Interpretive Letter to Charles Freund, Brown Brothers Harriman

May 15, 2001

Charles Freund
Treasurer's Department
Brown Brothers Harriman
59 Wall Street
New York, New York 10005

Re: Interpretation of NASD Rule 3220

Dear Mr. Freund:

This responds to your fax of April 19, 2001, requesting an interpretation of NASD Rule 3220, Adjustment of Open Orders. Based on that fax and other conversations and correspondence, we understand the facts to be as follows.

On July 31, 2000, Intel effectuated a 2-for-1 stock split. At that time, Brown Brothers Harriman & Co. ("BBH") had an open limit order, received on April 11, 2000, to sell Intel at $150 per share. Pursuant to the customer's directions, the order was marked good until December 29, 2000. You have inquired whether NASD Rule 3220 required that the order be adjusted to a price of $75 per share to reflect the stock split.

Rule 3220 generally provides that open orders should be reduced, increased or otherwise adjusted by an amount equal to any dividend, payment or distribution on the day those events become effective. Rule 3220(a)(2) specifically requires proportionate adjustments in price and number of shares of an open order in the case of a stock dividend or split. Rule 3220(d) defines an "open order" to include an open stop order to sell; however, it does not include open limit orders to sell. Moreover, Rule 3220(e)(5) states that the provisions of the Rule shall not apply to "open sell orders." Since the definition of an "open order" in section 3220(d) does not include limit orders to sell, we interpret those type orders to be excluded from the Rule under paragraph (e)(5). Accordingly, Rule 3220 does not require that the BBH limit order referenced above be reduced to $75 per share to reflect the stock split.

This letter responds only to the issues you have raised based on the facts as you have described them. It does not address any other rule or interpretation of the NASD or all of the possible regulatory and legal issues involved. Further, please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation, Inc.

Very truly yours,

Philip A. Shaikun