32022 Federal Register / Vol. 74, No. 127 / Monday, July 6, 2009 / Notices 

5 15 U.S.C. 78f. 

6 15 U.S.C. 78a et seq. 

7 15 U.S.C. 78f(b)(4). 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f)(2). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

properly reflect the Exchange’s current 

name. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 5 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 6 in general and Section 6(b)(4) of 

the Act 7 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. The 

Exchange believes that the proposal 

does not constitute an inequitable 

allocation of dues, fees and other 

charges as the waiver of registered 

representative fees applies only to firms 

that became NYSE Amex member 

organizations automatically without any 

action on their part and in spite of the 

fact that they did not conduct any NYSE 

Amex business. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange 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 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 8 of the Act and 

subparagraph (f)(2) of Rule 19b–4 9

thereunder, because it establishes a due, 

fee, or other charge imposed by NYSE 

Amex. 

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–NYSEAmex–2009–30 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–NYSEAmex–2009–30. 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 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 publicly available. All 

submissions should refer to File 

Number SR–NYSEAmex–2009–30 and 

should be submitted on or before July 

27, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–15791 Filed 7–2–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60172; File No. SR–FINRA– 

2009–040] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Adopt 

FINRA Rule 2380 To Limit the Leverage 

Ratio Offered by Broker-Dealers for 

Certain Forex Transactions 

June 25, 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 June 4, 

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, II, 

and III below, which Items have been 

substantially prepared by FINRA. 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 adopt FINRA 

Rule 2380 to prohibit any member firm 

from permitting a customer to: (1) 

Initiate any forex position with a 

leverage ratio of greater than 1.5 to 1; 

and (2) withdraw money from an open 

forex position that would cause the 

leverage ratio for such position to be 

greater than 1.5 to 1. 

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 

mstockstill on PROD1PC66 with NOTICES

Federal Register / Vol. 74, No. 127 / Monday, July 6, 2009 / Notices 32023 

3Commodity Futures Modernization Act of 2000, 

Public Law 106–554, 114 Stat. 2763, 2763A–378 

(2001). 

4See CFTC Reauthorization Act of 2008, Public 

Law 110–246, 122 Stat. 1651 (2008). 

5 12 CFR 220.6. 

6 ‘‘Eligible Contract Participants’’ (‘‘ECPs’’) 

include regulated entities such as financial 

institutions, insurance companies, investment 

companies and broker-dealers. Certain corporations 

and individuals qualify as ECPs by meeting the 

requirements under the statute. See 7 U.S.C. 1a(12). 

7 ‘‘Contract markets’’ are markets that are 

designated by the CFTC that meet the criteria in 

Section 5 of the Commodity Exchange Act. See 7 

U.S.C. 7. 

8 ‘‘Derivatives transaction execution facilities’’ 

(‘‘DTEFs’’) are CFTC-registered trading facilities 

that limit access primarily to institutional or 

otherwise eligible traders and/or limit the products 

traded. See 7 U.S.C. 7a. 

9A ‘‘national securities exchange’’ is a securities 

exchange that has registered with the SEC under 

Section 6 of the Exchange Act. See 15 U.S.C. 78f. 

10A ‘‘foreign board of trade’’ means any 

organized exchange or trading facility located 

outside of the United States. 

11NFA By-Law 1507(b). 

12See CFTC Reauthorization Act of 2008, 13101 

(to be codified at 7 U.S.C. 2(c)(2)(C)(i)(I)). 

13NFA By-Law 1507(b) and CFTC 

Reauthorization Act of 2008, 13101 (to be codified 

at 7 U.S.C. 2(c)(2)(C)(i)(II)). 

14 15 U.S.C. 78o–3(b)(6). 

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 

FINRA is proposing to limit the 

leverage ratio offered by broker-dealers 

for certain forex transactions to no more 

than 1.5 to 1. The proposed rule change 

addresses forex transactions in the offexchange spot contract market. This 

market has grown in recent years 

following the passage of the Commodity 

Futures Modernization Act of 2000 

(‘‘CFMA’’), which permits certain 

enumerated entities, including brokerdealers, to act as counterparties to a 

retail forex contract.3 While most of the 

growth in this area has been 

concentrated in the futures commission 

merchant (‘‘FCM’’) channel, recent 

changes in legislation have brought 

greater interest to forex by brokerdealers.4 The proposed rule change 

seeks to limit investor losses resulting 

from small changes in the exchange rate 

of a foreign currency and is intended to 

reduce the risks of excessive 

speculation. 

Paragraph (a) of the proposed rule 

change states that no member shall 

permit a customer to initiate a forex 

position (as defined below) with a 

leverage ratio greater than 1.5 to 1. 

Thus, at the time a customer initiates a 

forex position, the customer must 

deposit at least 2⁄3 of the notional value 

of the contract. Using the example in 

supplementary material .01, a customer 

entering into a forex contract 

representing $750,000 of a foreign 

currency must have an initial deposit of 

at least $500,000. The proposed rule 

change differs from the leverage limits 

in the FCM channel, where depending 

on the foreign currency selected, a 

customer at 400 to 1 leverage would 

need only an initial deposit of $1,875. 

In addition, paragraph (a) also states 

that ‘‘no member shall permit a 

customer to withdraw money from an 

open forex position that would cause 

the leverage ratio for such position to be 

greater than 1.5 to 1.’’ This provision is 

intended to prevent a customer from 

depositing funds at the initiation of the 

forex position and then immediately 

withdrawing them once the position is 

established. If a customer were 

permitted to withdraw the funds once a 

position is established, the leverage 

limitation could easily be circumvented 

as the same deposit could be used to 

establish multiple forex positions. 

The limitation on a customer’s ability 

to withdraw funds that would cause the 

leverage ratio to exceed 1.5 to 1 differs 

from a maintenance margin requirement 

in that an adverse movement in a 

customer’s forex contract will not 

necessitate the deposit of additional 

funds. The intra-day and day-to-day 

pricing changes of a forex contract may 

cause a customer to have a leverage ratio 

greater than 1.5 to 1. So long as a 

customer does not withdraw funds from 

those initially used to establish the 

position, a leverage ratio may exceed 1.5 

to 1. FINRA considered imposing a 

maintenance margin requirement but 

determined that the level of initial 

deposit was sufficiently high that a 

maintenance margin requirement was 

not necessary. 

The proposed rule change does not 

impact existing rules addressing the 

necessary customer funds to enter into 

and maintain a forex position. For 

example, Regulation T does not have 

margin requirements for forex and 

allows a customer to obtain nonpurpose 

credit in a good faith account to effect 

and carry transactions in forex.5

However, it should be noted that any 

funds deposited in a margin account to 

maintain a forex position or any account 

equity derived from a forex position 

may not be used to purchase securities 

in that account. 

Paragraph (b) of the proposed rule 

change establishes the key definitions. 

The term ‘‘forex’’ is defined to mean a 

foreign currency spot, forward, future, 

option or any other agreement, contract, 

or transaction in foreign currency that: 

(1) Is offered or entered into on a 

leveraged basis, or financed by the 

offeror, the counter party, or a person 

acting in concert with such person, (2) 

offered to or entered into with persons 

that are not eligible contract 

participants; 6 and (3) not executed on 

or subject to the rules of a contract 

market,7 derivatives transaction 

execution facility,8 national securities 

exchange,9 or foreign board of trade.10

FINRA is proposing an amended version 

of the definition of forex from what 

appeared in Regulatory Notice 09–06 by 

adding the terms ‘‘spot’’ and ‘‘forward’’ 

in order to clarify that the leverage 

limitation will apply to foreign currency 

transactions no matter how they are 

legally classified. FINRA’s definition of 

forex is similar to the National Futures 

Association’s (‘‘NFA’’) definition of 

forex 11 and to amended Section 2(c)(2) 

of the Commodity Exchange Act which 

sets forth the scope of the Commodity 

Futures Trading Commission’s 

(‘‘CFTC’’) rulemaking jurisdiction.12

The FINRA definition, however, does 

not contain an exclusion for certain spot 

and forward contracts found in the NFA 

and CFTC definitions, which were 

included due to CFTC jurisdictional 

limitations.13

Paragraph (b) also defines the term 

‘‘leverage ratio’’ to mean the fraction 

represented by the numerator which is 

the notional value of a forex transaction, 

and the denominator, which is the 

amount of good faith deposit or account 

equity required from the customer for a 

forex position. For example, if the 

notional value of a forex contract is 

$250,000, and the customer deposits 

$200,000, the leverage ratio would be 

1.25 to 1. 

FINRA will announce the effective 

date of the proposed rule change in a 

Regulatory Notice to be published no 

later than 60 days following 

Commission approval. The effective 

date will be 30 days following 

publication of the Regulatory Notice 

announcing Commission approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,14 which 

requires, among other things, that 

FINRA rules must be designed to 

prevent fraudulent and manipulative 

mstockstill on PROD1PC66 with NOTICES

32024 Federal Register / Vol. 74, No. 127 / Monday, July 6, 2009 / Notices 

15All references to commenters under this Item 

are to the commenters as listed in Exhibit 2b to the 

proposed rule change [SR–FINRA–2009–040]. 

16Abhay, Aird, Akhras, Ali, Andrews, Arthur, 

Avery, Chris, Cohn, Colman, Crowley, Dallmann, 

Daniels, David, Day, Decker, Delfino, Doozan, 

Evergreen, Figlewski, Findley, Fortner, Gallagher, 

Gallagher 2, Getline, Goff, GoodBoy, Gray, 

gslatham, Gurkan, Hoepker, Howell, Hurley, Issacs, 

Jackal, Jackson, Jacobs, James, Jim, Johnston, Jones, 

Kerr, Lambert, Langin, Lannon, Lebold, Leousis, 

Levy, Marsh, Marshall, Muir, National Information, 

Nadjakov, Negus, Newhouse, Nichols, Nick, nv46, 

O’Moore, Otlo, Overfield, Parker, Pellot, Pena, 

Prime, Prindle, Quesenberry, Rajenthiran, 

Ramlakhan, Ramsey, Rawlins, Revolg, Rice, 

Richardson, L. Richardson, Rigney, Rocha, Romero, 

Sabo, Salatino, Shore, Sinclair, Sinclair 2, 

Thomlinson, Tischer, Uwins, Vern, Walker, 

Waratah, Weaver, Weisbloom, Wilkes, Williams, 

Young, Young 2, Zarlengo and Zepco. 

17Aird, Akhras, Avery, Day, Doozan, Findley, 

Gallagher, Gallagher 2, Getline, GoodBoy, gslatham, 

Jackson, Jacobs, James, Jones, Lannon, Marsh, 

National Information, Newhouse, nv46, O’Moore, 

Quesenberry, Ramsey, Revolg, Richardson, L. 

Richardson, Rigney, Sabo, Sinclair, Vern, Walker, 

Wilkes, Williams, Young and Zarlengo. 

18Abhay, Akhras, Andrews, Crowley, David, 

Figlewski, Fortner, Getline, GoodBoy, Gray, Gurkan, 

Hoepker, Lambert, Lebold, Leousis, Nick, nv46, 

Prindle, Ramlakhan, Rawlins, Rice, Romero, 

Sinclair 2, Thomlinson, Tischer, Waratah, Wilkes, 

Williams and Zepco. 

19Because many of these commenters are 

unfamiliar with FINRA and its jurisdiction, FINRA 

believes that these commenters mistakenly believe 

that the proposed rule change would eliminate their 

ability to trade forex at higher leverage levels. 

FINRA’s proposal would have no direct effect on 

the leverage ratios offered by non-broker-dealers, 

which currently represent the overwhelming 

majority of participants in this industry. As of 

November 2008, the NFA had 26 Forex Dealer 

Members. See Lee Oliver, Retail FX in the U.S.: A 

Market in Transformation, Futures Industry 

Magazine, November/December 2008, at 35. 

20Abhay, Colman, Gurkan, Leousis, Sinclair 2, 

Weisbloom and Williams. 

21One investor noted that after finally saving up 

$114, he was able to start trading forex. 

22See NASD Rule 2520. 

23 12 CFR 220. 

24Abhay, Arthur, Chris, Goff, Gurkan, James, Jim, 

Kerr, Leousis, Nadjakov, Newhouse, Nichols, Prime, 

Prindle, Ramsey, Sinclair, Sinclair 2, Vern, 

Weisbloom, Williams and Young 2. 

25Avery. 

26Crowley (offered 40 to 1, yet trades at no more 

than 2 to 1); Dallmann (says you should not risk 

more than 2% of your account balance); Delfino 

(allow for a maximum leverage of 100 to 1); Lambert 

(understanding lowering the limit to 100 to 1); 

Parker (proposing maximum leverage of 5 to 1 or 

4 to 1); Ramlakhan (the firm he trades with offers 

40 to 1, but he uses no more than 16 to 1); Revolg 

(leverage no less than 20 to 1); Uwins (stating 

‘‘400:1 is getting a little ridiculous’’ and favoring 

100:1 or less); and Waratah (uses a true leverage of 

5 to 1). 

27This view also was reflected in comment letters 

by FIA and FXC. 

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 is consistent with 

the provisions of the Act noted above in 

that it will limit leverage ratios, 

requiring greater initial deposits that 

will substantially reduce the likelihood 

that any small adverse percentage 

change in the exchange rate of a foreign 

currency will cause an investor’s funds 

to be wiped out. Moreover, limiting the 

leverage ratios is intended to reduce the 

risks of excessive speculation. 

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 

The proposed rule change was 

published for comment in FINRA 

Regulatory Notice 09–06 (January 2009). 

FINRA received 109 comments in 

response to the Regulatory Notice. A 

copy of the Regulatory Notice is 

attached as Exhibit 2a, the index to the 

comment letters is attached as Exhibit 

2b and copies of the comment letters 

received in response to the Regulatory 

Notice are attached as Exhibit 2c.15

Of the 109 comment letters received, 

none were in favor of the proposed rule 

change and 108 were opposed; one 

comment letter did not express an 

opinion. 

Ninety-seven of the comment letters 

were from individual investors who 

opposed FINRA’s attempts to limit the 

amount of leverage available.16 FINRA 

believes the central theme in these 

comment letters was that it was unfair 

to lower the leverage ratios available 

and that neither the government nor any 

regulator should inhibit an individual’s 

freedom to invest and make money.17 In 

short, commenters believe that they 

should be entitled to invest their money 

at whatever leverage ratio they see fit. 

Several of these commenters 18 argued 

that the proposed rule change would 

kill the off-exchange retail forex 

business or force traders to trade in 

foreign, less regulated markets.19 Many 

of the individual investors believed that 

the leverage limitations were 

unnecessary because they could manage 

their risk by trading in small amounts or 

by entering a stop-loss order.20

FINRA staff disagrees with these 

commenters and the laissez faire and 

caveat emptor approach. FINRA’s 

mandate includes investor protection, 

and many of the comment letters, such 

as those from retirees and retail 

investors, are from individuals whose 

interests are traditionally helped by 

FINRA’s regulatory program.21 Taken to 

their logical conclusion, FINRA believes 

that these commenters would likely 

oppose many of FINRA’s existing rules 

(including a 25% maintenance margin 

requirement, and the minimum equity 

of $25,000 for pattern day traders),22 as 

well as the initial margin limitations in 

the Federal Reserve Board’s Regulation 

T.23 Further, while a stop-loss order 

may help minimize the losses on any 

particular forex position, it does not 

address the fact that at high levels of 

leverage, such as 400 or 100 to 1, a very 

small movement in the exchange rate of 

a foreign currency pair trade will 

quickly trigger the stop-loss provision 

and close out the position with a loss. 

Similarly, the fact that a firm will close 

out a customer position and not issue a 

margin call does not address the 

potential for losses resulting from such 

high leverage ratios. 

In addition, these commenters 

believed that the proposal was targeted 

at the retail investor, while allowing 

larger institutional investors to have 

access to higher levels of leverage.24

One commenter compared the proposed 

rule change to the ‘‘accredited investor’’ 

standard which he viewed as preventing 

the little guy from having access to the 

best deals.25 Interestingly, some of those 

commenters who opposed the proposed 

rule change also acknowledged that 

existing levels of leverage were 

excessive and would not trade at these 

levels.26

Several broker-dealers submitted 

comment letters on the proposed rule 

change. Interactive Brokers, Knight, TD 

Ameritrade and thinkorswim believed 

that the investor protection benefits of 

the proposed rule change would not be 

attained as the proposal would merely 

divert customers’ forex activities to nonFINRA members.27 Knight urged FINRA 

to allow customers to trade forex at 

broker-dealers ‘‘on similar terms as 

accounts held at entities that are not 

regulated by FINRA.’’ FINRA does not 

believe that the opportunity for 

customers to trade in a less-regulated 

environment or on more lenient terms is 

a compelling rationale to limit the 

application of the proposed rule change. 

Prior to soliciting comment on the 

proposed rule change in Regulatory 

Notice 09–06, FINRA reviewed the 

regulatory requirements of other 

regulators and concluded that the 

availability of such high levels of 

leverage was the crux of the problem 

faced by investors. FINRA 

acknowledges that different regulators 

may choose to pursue their regulatory 

mandate in separate ways; however, 

mstockstill on PROD1PC66 with NOTICES

Federal Register / Vol. 74, No. 127 / Monday, July 6, 2009 / Notices 32025 

28See supra note 6. 

29CFTC Reauthorization Act of 2008, 13101 (to be 

codified at 7 U.S.C. 2(c)(2)(B)). 

30CFTC Reauthorization Act of 2008, 1301 (to be 

codified at 7 U.S.C. 2(c)(2)(B)(i)(II)(cc)(AA)). 

31NFA By-Law 306. 

32 Dallmann, Hurley, Rocha and Young. 

33See Regulatory Notice 08–66, page 4. 

FINRA is not compelled to follow the 

standards adopted by other regulators. 

FIA, FXC and thinkorswim urged 

FINRA to use the standards articulated 

in Regulatory Notice 08–66 (Retail 

Foreign Currency Exchange) and FINRA 

Rule 2010 (Standards of Commercial 

Honor and Principles of Trade), and best 

practices adopted by the forex 

community in lieu of the proposed rule 

change. While FINRA believes that the 

protections afforded investors under 

Regulatory Notice 08–66 and FINRA 

Rule 2010 are meaningful, they do not, 

in FINRA’s view, go far enough. FXC 

also questioned whether FINRA has the 

authority to control the terms of a nonsecurities transaction. FINRA does not 

read any provisions in the Act that 

prohibit it from proposing rules on 

broker-dealer conduct relating to nonsecurities. The standards for the rules of 

a national securities association in 

Section 15A of the Act include the 

‘‘protect[ion] of investors’’ irrespective 

of whether such activity relates to 

securities. Ironically, FXC’s premise that 

FINRA Rule 2010 and Regulatory Notice 

08–66 are sufficient to protect investors 

contradicts its assertion that FINRA 

does not have authority to adopt rules 

relating to non-securities transactions. 

FIA and Interactive Brokers stated 

that the proposed rule change is 

inconsistent with congressional intent 

in allowing a broker-dealer to engage in 

an off-exchange retail forex business. 

While Congress authorized a class of 

regulated entities to engage in an offexchange retail forex business,28 FINRA 

believes that there is nothing in the 

legislation to suggest that Congress 

intended that each regulated entity 

would adopt a conforming regulatory 

regime. Indeed, when the CFMA was 

adopted, Congress was well-aware of the 

differing regulatory regimes in the 

eligible entities. Moreover, FINRA 

believes Congress actually contributed 

to the regulatory disparities in only 

increasing the minimum net capital 

required for FCMs.29

Interactive Brokers, Roberts & Ryan 

and TradeStation suggested that FINRA 

adopt an exclusion from the proposed 

rule change for FINRA members that are 

dually registered broker-dealer/FCMs 

like themselves. Both Interactive 

Brokers and TradeStation stated that 

dual registrants will be subject to 

oversight by the CFTC and/or NFA. 

FINRA believes Interactive Brokers and 

TradeStation are misreading the CEA 

and the scope of the NFA’s rules. The 

CEA specifically states that the CFTC’s 

jurisdiction over off-exchange retail 

forex applies only to FCMs that are not 

also a registered broker-dealer.30

Similarly, NFA exempts from its Forex 

Dealer Members entities that are a 

member of a national securities 

association.31 Thus, Interactive Brokers’ 

and TradeStation’s off-exchange retail 

forex business operate outside the ambit 

of the CFTC and NFA rules tailored to 

forex. It is not sufficient for regulatory 

purposes that the CTFC and NFA can 

enforce their books and records and 

general anti-fraud provisions. Moreover, 

even if Interactive Brokers and 

TradeStation were to voluntarily submit 

to the NFA’s jurisdiction for purpose of 

applying its off-exchange retail forex 

rules, FINRA would still have concerns 

about the level of leverage provided in 

what is a joint broker-dealer/FCM. 

Interactive Brokers, thinkorswim and 

TradeStation also argued that the 

proposed rule change will disadvantage 

combined broker-dealer/FCMs. FINRA 

agrees that conducting an off-exchange 

retail forex business in a combined 

broker-dealer will subject the firm to a 

different regulatory regime than if the 

business were conducted in a separate 

FCM. Such differences exist today in the 

application of FINRA Rule 2010 and 

NASD Rule 2210 to joint broker-dealer/ 

FCMs. FINRA also notes that joint 

broker-dealer/FCMs are in many other 

ways operating in a less regulated 

environment inasmuch as they operate 

outside of the CFTC and NFA rules on 

forex. However, the observation that 

either another regulatory scheme or 

practices occurring outside of any 

regulatory scheme allow business in 

retail forex at greater leverage levels is 

neither a compelling reason for FINRA 

to mandate a standard less than that 

deemed necessary by FINRA for 

investor protection nor does it 

demonstrate a deficiency for meeting 

the elements of approval of this 

proposed rule change under the Act. 

Several commenters 32 suggested that 

disclosure about the risks of leverage, or 

the actual leverage, in a particular 

transaction would be an effective 

alternative to the proposed rule change. 

FINRA disagrees that disclosure alone is 

an effective regulatory solution. FINRA 

also notes that Regulatory Notice 08–66 

already requires disclosures of the risks 

of forex trading and the risks and terms 

of leveraged trading.33 SIFMA suggested 

that FINRA adopt a definition of retail 

customer. FINRA disagrees and believes 

that the reference to the ‘‘eligible 

contract participant’’ standard is most 

appropriate for the proposed rule 

change as that is the terminology used 

in the federal legislation that permits a 

broker-dealer to engage in an offexchange retail forex business. SIFMA 

and TD Ameritrade also requested that 

FINRA adopt a hedging exemption to 

allow customers to hedge foreign 

currency exposure from securities. 

FINRA does not support a hedging 

exemption as there are many other 

available alternatives (e.g., exchange 

traded futures and options, and other 

OTC products) that may be used to 

hedge foreign currency exposure. 

Furthermore, FINRA does not believe 

that the off-exchange retail forex 

markets are used for hedging and is 

concerned that burdens and 

complexities in establishing a hedging 

exemption will not be justified. 

SIFMA also suggested that FINRA 

clarify whether Exchange Act Rule 

15c3–3 is applicable to the deposit 

required to carry positions involving 

retail transactions in foreign exchange. 

FINRA will work with the SEC to 

publish an interpretation of Exchange 

Act Rule 15c3–3 that will address this 

question. 

Finally, TD Ameritrade stated that the 

proposed rule change would cause 

broker-dealers to establish an FCM 

affiliate or to establish an introducing 

relationship with an NFA firm that 

offers off-exchange retail forex, and that 

the broker-dealer would therefore be 

unregulated with respect to its forex 

activity. FINRA disagrees and notes that 

Regulatory Notice 08–66 was very clear 

in reminding firms that broker-dealer 

forex activities, including referral and 

introducing activities, would be subject 

to FINRA Rule 2010. 

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 

mstockstill on PROD1PC66 with NOTICES

32026 Federal Register / Vol. 74, No. 127 / Monday, July 6, 2009 / Notices 

34 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. 58143 

(July 11, 2008), 73 FR 41388 (July 18, 2008) (Notice 

of Filing and Immediate Effectiveness of Proposed 

Rule Change Relating to Linkage Fees). 

4Pursuant to other pilot programs, certain linkage 

fees may not apply during the Linkage pilot 

program. 

5The ISE charges these fees only to its Members, 

generally firms who clear P Orders and P/A Orders 

for market makers on the other linked exchanges. 

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–2009–040 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–2009–040. 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–2009–040 and 

should be submitted on or before July 

27, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.34

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–15741 Filed 7–2–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60175; File No. SR–ISE– 

2009–36] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Linkage Fees 

June 25, 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 June 23, 

2009, International Securities Exchange, 

LLC (‘‘ISE’’ or the ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. 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 ISE is proposing to extend 

through July 31, 2010 the current pilot 

program regarding transaction fees 

charged for trades executed through the 

intermarket options linkage (‘‘Linkage’’). 

The text of the proposed rule change is 

available at the Exchange. 

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 this proposed rule 

change is to extend for one year the 

pilot program establishing ISE fees for 

Principal Orders (‘‘P Orders’’) and 

Principal Acting as Agent Orders (‘‘P/A 

Orders’’) sent through Linkage and 

executed on the ISE. The fees currently 

are effective for a pilot period scheduled 

to expire on July 31, 2009.3 This filing 

would extend the pilot program for 

another year, through July 31, 2010. 

The ISE fees affected by this filing are: 

The Linkage P Order fee of $0.27 per 

contract; the Linkage P/A Order fee of 

$0.18 per contract and a surcharge fee 

of between $0.02 and $0.16 per contract 

for trading certain licensed products 

(collectively ‘‘linkage fees’’).4 These are 

the same fees that all ISE Members pay 

for non-customer transactions executed 

on the Exchange.5 The ISE does not 

charge for the execution of Satisfaction 

Orders sent through Linkage and is not 

proposing to charge for such orders. 

The Exchange believes it is 

appropriate to charge fees for P Orders 

and P/A Orders executed through 

Linkage. Notably, while market makers 

on competing exchanges always can 

match a better price on the ISE, they 

never are obligated to send orders to the 

ISE through Linkage. However, if such 

market makers do seek the ISE’s 

liquidity, whether through conventional 

orders or through the use of P Orders or 

P/A Orders, we believe it is appropriate 

to charge our Members the same fees 

levied on other non-customer orders. 

We appreciate that there has been 

limited experience with Linkage and 

that the Commission is continuing to 

study Linkage in general and the effect 

of fees on Linkage trading. Thus, this 

filing would extend the status quo with 

Linkage fees for an additional year. The 

Exchange is making no substantive 

changes to the way the pilot is currently 

operating, other than to extend the date 

of operation through July 31, 2010. 

2. Statutory Basis 

The basis under the Exchange Act for 

this proposed rule change is the 

requirement under Section 6(b)(4) that 

mstockstill on PROD1PC66 with NOTICES