Federal Register / Vol. 74, No. 110 / Wednesday, June 10, 2009 / Notices 27579 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 

4See Securities Exchange Act Release No. 34279 

(June 29, 1994), 59 FR 34883 (July 7, 1994) (order 

approving File No. SR–NASD–93–58). 

5 15 U.S.C. 78o–3(b)(6). 

6 15 U.S.C. 78s(b)(3)(A). 

7 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6)(iii) requires a self-regulatory organization to 

provide the Commission with written notice of its 

Continued 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60034; File No. SR–FINRA– 

2009–037] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend NASD IM– 

2110–2 (Trading Ahead of Customer 

Limit Order) To Clarify the Scope of the 

Minimum Price Improvement 

Obligations 

June 3, 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 May 29, 

2009, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by FINRA. FINRA has 

designated the proposed rule change as 

constituting a ‘‘non-controversial’’ rule 

change under paragraph (f)(6) of Rule 

19b–4 under the Act,3 which renders 

the proposal effective upon receipt of 

this filing by 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 

FINRA is proposing to amend NASD 

IM–2110–2 (Trading Ahead of Customer 

Limit Order) to clarify the scope of the 

minimum price improvement 

obligations. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

In 1994, the SEC approved 

Interpretive Material (IM) 2110–2 

(Trading Ahead of Customer Limit 

Order), which generally prohibits a 

member from trading for its own 

account in a security at a price that is 

equal to or better than an unexecuted 

customer limit order in that security, 

unless the member immediately, in the 

event it trades ahead, executes the 

customer limit order at the price at 

which it traded for its own account or 

better.4

IM–2110–2 also prescribes a 

minimum level of ‘‘price improvement’’ 

necessary for a member to execute an 

order on a proprietary basis when 

holding an unexecuted limit order. In 

other words, IM–2110–2 sets forth priceimprovement standards that impose a 

minimum amount by which a firm must 

trade, in addition to the price of the 

customer buy limit order (or less than 

the price of a customer sell order), to not 

trigger the protections under the rule. 

This requirement is intended to prevent 

a practice of firms trading ahead of their 

customers’ limit orders by trivial 

amounts and, thereby, circumventing 

the rule. 

The language in IM–2110–2 provides 

the minimum amount of price 

improvement necessary for a member to 

execute an incoming order on a 

proprietary basis when holding an 

unexecuted limit order in that same 

security. Recently, a firm inquired about 

the scope of the application of the rule 

due to the term ‘‘incoming;’’ 

specifically, whether the minimum 

price improvement standards apply 

only when a member is trading 

proprietarily in response to an 

‘‘incoming’’ order. FINRA advised the 

firm that such a narrow application of 

IM–2110–2 is inconsistent with the 

fundamental intent of the rule and the 

purpose of the prescribed minimum 

price improvement requirements. 

FINRA has never distinguished the 

application of the minimum price 

improvement requirements based on 

what circumstances prompted the 

proprietary trade. Therefore, FINRA is 

amending IM–2110–2 to delete the word 

‘‘incoming’’ to make clear that the 

minimum price improvement 

requirements apply to any proprietary 

trading by a member in a security for 

which the member holds an unexecuted 

customer limit order, whether or not in 

response to an incoming order, unless a 

specific exception applies. 

FINRA has filed the proposed rule 

change for immediate effectiveness. The 

operative date of the proposed rule 

change will be 30 days after the date of 

filing. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,5 which 

requires, among other things, that 

FINRA rules be designed to prevent 

fraudulent and manipulative acts and 

practices, to promote just and equitable 

principles of trade, and, in general, to 

protect investors and the public interest. 

FINRA believes that the proposed rule 

change makes clear the application of 

the minimum price improvement 

standards under IM–2110–2, which 

provide an important safeguard for 

investors by ensuring that firms do not 

circumvent the protections provided by 

the Rule by trading ahead of customer 

limit orders by economically 

insignificant amounts. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A) of the Act 6 and Rule 19b– 

4(f)(6) thereunder.7


erowe on PROD1PC63 with NOTICES
27580 Federal Register / Vol. 74, No. 110 / Wednesday, June 10, 2009 / Notices 

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. 

FINRA has met this requirement. 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240.19b–4(f)(6). 4 15 U.S.C. 78a et seq. 

At any time within 60 days of the 

filing of the 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 

Number SR–FINRA–2009–037 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2009–037. 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 FINRA. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2009–037 and 

should be submitted on or before July 1, 

2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–13568 Filed 6–9–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60038; File No. SR–CBOE– 

2009–032] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change, as Modified by 

Amendment No. 1 Thereto, Modifying 

the CBOE Stock Exchange Rule 

Regarding Processing of Round-Lot 

Orders 

June 3, 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 May 21, 

2009, Chicago Board Options Exchange, 

Incorporated (‘‘CBOE’’ 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. On June 2, 2009, CBOE 

filed Amendment No. 1 to the proposed 

rule change. The Exchange has 

designated the proposed rule change as 

constituting a rule change under Rule 

19b–4(f)(6) under the Act,3 which 

renders the proposal, as amended, 

effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to reduce the 

allowable timeframe for marketable 

order exposure pursuant to CBOE Stock 

Exchange (‘‘CBSX’’) Rule 52.6 

(Processing of Round-Lot Orders) to 500 

milliseconds. The text of the proposed 

rule change 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 those 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 

filing is to amend CBSX Rule 52.6. 

Pursuant to that Rule, when CBSX 

receives a marketable order when CBSX 

is not the NBBO and execution of the 

order would result in an impermissible 

trade-through, CBSX flashes the order to 

CBSX participants to ascertain if any 

participants are willing to execute the 

order at the NBBO price (i.e. provide 

price improvement) before CBSX 

attempts to access the NBBO on other 

markets on behalf of the marketable 

order. Rule 52.6 currently provides that 

the flash period shall not exceed 3 

seconds, however these flashes have 

never exceeded one second. The filing 

proposes to reduce the maximum 

allowable flash time to 500 milliseconds 

(half a second). The filing also 

eliminates obsolete references to the 

Intermarket Trading System Plan (ITS 

Plan) and uses the term ‘‘flash’’ in the 

Rule instead of ‘‘display’’. Lastly, the 

filing adds an interpretation and policy 

that makes clear that CBSX will provide 

an electronic method for CBSX traders 

to distinguish flashed orders from the 

CBSX disseminated best bid/offer 

during the flash period. 

2. Statutory Basis 

CBOE believes the proposed rule 

change is consistent with the Act 4 and 

the rules and regulations under the Act 


erowe on PROD1PC63 with NOTICES