 

of classes in the Pilot Program to 100. 

These forty-two new classes would be 

among the most active, multiply-listed 

equity and ETF option classes that are 

not currently in the Pilot Program. 

• 120 days following SEC approval of 

this rule change, an additional 200 

option classes would be added to the 

Penny Pilot Program bringing the total 

number of classes in the Pilot Program 

to 300. These 200 new classes would be 

among the most active, multiply-listed 

equity or ETF option classes that are not 

currently in the Pilot Program. 

• 150 days following SEC approval of 

this rule change, an additional 400 

option classes would be added to the 

Penny Pilot Program bringing the total 

number of classes in the Pilot Program 

to 700. These 400 new classes would be 

among the most active, multiply-listed 

equity or ETF option classes that are not 

currently in the Pilot Program. 

• 180 days following SEC approval of 

this rule change, all remaining equity 

and ETF option classes would be added 

to the Penny Pilot Program. 

The above roll-out schedule 

contemplates the launch of the new 

Linkage Plan, which is scheduled to 

occur in the 3rd quarter of 2009, prior 

to any expansion of the Penny Pilot 

Program. CBOE believes strongly the 

new Linkage Plan should be 

implemented before a significant 

expansion occurs because intermarket 

sweep orders (ISOs) will be available in 

the new Linkage Plan, and thus allow 

market participants to simultaneously 

access better priced quotations across all 

options exchanges. The new option 

classes to be added to the Pilot Program 

would be identified based on national 

average daily volume in the six calendar 

months prior to the date the classes are 

added to the Program.10 CBOE will work 

jointly with the SEC to identify the 

option classes to be added to the Pilot 

Program and to determine the exact 

dates the classes will be added, and will 


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Federal Register / Vol. 74, No. 108 / Monday, June 8, 2009 / Notices 27213 

11CBOE also intends to issue a Regulatory 

Circular, which will be published on its Web site, 

identifying these option classes added to the Pilot 

Program. 

12 15 U.S.C. 78f(b). 

13 15 U.S.C. 78f(b)(5). 

submit proposed rule changes pursuant 

to Section (b)(3)(A) of the Exchange Act 

announcing the names of the new 

classes prior to their being added to the 

Pilot Program in each of the phases 

mentioned above.11 Based on the 

proposed roll-out described above, 

CBOE anticipates that all equity and 

ETF option classes would be included 

in the Penny Pilot Program by early 

2010. 

CBOE also will submit to the SEC 

semi-annual reports analyzing the 

Penny Pilot Program for the following 

time periods: 

• July 1, 2009–December 31, 2009 

• January 1, 2010–June 30, 2010 

• July 1, 2010–December 31, 2010 

CBOE anticipates that its reports will 

assess the impact of the changes to the 

minimum increments during the 

specific time period being analyzed, 

including, among other things, effects 

on (i) market participants and 

customers; (ii) market performance and 

quality, such as quoted spreads, 

effective spreads, and the displayed size 

in the Pilot classes; and (iii) OPRA, 

vendor and exchange capacity. CBOE’s 

reports will be submitted within one 

month following the end of the period 

being analyzed. 

CBOE believes that extending and 

expanding the Penny Pilot Program as 

proposed is balanced, responsible, and 

reasonable. It will benefit investors by 

expanding the Pilot Program in all 

equity and ETF option classes over a 

relatively short period of time, which 

will enable investors to obtain the 

benefits of penny quoting and trading in 

those option contracts that customers 

actually trade. The proposal is balanced 

in that it recognizes that the Pilot 

Program, while providing certain clear 

benefits such as reducing spreads, also 

has resulted in a significant reduction in 

liquidity at the BBO, a decrease in 

volume in some classes, and a 

significant rise in quote traffic. 

Moreover, CBOE’s plan eliminates 

investor confusion as to which options 

are quoted in penny increments, and 

helps to reduce the growth of quote 

traffic. 

2. Statutory Basis 

The Exchange believes the rule 

proposal is consistent with Section 6(b) 

of the Securities Exchange Act of 1934 

(‘‘Act’’) and the rule and regulations 

under the Act applicable to a national 

securities exchange and, in particular, 

the requirements of Section 6(b) of the 

Act.12 Specifically, the Exchange 

believes that the proposed rule change 

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

Act 13 requirements that the rules of an 

exchange be designed to promote just 

and equitable principles of trade, to 

prevent fraudulent and manipulative 

acts and, in general, to protect investors 

and the public interest. The Exchange 

believes that expanding the current 

Penny Pilot Program as proposed will 

enable investors to obtain the benefits of 

penny quoting and trading in those 

option contracts that customers actually 

trade. It will also eliminate investor 

confusion as to which options are 

quoted in penny increments, and help 

to reduce the growth of quote traffic. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will 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 neither solicited nor 

received comments on the proposal. 

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. In 

addition, the Commission seeks 

comment on the following issues: 

1. The Commission requests comment 

generally on the impact on quote 

capacity, if any, were the Commission to 

approve SR–NYSEArca–2009–44, NYSE 

Arca’s proposal to expand the Penny 

Pilot program to include the next 300 

most actively traded, multiply listed 

options classes over four successive 

quarters, in addition to this proposed 

rule change. 

2. The Commission requests comment 

on the impact, if any, to market 

participants’ technological systems and 

platforms to accommodate the proposed 

change in breakpoint at $1.00 applied to 

all option classes. 

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–CBOE–2009–031 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–CBOE–2009–031. 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 will also 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–CBOE– 

2009–031 and should be submitted on 

or before June 29, 2009. 


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27214 Federal Register / Vol. 74, No. 108 / Monday, June 8, 2009 / Notices 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 59160 

(December 23, 2008), 74 FR 152 (‘‘Notice’’). 

4See letter to the Commission from Richard 

Sacks, Investors Recovery Service, dated January 6, 

2009 (‘‘IRS Letter’’), and letter to Florence E. 

Harmon, Acting Secretary, Commission, from John 

S. Watts, Senior Vice President & Chief Counsel, 

PFS Investments Inc., dated January 26, 2009 (‘‘PFS 

Letter’’). 

5See letter to Elizabeth M. Murphy, Secretary, 

Commission, from Erika L. Lazar, Senior Attorney, 

FINRA, Office of General Counsel, dated April 28, 

2009 (‘‘Response to Comments’’). 

6These member firms would be required to 

comply with the rule and provide the disclosures 

at least once every calendar year. To the extent such 

firms are parties to a carrying agreement and the 

member firm that carries the accounts complies on 

their behalf, these firms would be excepted from the 

requirements of the proposed rule. 

7E.g., does not provide account statements or 

trade confirmations. 

8 In addition, the proposed rule would include 

references to ‘‘BrokerCheck’’ rather than the ‘‘Public 

Disclosure Program;’’ reference the FINRA Web site 

address rather than the NASD Regulation Web site 

address; and clarify that the information required 

under the rule may be provided electronically to 

customers. 

9See supra, note 4. 

10See IRS Letter. 

11See Response to Comments at 2. 

12See PFS Letter, supra, note 4. 

13 Id. 

14See Response to Comments at 2. 

15See Response to Comments at 2, citing the 

NASD Regulation, Inc. Regulatory and Compliance 

Alert (Summer 1999) at 24. See Amendment No. 1 

which also made non-substantive changes to the 

rule. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–13207 Filed 6–5–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60012; File No. SR–FINRA– 

2008–062] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval of a Proposed 

Rule Change, as Modified by 

Amendment No. 1, To Adopt FINRA 

Rule 2267 (Investor Education and 

Protection) in the Consolidated FINRA 

Rulebook 

May 29, 2009. 

I. Introduction 

On December 11, 2008, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’)) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

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

Securities Exchange Act of 1934 

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

proposed rule change to require member 

firms, with certain exceptions, to 

provide customers with FINRA’s Web 

site address and information regarding 

FINRA’s BrokerCheck program at least 

once every calendar year. The proposed 

rule change was published for comment 

in the Federal Register on January 2, 

2009.3 The Commission received two 

comment letters regarding the 

proposal.4 On April 28, 2009, FINRA 

responded to comments,5 and on April 

29, 2009, FINRA filed Amendment No. 

1 to the proposal. This order provides 

notice of the proposed rule change as 

modified by Amendment No. 1 and 

approves the proposed rule change, as 

amended, on an accelerated basis. 

II. Description of the Proposal 

FINRA proposed to adopt a rule based 

on NASD Rule 2280 (Investor Education 

and Protection), which requires member 

firms, with certain exceptions, to 

provide customers with FINRA’s Web 

site address and information regarding 

FINRA’s BrokerCheck program at least 

once every calendar year. 

NASD Rule 2280 currently applies to 

member firms that carry customer 

accounts and hold customer funds or 

securities and requires each member 

firm to provide its customers with the 

following information in writing not 

less than once every calendar year: (1) 

The ‘‘Public Disclosure Program’’ 

hotline number; (2) the NASD 

Regulation Web site address; and (3) a 

statement regarding the availability of 

an investor brochure that includes 

information describing the ‘‘Public 

Disclosure Program.’’ 

As initially proposed, FINRA Rule 

2267 would have applied to all member 

firms, with two general exceptions: a 

firm that does not have customers, and 

an introducing firm that is party to a 

carrying agreement where the carrying 

member firm complies with the rule. 

FINRA stated that FINRA Rule 2267 

would be broader in scope than NASD 

Rule 2280 and would apply to member 

firms that conduct a limited business 

with customers, such as mutual fund 

distributors and member firms that deal 

solely with direct participation 

programs (‘‘DPPs’’).6 In Amendment No. 

1, FINRA modified its proposal in 

response to the comments to permit a 

member whose contact with customers 

is limited to introducing customer 

accounts that will be held at an entity 

other than a FINRA member, and 

thereafter does not carry customer 

accounts or hold customer funds or 

securities,7 to furnish a customer with 

the information required by the rule at 

or before the time of the customer’s 

initial purchase, in lieu of once every 

calendar year.8

FINRA stated in the Notice that it 

would announce the implementation 

date of the proposed rule change in a 

Regulatory Notice to be published no 

later than ninety days following 

Commission approval. 

III. Summary of Comments and 

Amendment No. 1 

The Commission received two 

comment letters on the proposed rule 

change.9 One commenter expressed 

concern that, without the inclusion of 

additional disclosure noting that 

information in BrokerCheck may have 

been dismissed or expunged, customers 

may be mislead into believing a broker 

or other financial professional has not 

been involved in customer 

complaints.10 FINRA responded that it 

believed this comment was outside the 

scope of the proposal, and also noted 

that its Web site describes the contents 

of a BrokerCheck report and the type of 

information that is not disclosed 

through BrokerCheck.11

Another commenter stated that the 

proposed FINRA rule would place a 

significant burden on member firms, 

such as itself, that conduct a limited 

business where customer accounts are 

introduced to a non-FINRA member 

product issuer and have no direct 

contact with the customers after the 

initial transaction.12 The commenter 

stated that these firms do not carry 

customer accounts or hold customer 

funds or securities after the initial 

transaction. The commenter argued that 

because these firms do not send 

statements or trade confirmations, they 

do not have an easy method to provide 

information to customers, and a special 

annual mailing for the purposes of 

complying with the rule as initially 

proposed could be burdensome and 

substantial.13

FINRA responded that it would 

amend the proposal to clarify the 

application of Rule 2267.14 Specifically, 

FINRA stated it would codify the 

interpretive guidance regarding current 

NASD Rule 2280, which requires these 

firms to provide the requisite 

disclosures to customers only at the 

time of the initial transaction.15


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