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November 13, 2007

SROs Look to Harmonize NYSE Rule 92 and Manning

By Nina Mehta

As the Financial Industry Regulatory Authority works toward the consolidation of member regulatory oversight functions after the merger of NASD and NYSE Regulation, efforts continue to align rule differences relating to broker-dealers trading ahead of or alongside customer limit orders that are executable at the same price.

The rules in question are FINRA's Rule 2110, also known as the Manning Rule, which applies to NMS stocks and over-the-counter securities, and NYSE's Rule 92, for listed securities. The rules, which dictate the treatment of customers' limit orders and specify exceptions to these rules, have different disclosure and compliance obligations.

The industry "deserves to have a single approach" regarding the handling of customer orders, said Richard Ketchum, chief executive officer of NYSE Regulation, at a recent conference.

"The amendments we did to Rule 92 this year brought Manning and Rule 92 much closer together, but there still are differences," Ketchum said. "It's something we really need to harmonize."

He added that harmonization is particularly important for rules that impact member firms and how they operate, which is the case for Rule 92 and Manning.

The Rule 92 amendments that Ketchum referenced concerned the adoption this past summer of provisions allowing riskless principal trading for orders entered off the floor. The provisions made Rule 92 more similar to the Manning Rule for those transactions.

A harmonization of these two rules must be worked out by FINRA and NYSE Regulation. Since they involve market center rules, they are not part of FINRA's consolidation efforts concerning oversight of member firms.

"We'll still have to respond to that across self-regulatory organizations," Ketchum said. "[NYSE] trading rules still remain the responsibility of NYSE. It didn't give up oversight of its trading rules."