HelpFINRA Manual: Contents
FINRA Manual
Corporate Organization Notices
2007
07-65 FINRA Amends NYSE Rule 409(f) (Statements of Accounts to Customers) to Eliminate the Requirement to Include the Name of the Securities Market on which a Transaction is Effected; Effective Date: January 1, 2008
07-64 SEC approves amendments to NASD Rule 3010(g)(1) to Exempt Locations that Solely Conduct Final Approval of Research Reports; Effective Date: December 19, 2007
07-63 FINRA Adopts Rule Amendments Relating to Reporting of Odd-Lot Transactions; Effective Date: March 3, 2008
07-62 Revisions to the Series 23, 24, 42, 55, 62, 72 and 82 Examination Programs; Implementation Date: February 12, 2008
07-61 SEC Approves Exemption from TRACE Reporting Requirements for Certain "Derivative-Related Transactions"; Effective Date: December 13, 2007
07-60 FINRA Announces Relief Relating to Customer and PAIB Reserve Formula Computations and Required Deposits around the December 2007 Month-End Holidays
07-58 FINRA Solicits Comments on Proposed Guidance Regarding International Prime Brokerage Practices; Comment Period Expired: January 10, 2008
07-57 SEC Approves a Proposed Rule Change Relating to Representation of Parties in Arbitration and Mediation; Effective Date: December 24, 2007
07-56 Securities Industry/Regulatory Council on Continuing Education Issues Firm Element Advisory Update
07-55 FINRA Reminds Member Firms of Their Obligations Regarding Background Investigations of Prospective Personnel
07-53 SEC Approves New NASD Rule 2821 Governing Deferred Variable Annuity Transactions; Effective Date: May 5, 2008
07-52 Approves FINRA Membership Waive-In Process for Certain NYSE Member Organizations; Effective Date: October 12, 2007
07-51 Amendments to NASD IM-9216 to include certain NYSE Rules under the Minor Rule Violation Plan Effective Date: September 24, 2007
07-50 SEC Approves Amendments to NASD Rule 11870 and NYSE Rule 412 to Conform with NSCC's ACATS Transfer Cycle Time Frames; Effective Date: October 22, 2007
07-48 Broker-Dealer, Investment Adviser Firm, Agent and Investment Adviser Representative, and Branch Renewals for 2008; Payment Deadline: December 10, 2007
07-47 Amendments to NASD IM-2210-4: Web Site References to FINRA Membership and Limitations on the Use of FINRA's Name and Other Corporate Names Owned by FINRA; Effective Date: November 17, 2007
07-46 FINRA Requests Comment on Proposed Amendments to OTC Trade Reporting Requirements for Equity Securities; Comment Period Expires November 12, 2007
07-45 Amendments to NASD Rule 3210 to Conform with Amendments to the SEC's Regulation SHO Delivery Requirements; Effective Date: October 15, 2007
07-44 SEC Approves New Interpretive Material That Authorizes FINRA to Establish a Temporary Program to Allow Firms to Voluntarily Remit Accumulated Funds; Reminder Concerning Proper Disclosure of the Section 3 Fee; Effective Date: December 11, 2007 Sunset Date: June 11, 2008
07-43 FINRA Reminds Firms of Their Obligations Relating to Senior Investors and Highlights Industry Practices to Serve these Customers
07-42 SEC Approves NASD Rule 1160 Regarding Firm Contact Information; Effective Date: December 31, 2007
07-41 Member Firms are Reminded to Register with FINRA Associated Persons Who Also are Registered with Another SRO in a FINRA-Recognized Registration Category
07-40 SEC Approves Exception to Three Quote Rule and Related Recordkeeping Requirements for Certain Foreign Securities; Effective Date: September 28, 2007
07-39 SEC Approves Amendments Regarding OATS Routing Method Code for Intermarket Sweep Orders Effective Date: February 4, 2008
07-38 FINRA Extends Implementation of Rule Amendments Relating to Non-Tape (Or Clearing-Only) Reports for Previously Executed Trades Revised Effective Date: November 5, 2007
07-36 FINRA Clarifies Guidance Relating to SEC Regulation S-P under Notice to Members 07-06 (Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products)
07-35 Extension of Temporary Relief from NYSE Rule 409(f) (Statements of Accounts to Customers) to January 1, 2008
07-34 SEC Approves Amendments Relating to the Issuer-Directed Provisions of Rule 2790; Effective Date: September 5, 2007
07-33 FINRA Adopts Rule Amendments Relating to Non-Tape (or Clearing-Only) Reports for Previously Executed Trades; (Including Step-outs, Reversals and Riskless Principal Transactions) Effective Date: September 4, 2007
07-32 NASD Amends Rule 3013 and Interpretive Material 3013 to Permit Members to Designate Co-Chief Executive Officers and Multiple Chief Compliance Officers; Compliance Date: July 16, 2007
07-31 NASD Rule Changes to Conform with Amendments to SEC Rule 10a-1 and Regulation SHO; Compliance Date: July 6, 2007
07-30 NASD and NYSE Request Comment on Proposed Joint Guidance Regarding the Review and Supervision of Electronic Communications; Comment Period Expires July 13, 2007
07-29 SEC Approves Rule 2342 Setting Forth Requirements for Providing SIPC Information to Customers; Effective Date: November 6, 2007
07-28 SEC Approves Additional Mark-Up Policy for Transactions in Debt Securities, Except Municipal Securities; Effective Date: July 5, 2007
07-27 NASD Requests Comment on Proposed Rule 2721 to Regulate Member Private Securities Offerings; Comment Period Expires July 20, 2007
07-26 Securities Industry/Regulatory Council on Continuing Education Issues Firm Element Advisory Update
07-25 NASD Provides Guidance Concerning Trade Reporting Obligations for Transactions in Foreign Securities and American Depositary Receipts
07-24 New Requirement for the Reporting of Consolidated Short Interest Positions to the Intermarket Surveillance Group (ISG); Effective September 2007
07-21 Reporting of Transactions in TRACE-Eligible Securities With Execution Dates More Than T+365 Days Before Date of Report; TRACE System Enhancement Effective on June 4, 2007
07-20 NASD Amends Rules 1012 and 1013 to Require Applicants for Membership to Submit Applications Using Online Form NMA; Implementation Date: May 7, 2007; Compliance Date: May 31, 2007
07-19 SEC Approves Amendments to Expand IM-2110-2 to Include OTC Equity Securities; Effective Date: July 26, 2007
07-18 SEC Approves Amendments to TRACE Reporting Exempting Trades in TRACE-Eligible Securities Conducted on a Facility of, and Reported to, the New York Stock Exchange; Effective Date: January 9, 2007
07-17 NASD and NYSE Joint Release Regarding Special Measures against Specified Banks Pursuant to Section 311 of the USA PATRIOT Act
07-15 SEC Approves Amendments to TRACE Rules to Reflect the Availability of TRACE "Snapshot" Data for a Reduced Monthly Fee; Effective Date: May 1, 2007
07-14 Portfolio Margin Risk Disclosure Statement and Written Acknowledgement to be Furnished to Customers Using a Portfolio Margin Account
07-13 SEC Approves Amendments to NASD Code of Arbitration Procedure Concerning Subpoenas and Payment of Arbitrators; Effective Date: April 2, 2007
07-12 NASD Requests Comment on Proposed Amendments to Rules 3010(g) and 2711 in Connection with the Rule Harmonization Project with the NYSE; Comment Period Expires April 9, 2007
07-11 Amendment to Margin Rules to Establish a Portfolio Margin Pilot Program; Effective Date: April 2, 2007
07-10 SEC Approves Changes to NASD Interpretive Material 8310-2 Regarding the Release of Information through NASD BrokerCheck; Effective Date: March 19, 2007
07-09 SEC Approves Amendments to NASD Rules to Modify and Expand NASD's Authority to Initiate Trading and Quotation Halts in Over-the-Counter (OTC) Equity Securities; Effective Date: March 16, 2007
07-07 SEC Approves Revision of Customer and Industry Portions of NASD Code of Arbitration Procedure; Effective Date: April 16, 2007
07-06 Special Considerations When Supervising Recommendations of Newly Associated Registered Representatives to Replace Mutual Funds and Variable Products
07-05 Amendments to the Fees for Filing Offering Documents by Well-Known Seasoned Issuers Pursuant to the Corporate Financing Rule; Effective Date: February 26, 2007
07-03 NASD Announces SEC Approval of Amendments to Rule 2860 and Issues Guidance Concerning Large Options Position Reports and Aggregation of Certain Positions; Effective Date of Amendments February 12, 2007
| View Whole Section | Text only | Print Manager | Link |
07-40 SEC Approves Exception to Three Quote Rule and Related Recordkeeping Requirements for Certain Foreign Securities; Effective Date: September 28, 2007
| Regulatory Notice | |
Notice Type |
Referenced Rules & Notices NASD Rule 2320 NASD Rule 2310 NASD Rule 3110 NASD Rule 6610 |
| Suggested Routing Compliance Executive Representatives Legal Operations Senior Management Systems Trading Training |
Key Topic(s) Books and Records Foreign Securities Three Quote Rule |
Three Quote Rule
Executive Summary
Effective September 28, 2007, transactions in non-exchange-listed securities of a foreign issuer that is part of the FTSE All-World Index will be excluded from the application of Rule 2320(g) (Three Quote Rule) and Rule 3110(b) (Marking of Customer Order Tickets).1 Also as of September 28, 2007, customer transactions in non-exchange-listed securities listed on a Canadian exchange will be excluded from the application of Rules 2320(g) and 3110(b), subject to certain conditions. NASD Rules 2320(g) and 3110(b), as amended, are set forth in Attachment A of this Notice.
Questions regarding this Notice may be directed to the Legal Section, Market Regulation, at (240) 386-5126; or the Office of General Counsel at (202) 728-8071.
Discussion
The Three Quote Rule originally was adopted on May 2, 1988,2 as an amendment to FINRA's best execution rule and generally requires that firms that execute transactions in non-exchange-listed securities3 on behalf of customers contact a minimum of three dealers (or all dealers if three or less) and obtain quotations, if there are fewer than two quotations displayed on an inter-dealer quotation system that permits quotation updates on a real-time basis. The Three Quote Rule further defined a firm's best execution obligation to customers by setting forth additional requirements for transactions in non-exchange-listed securities, particularly transactions involving relatively illiquid securities with non-transparent prices.
Since the adoption of the Three Quote Rule, the market for non-exchange-listed securities has changed significantly. FINRA has found that under certain circumstances, the Three Quote Rule can hinder, rather than further, compliance with the duty of best execution by causing significant delays in obtaining executions of customer orders, particularly orders in securities of foreign issuers. Accordingly, FINRA proposed, and the SEC approved, amendments that exclude from the application of the Three Quote Rule transactions effected in non-exchange-listed securities of foreign issuers that are part of the FTSE All-World Index.4
As amended, a firm is not subject to the Three Quote Rule in connection with transactions in non-exchange-listed securities of a foreign issuer that are part of the FTSE All-World Index. To qualify for the exception, the transaction must be executed during regular business hours of the foreign market for the security and no trading halt or other similar trading or quotation restriction may be in effect in any foreign market on which such foreign security is listed.
The amendments also codify existing exemptive relief relating to the application of the Three Quote Rule for customer transactions in Canadian securities executed on a Canadian exchange. As amended, a member firm is not subject to the Three Quote Rule in connection with any transaction for or with a customer in a non-exchange-listed security executed on a Canadian exchange, provided that (i) the firm or person associated with the firm conducts, pursuant to Rule 2320(a) and the duty of best execution, regular and rigorous reviews of the quality of the execution of such orders in such securities, and (ii) the orders are executed either in an agency or riskless principal capacity.
The amendments also provide a corresponding exclusion to the recordkeeping requirements set forth in Rule 3110(b) if the member can establish and document its reliance on the exclusions to the Three Quote Rule.5 Firms continue to be required to comply with, among other rules, their best execution obligations under Rule 2320(a), and to the extent applicable, their suitability obligations under Rule 2310 (Recommendations to Customers).
The amendments to Rules 2320(g) and 3110(b) become effective on September 28, 2007.
1 See Securities Exchange Act Release No. 56004 (July 2, 2007), 72 FR 37285 (July 9, 2007) (order approving SR-NASD-2004-130).
2 See Securities Exchange Act Release No. 25637 (May 2, 1988), 53 FR 16488 (May 9, 1988).
3 A non-exchange-listed security is defined in Rule 6610 as generally any equity security that is not traded on any national securities exchange.
4 The Financial Times and the London Stock Exchange operate the FTSE All-World Index. The FTSE All-World Index includes 48 different countries and approximately 3,000 securities. Securities included in the FTSE All-World Index can be obtained from the monthly FTSE All-World Review under the "Country Details" section of the review. The FTSE All-World Review is available for free on the on FTSE's Web site at http://www.ftse.com by registering to access the data. Daily updated constituent lists are also available to paying subscribers from FTSE and other data vendors. See Exhibit 2 to Amendment No. 2 to SR-NASD-2004-130 for a detailed description. Additional information also is available on FTSE's Web site at http://www.ftse.com.
5 Rule 3110(b) requires that members indicate on the order ticket for each transaction in a non-exchange-listed security the name of each dealer contacted and the quotations received to determine the best inter-dealer market as required by the Three Quote Rule.
ATTACHMENT A
Below is the text of the rule change. New language is underlined; deletions are in brackets.
2320. Best Execution and Interpositioning
For purposes of this paragraph (g):[,]
* * * * *
3110. Books and Records
A person associated with a member shall indicate on the memorandum for each transaction in a non-exchange-listed security, as that term is defined in the Rule 6600 Series, the name of each dealer contacted and the quotations received to determine the best inter-dealer market; however, the requirements of this subparagraph shall not apply if the member can establish and has documented that:
