
[Federal Register: March 16, 2010 (Volume 75, Number 50)]
[Notices]               
[Page 12584-12588]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16mr10-93]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61677; File No. SR-FINRA-2009-054]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing of Proposed Rule Change, as Modified 
by Amendment No. 1, To Extend Certain Regulation NMS Protections to 
Quoting and Trading in the Market for OTC Equity Securities

March 9, 2010.
    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 August 7, 2009, the Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by FINRA. The proposed 
rule change was subsequently amended by FINRA on March 1, 2010. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing Amendment No. 1 to SR-FINRA-2009-054, a proposed 
rule change to adopt new FINRA Rules 6434 (Minimum Pricing Increment 
for OTC Equity Securities), 6437 (Prohibition from Locking or Crossing 
Quotations in OTC Equity Securities), 6450 (Restrictions on Access 
Fees) and 6460 (Display of Customer Limit Orders). 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
Rule Filing History
    On August 7, 2009, FINRA filed with the SEC SR-FINRA-2009-054, a 
proposed rule change to adopt new FINRA rules to extend certain 
Regulation NMS protections to quoting and trading in over-the-counter 
equity securities.\3\ On August 26, 2009, the Commission published for 
comment the proposed rule change in the Federal Register and received 
twelve comment letters.\4\ Based on comments received, FINRA is filing 
this Amendment No. 1 to respond to the comments received and to propose 
amendments, where appropriate.
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    \3\ See Securities Exchange Act Release No. 60515 (August 17, 
2009), 74 FR 43207 (August 26, 2009) (Notice of Filing File No. SR-
FINRA-2009-054) (``Proposing Release'').
    \4\ Letter from Ann L. Vlcek, Managing Director and Associate 
General Counsel, Securities Industry and Financial Markets 
Association, to Elizabeth M. Murphy, Secretary, SEC, dated October 
13, 2009 (``SIFMA''); Letter from Christopher Nagy, Managing 
Director Order Strategy, TD Ameritrade, Inc., to Elizabeth M. 
Murphy, Secretary, SEC, dated October 6, 2009 (``TD Ameritrade''); 
Letters from R. Cromwell Coulson, Chief Executive Officer, Pink OTC 
Markets Inc., to Elizabeth M. Murphy, Secretary, SEC, dated 
September 23, 2009 (``Pink1'') and January 6, 2010 (``Pink2''); 
Letter from Janet M. Kissane, Senior Vice President, Legal & 
Corporate Secretary, NYSE Euronext, to Nancy M. Morris, Secretary, 
SEC, dated September 23, 2009 (``ArcaEdge''); Letter from William 
Assatly, Sr. Vice President, Trading, Mercator Associates, to 
Elizabeth M. Murphy, Secretary, SEC, dated September 16, 2009 
(``Mercator''); Letter from Leonard J. Amoruso, General Counsel, and 
Michael T. Carrao, Chief Compliance Officer, Knight Capital Group, 
Inc., to Elizabeth M. Murphy, Secretary, SEC, dated September 16, 
2009 (``Knight''); Letter from Elaine M. Kaven, Chief Compliance 
Officer, StockCross Financial Services, Inc., to Florence H. Harmon, 
Deputy Secretary, SEC, dated September 16, 2009 (``StockCross''); 
Letters from Kimberly Unger, Executive Director, Security Traders 
Association of New York, Inc., to Elizabeth M. Murphy, Secretary, 
SEC, dated September 14, 2009 (``STANY1) and September 16, 2009 
(``STANY2''); Letter from Daniel Kanter, President, and Craig 
Carlino, Chief Compliance Officer, Monroe Securities, Inc., to 
Elizabeth M. Murphy, Secretary, SEC, dated September 16, 2009 
(``Monroe''); and Letter from Anonymous dated September 1, 2009. 
(available at http://www.sec.gov/comments/sr-finra-2009-054/
finra2009054.shtml).
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Proposal
    As described in the Proposing Release, FINRA proposes to adopt 
rules to: (1) Restrict sub-penny quoting; (2) restrict locked and 
crossed markets; (3) implement a cap on access fees; and (4) require 
the display of customer limit orders. FINRA believes that these 
Regulation NMS principles, if applied to over-the-counter equity 
securities (``OTC

[[Page 12585]]

Equity Securities''),\5\ would enhance market quality and investor 
protections in this market.
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    \5\ ``OTC Equity Security'' means any non-exchange-listed 
security and certain exchange-listed securities that do not 
otherwise qualify for real-time trade reporting. See FINRA Rule 
6420(d).
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Comments to the Proposed Rule Change
Restriction on Access Fees
    Currently, FINRA Rule 6540(c), which applies only to the OTC 
Bulletin Board (``OTCBB'') montage, requires that an alternative 
trading system (``ATS'') \6\ and electronic communications network 
(``ECN'') \7\ reflect non-subscriber access or post-transaction fees in 
their posted quote. Consistent with Regulation NMS, FINRA proposed to 
eliminate the OTCBB access fee display requirement and to, instead, 
implement a cap on access fees in all OTC Equity Securities, wherever 
displayed, that exceed or accumulate to more than the following limits:
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    \6\ See Rule 300(a) of Regulation ATS under the Act.
    \7\ See Rule 600(b)(23) of the Act (defining ``electronic 
communications network'').
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    a. If the price of the quotation is $1.00 or more, the fee or fees 
cannot exceed or accumulate to more than $0.003 per share; or
    b. If the price of the quotation is less than $1.00, the fee or 
fees cannot exceed or accumulate to more than 0.3% of the quotation 
price per share.
Also consistent with Regulation NMS, the proposal would explicitly 
permit market makers to charge access fees.
    While some commenters generally expressed support for the proposal 
to impose a cap on access fees,\8\ most commenters opposed it.\9\ 
Several commenters expressed concern that the proposal would lead to a 
reduction in the transparency of over-the-counter (``OTC'') quotations 
by permitting market participants to charge an access fee without 
displaying it in the quoted price, making it difficult for investors to 
compare prices offered by different broker-dealers across different 
marketplaces.\10\ Commenters also expressed concern that an access fee 
cap (without a corresponding display requirement) would result in a 
shift in market structure that harms investors by leading to an 
increase in transaction costs.\11\ Some commenters also argued that the 
proposal would unfairly favor the ATS business model, result in an 
increase in the incidence of locked and cross markets, and lead to an 
increase in gaming practices.\12\
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    \8\ See ArcaEdge and TD Ameritrade.
    \9\ See Knight, Mercator, Pink1, SIFMA, STANY2 and StockCross.
    \10\ See e.g., Knight, Pink1 and SIFMA.
    \11\ See e.g., Mercator and Pink1.
    \12\ See e.g., Knight, Pink1 and SIFMA.
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    Commenters noted that the proposed access fee cap of 0.3% of the 
quotation price per share for securities priced under $1.00 may result 
in the assessment of an undisclosed access fee that is greater than the 
price increment, which may provide an incentive for gaming activity and 
``access fee trading.'' \13\ One commenter presented a scenario that 
would result in ``access fee trading'' through crossing quotes across 
inter-dealer quotation systems.\14\ In the example, the inside market 
for a stock quoted on the OTCBB is $.8999 x $.90 (the relevant access 
fee cap under the original proposal would have been $.0027 per share). 
Rather than take the offering at $.90, the commenter states that a 
market maker could cross the market in the Pink Sheets by posting a bid 
of $.9001. If the market maker's bid is hit in the Pink Sheets, it will 
be able to buy the stock at $.9001 and then immediately sell to the 
OTCBB bid at $.8999. The commenter notes that, although the market 
maker sold the stock at a slight loss of $.0002 per share, the access 
fee of $.0027 per share provided an instant, virtually riskless 
profit.\15\ Accordingly, certain commenters argued that the appropriate 
access fee cap should never be greater than 30% of the relevant pricing 
increment, which would ensure that the access fee is always lower than 
the relevant increment.\16\
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    \13\ See generally ArcaEdge, STANY2 and Pink1. As an example, 
Pink noted that, using the proposed formula, the access fee cap on a 
$0.90 security would be $0.0027 while the pricing increment would be 
$0.0001.
    \14\ See Knight.
    \15\ See Knight.
    \16\ See ArcaEdge, Pink1 and STANY2.
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    FINRA has considered the comments opposing the elimination of the 
access fee display requirement in conjunction with the establishment of 
an access fee cap, and continues to believe that the proposal strikes 
the appropriate balance between addressing the practical difficulties 
of incorporating access fees in published quotes and the need to 
curtail potentially excessive undisclosed access fees. FINRA notes that 
similar concerns and debate were raised in the context of the adoption 
of Regulation NMS, to which the Commission concluded that a uniform fee 
limitation of $0.003 per share is the fairest and most appropriate 
resolution of the access fee issue.\17\ FINRA believes that the same 
holds true in this context as well.
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    \17\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (order adopting rules under 
Regulation NMS, SEC File No. S7-10-04).
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    However, in light of the lower price points for securities in the 
OTC market, and in response to commenters' concerns regarding potential 
gaming activities, FINRA believes that an adjustment to the proposed 
access fee cap calculation method is appropriate. FINRA is proposing a 
revised method of calculating the access fee for securities priced 
under $1.00 to ensure that the access fee is always less than the 
relevant quotation increment. FINRA is proposing that the cap on access 
fees for securities priced under $1.00 would be the lesser of: (a) 0.3% 
of the published quotation price on a per share basis, or (b) 30% of 
the relevant minimum pricing increment applicable to the display of the 
quotation. The revised proposal would provide that:
    A member shall not impose, nor permit to be imposed, non-subscriber 
access or post-transaction fees against its published quotation in any 
OTC Equity Security that exceeds or accumulates to more than:
    (a) $0.003 per share, if the published quotation is priced equal to 
or greater than $1.00; or
    (b) the lesser of 0.3% of the published quotation price on a per 
share basis or 30% of the minimum pricing increment under Rule 6434 
relevant to the display of the quotation on a per share basis if the 
published quotation is less than $1.00.
    FINRA believes that this approach would ensure that a permissible 
access fee would always be smaller than the pricing increment (which 
would address concerns regarding gaming). If the security is priced at 
$1.00 or more, the access fee cap would continue to be $0.003 per 
share.
Sub-Penny Restrictions
    Currently there are no restrictions in place for quotations in 
subpenny increments in the OTC marketplace. Subpenny increments have 
been associated with certain market abuses, including stepping ahead of 
standing limit orders for an economically insignificant amount. 
Subpenny increments also have been associated with added difficulty for 
broker-dealers in meeting certain regulatory obligations by increasing 
the incidence of so-called ``flickering'' quotes. Thus, FINRA has 
proposed restrictions on the display of quotations and orders in sub-
penny increments for OTC Equity Securities.
    Specifically, FINRA proposed to prohibit members from displaying, 
ranking or accepting from others a bid, offer, order, or indication of 
interest in

[[Page 12586]]

OTC Equity Securities in an increment smaller than:
--$0.01 if the bid or offer, order, or indication of interest is priced 
$1.00 or greater per share,
--$0.0001 if the bid or offer, order, or indication of interest is 
priced below $1.00 and equal to or greater than $0.01 per share, and
--$0.000001 if the bid or offer, order or indication of interest is 
priced less than $0.01 per share.

    Commenters generally favored a restriction on quoting in subpenny 
increments, though some argued for modifications to the increments 
proposed. Commenters also generally believed that the proposal should 
go further by prohibiting subpenny quotations in increments of more 
than four decimal places.\18\ Certain commenters also proposed specific 
alternative quotation increments for the OTC market.\19\
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    \18\ See ArcaEdge and Pink1.
    \19\ See ArcaEdge and Pink1.
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    FINRA has considered commenters' concerns and is proposing a 
modification to the tiers originally proposed. Specifically, FINRA is 
proposing to reduce the minimum pricing increment from $0.000001 to 
$0.0001 for all securities priced under $1.00. However, with respect to 
securities priced less than $0.0001, members would be permitted to rank 
or accept (but not display) orders and indications of interest in an 
increment of $0.000001 or greater so as not to effectively eliminate 
trading in such securities. For example, a member would be permitted to 
rank or accept an order of $.000089, but would not be permitted to 
display the order at such increments. A member would not be permitted 
to rank or accept an order of $.00059, because it has an increment of 
$.00001 and is not priced less than $.0001. The proposed exception to 
allow the ranking and acceptance of orders in smaller increments for 
securities priced below $.0001 per share is in recognition of the fact 
that some OTC Equity Securities trade at prices below $.0001 and having 
a restriction on increments below that amount would in effect eliminate 
trading of those securities. The proposal for securities priced $1.00 
or greater would continue to be a penny. Therefore the revised proposal 
would provide that:
    No member shall display, rank, or accept a bid or offer, an order, 
or an indication of interest in any OTC Equity Security priced in an 
increment:
    (1) Smaller than $0.01 if that bid or offer, order or indication of 
interest is priced equal to or greater than $1.00 per share; and
    (2) Smaller than $0.0001 if that bid or offer, order or indication 
of interest is priced less than $1.00 per share except, where an order 
or indication of interest is priced less than $0.0001, a member may 
rank or accept (but not display) such order or indication of interest 
in an increment of $0.000001 or greater.\20\
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    \20\ FINRA also is clarifying that such orders priced less than 
$.0001 are not required to be displayed pursuant to proposed Rule 
6460 (Display of Customer Limit Orders).
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    FINRA believes that most, if not all, systems cannot accommodate 
the display of pricing increments smaller than four decimal places and 
that increasing the minimum pricing increment to $0.0001 would further 
promote and solidify uniformity in the OTC market at these price 
levels.
Prohibition on Locking and Crossing Quotations
    FINRA rules do not currently prohibit locking or crossing 
quotations in OTC Equity Securities. FINRA believes that locked and 
crossed markets can cause confusion among investors concerning the 
trading interest in a stock and, therefore, FINRA believes that 
restricting the practice of submitting locking or crossing quotations 
(and requiring reconciliation of locked/crossed quotes) will enhance 
the usefulness of quotation information for OTC Equity Securities. 
Thus, FINRA proposed requiring members to implement policies and 
procedures that reasonably avoid the display of, or engaging in a 
pattern or practice of displaying, locking or crossing quotations in 
any OTC Equity Security within the same inter-dealer quotation system.
    Commenters generally supported the adoption of a rule reasonably 
designed to prohibit locked and crossed markets, though commenters 
preferred that the prohibition apply across interdealer quotation 
systems.\21\ One commenter expressed concern that the proposed rule 
takes a ``fragmented'' approach and should, instead, require members to 
canvas multiple venues for the purpose of avoiding locking/crossing the 
market in a similar manner as is currently required to meet best 
execution obligations.\22\
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    \21\ See e.g., ArcaEdge, Pink1 and TD Ameritrade.
    \22\ See Pink1.
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    As FINRA stated in the Proposing Release, because there currently 
is no mandated consolidated quotation dissemination mechanism for OTC 
Equity Securities (as exists for NMS stocks), the proposed rule would 
only restrict locking and crossing quotations within inter-dealer 
quotation systems. FINRA continues to believe that, at the present 
time, the lock/cross rule can only reasonably be made to impose 
restrictions on locking and crossing quotations within, but not across, 
interdealer quotations systems due to the lack of a widely accessible, 
consolidated national best bid and offer for OTC Equity Securities. 
FINRA notes, however, that FINRA has proposed a rule that would require 
members to submit all quotation information in OTC Equity Securities to 
FINRA, and FINRA would, in turn, disseminate a best bid and offer as 
part of the Level 1 data feed entitlement.\23\ If this proposed 
quotation consolidation facility is approved, FINRA believes that it 
would then be reasonable to propose that members must avoid locking and 
crossing across interdealer quotation systems. Thus, FINRA does not 
believe that any amendments to the proposed rule addressing locked and 
crossed quotations are warranted at this time.
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    \23\ See Securities Exchange Act Release No. 60999 (November 13, 
2009), 74 FR 61183 (November 23, 2009). (Notice of Filing File No. 
SR-FINRA-2009-077; Proposed Rule Change to Restructure Quotation 
Collection and Dissemination for OTC Equity Securities).
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Limit Order Display
    FINRA proposed requiring market makers displaying a priced 
quotation in a security to immediately display customer limit orders 
received where such order: (1) improves the price of the bid or offer 
displayed by the market maker, or (2) improves the size of its bid or 
offer by more than a de minimis amount where it is the best bid or 
offer in the interdealer quotation system where the market maker is 
quoting. Regulation NMS includes several exceptions from its limit 
order display requirements, which generally also would apply to the 
proposed limit order display rule for OTC Equity Securities.
    Commenters generally supported a display requirement for limit 
orders but requested certain clarifications and modifications. For 
example, commenters request that the rule permit market makers to 
retain discretion as to the size displayed because small orders are 
more likely to be executed than large ones.\24\ Certain commenters also 
argued that market makers should not be required to display limit 
orders in thinly traded securities, but that these orders should be 
excepted for the same reason block orders are excepted (i.e., market 
impact).\25\ One commenter expressed concern that requiring automatic 
display prevents market makers from

[[Page 12587]]

exercising discretion to handle the order in the best possible manner, 
which will disadvantage retail customers.\26\ One commenter believed 
that the proposal should be amended to require the display in an 
interdealer quotation system of all limit orders in OTC Equity 
Securities (unless immediately executed by the member or transmitted to 
another firm that would display such order in an interdealer quotation 
system) and should be expanded to include debt securities.\27\ 
Commenters asserted that any automatic limit order display size 
requirement should be based on the current OTCBB tier sizes, and 
provide members with discretion above the size of the tier.\28\ 
Commenters argued that the proposed definition of ``block size'' in the 
context of the exception to the display requirement still would require 
display of orders at sizes that may disadvantage the customer.\29\ 
Therefore, these commenters believed that members should be required to 
display only a portion of the order equal to the minimum quote size.
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    \24\ See Pink1 and STANY2.
    \25\ See Mercator, Pink1 and STANY2.
    \26\ See Pink1.
    \27\ See Pink2.
    \28\ See Pink1.
    \29\ See Knight and SIFMA.
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    FINRA appreciates the issues raised by commenters regarding the 
possible impact of limit order display on OTC Equity Securities in 
general and thinly traded OTC Equity Securities in particular. We 
confirm that the proposed limit order display rule would not require 
display of customer orders that would result in a violation of the 
tiers prescribed in FINRA Rule 6450 (Minimum Quotation Size 
Requirements For OTC Equity Securities).\30\ FINRA is proposing a new 
exception for limit orders less than $0.0001, consistent with the 
changes made to proposed FINRA Rule 6434 prohibiting the display of a 
bid or offer, order, or indication of interest in any OTC Equity 
Security priced less than $0.0001 per share.\31\ However, FINRA does 
not believe that any additional modifications to the proposed rule are 
appropriate, including with respect to comments that market makers 
should retain discretion over display of the size of a customer's limit 
order.
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    \30\ If a member is already displaying a quotation at or above 
the minimum quotation size, then the displayed size must be 
increased to reflect the full size of any customer limit order (if 
the limit order size represents more than a de minimis amount).
    \31\ See supra note 20 and accompanying text.
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    FINRA notes that, where the member believes that a customer would 
be best served by not displaying the full size of a limit order, the 
member is free to obtain the customer's consent to refrain from 
displaying such customer's order as is permitted by a proposed 
exception to the limit order display provision. FINRA is not persuaded 
that the suggested more volatile nature of OTC Equity Securities in 
general (or of any subset of especially thinly traded OTC Equity 
Securities) should permit a member independently to determine to 
withhold display of the full size of a customer limit order. Finally, 
FINRA does not agree that the proposed definition of ``block size'' 
should be modified. As stated in the Proposing Release, the proposed 
definition of ``block size'' is consistent with the existing large 
order size exception under IM-2110-2 (Trading Ahead of Customer Limit 
Order) and we believe it is appropriate that large orders be defined 
consistently across both rule sets.\32\ Furthermore, if a member 
believes that full display of a limit order that does not meet the 
definition of ``block size'' would disadvantage the customer, the 
member may obtain that customer's consent to refrain from display of 
the full size. As stated in the Proposing Release, FINRA believes that 
extending limit order display requirements to OTC Equity Securities 
will improve transparency in the OTC equity market and will advance the 
goal of the public availability of quotation information, as well as 
fair competition, market efficiency, best execution and 
disintermediation.
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    \32\ FINRA filed proposed rule change SR-FINRA-2009-090 to adopt 
NASD IM-2110-2 (Trading Ahead of Customer Limit Order) and NASD Rule 
2111 (Trading Ahead of Customer Market Orders) with significant 
changes in the Consolidated FINRA Rulebook as new FINRA Rule 5320 
(Prohibition Against Trading Ahead of Customer Orders). However, 
FINRA is not proposing changes to the definition of ``large order.'' 
See Securities Exchange Act Release No. 61168 (December 15, 2009), 
74 FR 68084 (December 22, 2009) (Notice of Filing File No. SR-FINRA-
2009-090).
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    With respect to the recommendation that all customer limit orders 
in OTC Equity Securities be displayed, irrespective of whether the firm 
that receives the order is already quoting the security, FINRA 
continues to believe that the appropriate conditions for the trigger of 
an obligation to display a customer limit order is where a market maker 
is already displaying a priced quotation in an interdealer quotation 
system in the same security (unless an exception applies). Finally, the 
changes recommended by the commenter to expand the limit order display 
requirements to debt securities are outside the scope of the proposed 
changes that are part of this rule filing and therefore, FINRA is not 
responding to these recommendations specifically herein. FINRA will 
review and analyze these recommendations in the same manner in which it 
would consider any requests for rulemaking, and, based on such review 
and analysis, will determine whether further action on these 
recommendations is appropriate.
    As stated in the Proposing Release, because the proposed new rules 
provide for significant regulatory changes, FINRA plans to implement 
the requirements in two phases to minimize the impact on firms. Phase 
one would implement sub-penny quoting restrictions, an access fee cap 
and restrictions on locked and crossed markets. Phase two would 
implement customer limit order display requirements. FINRA will 
announce the implementation dates for the proposed rule change in a 
Regulatory Notice to be published no later than 90 days following 
Commission approval. The implementation date of Phase one will be at 
least 120 days but no more than 365 days from the date of Commission 
approval and Phase two will be at least 90 days following the 
implementation of Phase one, but no more than 365 days from the date of 
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,\33\ which requires that 
FINRA rules must be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.
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    \33\ 15 U.S.C. 78o-3(b)(6).
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    FINRA further believes that the proposed rule change is consistent 
with the provisions of 15A(b)(11) of the Act,\34\ which requires, among 
other things, that FINRA rules must govern the form and content of 
quotations relating to securities sold otherwise than on a national 
securities exchange and require that such rules relating to quotations 
shall be designed to produce fair and informative quotations, to 
prevent fictitious or misleading quotations, and to promote orderly 
procedures for collecting, distributing, and publishing quotations.
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    \34\ 15 U.S.C. 78o-3(b)(11).
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    FINRA is proposing to: (1) Restrict sub-penny quoting; (2) restrict 
locked and crossed markets; (3) implement a cap on access fees; and (4) 
require the

[[Page 12588]]

display of customer limit orders. FINRA believes that the proposed 
restrictions on sub-penny quoting will promote greater price 
transparency and consistency, reduce the potential harms associated 
with sub-penny quoting in OTC equity securities and improve the depth 
and liquidity of this market.
    FINRA believes that locked and crossed markets can cause confusion 
among investors concerning trading interest in a stock and that 
restricting the practice of submitting locking or crossing quotations 
will enhance the usefulness of quotation information in the over-the-
counter market, facilitate more fair and orderly markets and support 
market efficiency.
    Where wide disparities in access fees are permitted, the prices of 
quotations are less useful and accurate. Therefore, FINRA believes that 
a cap on access fees would improve the usefulness and accuracy of 
quotations and address the potential distortions caused by substantial, 
disparate fees. Finally, FINRA believes that applying limit order 
display requirements to OTC Equity Securities would improve 
transparency in the OTC equity market and advance the goal of the 
public availability of quotation information, as well as fair 
competition, market efficiency, best execution and disintermediation.
    FINRA believes that the proposed extension of the specified 
Regulation NMS protections to quoting and trading in OTC Equity 
Securities will prevent fraudulent and manipulative acts and practices 
in this market, promote just and equitable principles of trade, and 
protect investors and the public interest.

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 on the proposed rule change were solicited by the 
Commission in response to the publication of SR-FINRA-2009-054, which 
proposed new rules to: (1) Restrict sub-penny quoting; (2) restrict 
locked and crossed markets; (3) implement a cap on access fees; and (4) 
require the display of customer limit orders.\35\ The Commission 
received twelve comment letters.\36\ The comments are summarized above.
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    \35\ See Proposing Release.
    \36\ See supra note 4.
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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. 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 rule-comments@sec.gov. Please include 
File Number SR-FINRA-2009-054 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-FINRA-2009-054. 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 Web site 
viewing and printing 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 publicly 
available. All submissions should refer to File Number SR-FINRA-2009-
054 and should be submitted on or before April 6, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5648 Filed 3-15-10; 8:45 am]
BILLING CODE 8011-01-P

