NASD Notice to Members 02-40 - July 2002

NASD Requests Comment On Proposed Amendments to NASD Rule 2320 (Best Execution Rule); Comment Period Expires on August 9, 2002

Executive Summary

NASD requests comment from members, investors, and other interested parties on proposed amendments to NASD Rule 2320(a) (the “Best Execution Rule”). If adopted, these amendments would clarify the scope of the duty of best execution in circumstances where a broker/dealer receives, for execution, a customer order from another broker/dealer.

 

Specifically, NASD seeks comment on whether the scope of the duty of best execution, as codified in NASD Rule 2320, should be clarified to include customer orders received by a member from another broker/dealer and, if so, whether the scope of the duty should: (1) be limited to customer orders where there is an agreement or arrangement between the two broker/dealers that the recipient broker/dealer would comply with the duty of best execution; (2) be limited to customer orders routed pursuant to an arrangement or an agreement noted in Notice to Members 97-57 (i.e., where a broker/dealer agrees to provide automated executions to a routing broker/dealer’s customers’ orders or there is another arrangement between the two broker/dealers such as a payment for order flow, reciprocal, or correspondent arrangement); (3) be limited to customer orders routed pursuant to an arrangement or an agreement (including, but not limited to, those noted in Notice to Members 97-57) where the recipient broker/dealer assesses a fee or charge to execute the order; (4) be defined more broadly to include all orders that are identified by the routing member as customer orders; and/or (5) clarified or amended in some other fashion. NASD also seeks comment on whether the Best Execution Rule should distinguish, if at all, between customer orders received by a member from a foreign affiliate or foreign broker/dealer (as opposed to customer orders received by a member from a domestic affiliate or domestic broker/dealer that is subject to SEC, NASD or other legal obligations concerning best execution).

 

Questions concerning this Notice may be directed to Kathleen O’Mara, Assistant General Counsel, Office of General Counsel, NASD Regulatory Policy and Oversight, at (202) 728-8071; or Peter D. Santori, Assistant Chief Counsel, Market Regulation Department, NASD Regulatory Policy and Oversight, at (240) 386-5126.