Self-Regulatory Organizations; National Association of Securities Dealers, Inc; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to NASD Rule 3370, 44707-44709 [E5-4117]
Download as PDF
<![CDATA[
Federal Register / Vol. 70, No. 148 / Wednesday, August 3, 2005 / Notices
the principal office of the Exchange. 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 available publicly. All
submissions should refer to File
Number SR–BSE–2005–28 and should
be submitted on or before August 24,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4124 Filed 8–2–05; 8:45 am]
IV. Commission’s Findings and Order
Granting Accelerated Approval of the
Proposed Rule Change
[Release No. 34–52131; File No. SR-NASD–
2005–093]
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange,7 and, in
particular, the requirements of Section
6(b) of the Act 8 and the rules and
regulations thereunder. The
Commission finds that the proposed
rule change is consistent with Section
6(b)(4) of the Act,9 which requires that
the rules of the Exchange provide for the
equitable allocation of reasonable dues,
fees and other charges among its
members and other persons using its
facilities. The Commission believes that
the extension of the Linkage fee pilot
until July 31, 2006 will give the
Exchange and the Commission further
opportunity to evaluate whether such
fees are appropriate.
The Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,10 for approving the proposed rule
change prior to the thirtieth day after
publication of notice thereof in the
Federal Register. The Commission
believes that granting accelerated
approval of the proposed rule change
will preserve the Exchange’s existing
pilot program for Linkage fees without
interruption as the Exchange and the
Commission further consider the
appropriateness of Linkage fees.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,11 that the
proposed rule change (SR–BSE–2005–
28) is hereby approved on an
accelerated basis for a pilot period to
expire on July 31, 2006.
7 In approving this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(4).
10 15 U.S.C. 78s(b)(2).
11 Id.
VerDate jul<14>2003
15:22 Aug 02, 2005
Jkt 205001
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Amendments
to NASD Rule 3370
July 27, 2005.
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 July 20,
2005, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by NASD. NASD
has designated the proposed rule change
as constituting a ‘‘non-controversial’’
rule change under paragraph (f)(6) of
Rule 19b-4 under the Act,3 which
renders the proposal effective upon
receipt of this filing by the Commission.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to amend Rule
3370 to clarify that members must make
certain affirmative determinations when
effecting long sales and document
compliance with those affirmative
determination requirements. Below is
the text of the proposed rule change.
Proposed new language is in italics;
proposed deletions are in brackets.
*
*
*
*
*
3370. [Purchases]Prompt Receipt and
Delivery of Securities
(a) Purchases
No member or person associated with
a member may accept a customer’s
purchase order for any security unless it
PO 00000
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 17 CFR 240.19b-4.
1 15
Frm 00155
Fmt 4703
Sfmt 4703
44707
has first ascertained that the customer
placing the order or its agent agrees to
receive securities against payment in an
amount equal to any execution, even
though such an execution may represent
the purchase of only a part of a larger
order.
(b) Long Sales
No member or person associated with
a member shall accept a long sale order
from any customer in any equity
security unless the order meets the
requirements applicable to long sales set
forth in Regulation SHO. To the extent
a member or person associated with a
member does not have physical
possession or control of the securities,
the member or person associated with a
member must document, at the time the
order is taken, the communication with
the customer as to the present location
of the securities in question, whether
they are in good deliverable form and
the customer’s ability to deliver them to
the member by settlement date. For
purposes of this rule, the term
‘‘customer’’ includes a non-member
broker-dealer.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD 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. NASD 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
On June 23, 2004, the SEC adopted
certain provisions of a new short sale
regulation, designated Regulation SHO.4
Regulation SHO consists of, among
other provisions, SEC Rule 200(g),
requirements for marking sell order of
equity securities, and SEC Rule 203(a),
delivery requirements for long sales.5
Specifically, SEC Rule 200(g) of
Regulation SHO requires that sell orders
in all equity securities be marked either
‘‘long,’’ ‘‘short,’’ or ‘‘short exempt.’’
4 See Securities Exchange Act Release No. 50103
(July 28, 2004), 69 FR 48008 (August 6, 2004).
5 The compliance date for SEC Rule 200(g) and
SEC Rule 203(a) was January 3, 2005.
E:\FR\FM\03AUN1.SGM
03AUN1
44708
Federal Register / Vol. 70, No. 148 / Wednesday, August 3, 2005 / Notices
Pursuant to SEC Rule 200(g), an order
can be marked ‘‘long’’ only when the
seller owns the security being sold and
the security either is in the physical
possession or control of the brokerdealer or it is reasonably expected that
the security will be in the physical
possession or control of the brokerdealer no later than settlement. Subject
to certain exceptions, SEC Rule 203(a)
requires that a broker-dealer selling an
equity security marked long will be able
to deliver the security on settlement
date without borrowing the security.
Regulation SHO’s long sale delivery
requirements, together with the long
sale order marking requirements,
require broker-dealers, prior to
executing the order, to confirm the
customer’s ownership of the security
and its ability to deliver the security by
settlement date.
As noted in the adopting release for
Regulation SHO, the SEC has indicated
its expectation that self-regulatory
organization (‘‘SRO’’) rules that
overlapped with the provisions of
Regulation SHO would be repealed.
Accordingly, NASD repealed, among
other rules, NASD Rule 3370(b) that, in
part, required members to undertake the
following obligations in connection
with a long sale: (1) To make an
affirmative determination as to the
location of the securities, (2) to
determine whether the securities are in
deliverable form and in fact can be
delivered within 3 business days; and
(3) to document such information in
writing (collectively, the ‘‘affirmative
determination requirements’’). NASD
staff has received inquiries as to
whether the affirmative determination
requirements continue to apply, given
that these requirements are not
explicitly provided in Regulation SHO.
As a result, NASD is proposing to
amend Rule 3370 to re-adopt expressly
the affirmative determination
requirements as they now relate to
member obligations with respect to long
sales under Regulation SHO.6 NASD
believes that this proposed amendment
will clarify a member’s obligations in
connection with sale transactions that
are marked long. Specifically, the
member must comply with the
requirements applicable to long sales in
Regulation SHO and, to the extent the
member or person associated with the
member does not have physical
possession or control of the securities,
make and document, at the time the
order is taken, an affirmative
determination as to the location of the
security, that they are in good
deliverable form, and the customer’s
ability to deliver such securities on
settlement date. As with Regulation
SHO, absent countervailing
circumstances, it may not be reasonable
to rely on the representation of a
customer that an order is ‘‘long’’ if the
customer has had prior failures to
deliver in a security.
NASD proposes to make the proposed
rule change operative on the date of
filing.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) 7 of the Act, which
requires, among other things, that NASD
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
NASD believes that the proposed rule
change will more clearly state a
member’s obligations in connection
with sale transactions that are marked
long, and is consistent with the Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASD 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, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
15:22 Aug 02, 2005
Jkt 205001
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:
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The proposed rule change is filed
pursuant to paragraph (A) of Section
19(b)(3) 8 and Rule 19b–4(f)(6).9 Because
the foregoing proposed rule change does
not: (i) Significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act and Rule 19b–
4(f)(6) thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to the thirty
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–093 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NASD–2005–093. 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
Written comments were neither
solicited nor received.
6 Note: The deletion of the affirmative
determination requirements in connection with the
adoption of Regulation SHO was unintentional.
VerDate jul<14>2003
days after the date of filing. However,
pursuant to Rule 19b–4(f)(6)(iii), the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. NASD has requested that the
Commission waive the thirty day
operative delay requirement to re-adopt
expressly the affirmative determination
requirements as they now relate to
member obligations with respect to long
sales under Regulation SHO.
The Commission, consistent with the
protection of investors and the public
interest, has determined to make the
proposed rule change effective as of the
date of this order.10 The Commission
notes that the affirmative determination
requirements with respect to member
long sales were unintentionally deleted
when NASD repealed rules that
overlapped with the provisions of
Regulation SHO.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
PO 00000
7 15
U.S.C. 78o–3(b)(6).
U.S.C. 78s(b)(3)(A).
9 17 CFR 240.19b–4(f)(6).
8 15
Frm 00156
Fmt 4703
Sfmt 4703
10 For purposes only of accelerating the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
E:\FR\FM\03AUN1.SGM
03AUN1
Federal Register / Vol. 70, No. 148 / Wednesday, August 3, 2005 / Notices
post all comments on the Commission’s
Internet Web site (https://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 inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549–9303. Copies of such filing
also will be available for inspection and
copying at the principal office of NASD.
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 available publicly. All
submissions should refer to the File
Number SR–NASD–2005–093 and
should be submitted on or before
August 23, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–4117 Filed 8–2–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52141; File No. SR–NASD–
2004–009]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Order Granting Approval
of Proposed Rule Change and
Amendment Nos. 1, 2, 3, 4, and 5
Thereto To Modify Nasdaq’s Clearly
Erroneous Rule
July 27, 2005.
I. Introduction
On January 21, 2004, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’ or ‘‘Association’’), through its
subsidiary, The Nasdaq Stock Market,
Inc. (‘‘Nasdaq’’), filed with the
Securities and Exchange Commission
(‘‘Commission’’) a proposed rule change
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to
11 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate jul<14>2003
15:22 Aug 02, 2005
Jkt 205001
modify the Nasdaq’s clearly erroneous
rule. On August 23, 2004, Nasdaq
submitted Amendment No. 1 to the
proposed rule change.3 On May 5, 2005,
Nasdaq submitted Amendment No. 2 to
the proposed rule change.4 On May 11,
2005, Nasdaq submitted Amendment
No. 3 to the proposed rule change.5 On
May 16, 2005, Nasdaq submitted
Amendment No. 4 to the proposed rule
change.6 The proposed rule change, as
amended by Amendment Nos. 1, 2, 3,
and 4, was published for comment in
the Federal Register on May 26, 2005.7
On June 16, 2005, Nasdaq submitted
Amendment No. 5 to the proposed rule
change.8 The Commission received no
comments on the proposal. This order
approves the proposed rule change, as
amended.9
II. Description of the Proposed Rule
Change
NASD Rule 11890 governs the review
and resolution of clearly erroneous
transactions. The NASD Rule permits
Nasdaq to review, at the request of a
market participant, any transaction
arising out of the use or operation of any
execution or communication system
owned or operated by Nasdaq to
determine if such transaction is clearly
erroneous. NASD Rule 11890 also
permits Nasdaq to review transactions
on Nasdaq’s own motion under specific
circumstances. The NASD Rule
provides Nasdaq officials with the
authority to nullify a transaction or
modify one or more terms of the
transaction. In addition, NASD Rule
11890 sets forth the procedures for
review of a transaction to determine
whether it is clearly erroneous and for
3 See letter from Mary M. Dunbar, Vice President
and Deputy General Counsel, Nasdaq, to Katherine
A. England, Assistant Director, Division of Market
Regulation (‘‘Division’’), Commission, dated August
20, 2004 (‘‘Amendment No. 1’’). Amendment No. 1
replaced the original rule filing in its entirety.
4 Amendment No. 2 replaced Amendment No. 1
in its entirety.
5 Amendment No. 3 revised incorrect crossreferences in the rule text.
6 Amendment No. 4 revised an incorrect
paragraph designation in the rule text.
7 See Securities Exchange Act Release No. 51722
(May 20, 2005), 70 FR 30508.
8 See Amendment No. 5, which made technical
corrections to the rule text, is a technical
amendment that is not subject to notice and
comment. The amended rule text proposed in
Amendment No. 5 is available on the NASD’s Web
site (https://www.nasd.com), at the NASD’s Office of
the Secretary, and at the Commission’s Public
Reference Room.
9 Nasdaq has represented that the proposed rule
change would take effect on a date specified in a
Head Trader Alert to its members, which date
would be no later than three weeks after
Commission approval of the proposal. Telephone
call on July 27, 2005, between John Yetter, Senior
Associate General Counsel, Nasdaq, and Terri
Evans, Special Counsel, Division, Commission.
PO 00000
Frm 00157
Fmt 4703
Sfmt 4703
44709
appeal of a determination to the Market
Operations Review Committee
(‘‘MORC’’).
The NASD proposes to amend NASD
Rule 11890 to: (1) Specify the
supporting information that must be
submitted in connection with a
complaint requesting review of a
transaction to determine whether it is
clearly erroneous; (2) establish
minimum price deviation thresholds
that would provide a ‘‘bright line’’
standard for determining whether a
transaction is eligible for review; (3)
provide that complaints failing to meet
minimum price deviation thresholds or
documentation requirements would be
rejected, and limit the grounds for
review of such rejections by the MORC;
and (4) make several clarifying changes
to the rule text. These changes are
described in more detail below.
Specify the Supporting Information To
Be Submitted by a Complainant
The proposed rule change would
amend NASD Rule 11890 to require that
a complaint, to be eligible for review,
must include the following information:
approximate time of transaction(s),
security symbol, number of shares,
price(s), contra broker(s) if transactions
are not anonymous, the Nasdaq system
used to execute the transactions, and the
reason that the review is being sought.
Establish Minimum Price Deviation
Thresholds
The proposed rule change also would
establish minimum price deviation
thresholds that would provide a
standard for determining whether
transactions are considered eligible for
review. A transaction price that meets
the minimum price threshold would not
automatically trigger a clearly erroneous
determination; however, if the
transaction price does not meet the
minimum price threshold, the
transaction would not be considered as
a clearly erroneous transaction. Thus,
there would be a conclusive
presumption that a transaction to buy
(sell) is not clearly erroneous unless its
price is greater than (less than) the best
offer (best bid) by an amount that equals
or exceeds the minimum threshold set
forth below:
Inside price
$0–$0.99 ........
$1.00–$4.99 ...
$5.00–$14.99
$15 or more ...
E:\FR\FM\03AUN1.SGM
03AUN1
Minimum threshold
$0.02 + (0.10 × Inside
Price).
$0.12 + (0.07 × (Inside
Price—$1.00)).
$0.40 + (0.06 × (Inside
Price—$5.00)).
$1.00.
]]>Agencies
[Federal Register Volume 70, Number 148 (Wednesday, August 3, 2005)]
[Notices]
[Pages 44707-44709]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4117]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52131; File No. SR-NASD-2005-093]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Amendments to NASD Rule 3370
July 27, 2005.
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 July 20, 2005, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by NASD. NASD has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend Rule 3370 to clarify that members must
make certain affirmative determinations when effecting long sales and
document compliance with those affirmative determination requirements.
Below is the text of the proposed rule change. Proposed new language is
in italics; proposed deletions are in brackets.
* * * * *
3370. [Purchases]Prompt Receipt and Delivery of Securities
(a) Purchases
No member or person associated with a member may accept a
customer's purchase order for any security unless it has first
ascertained that the customer placing the order or its agent agrees to
receive securities against payment in an amount equal to any execution,
even though such an execution may represent the purchase of only a part
of a larger order.
(b) Long Sales
No member or person associated with a member shall accept a long
sale order from any customer in any equity security unless the order
meets the requirements applicable to long sales set forth in Regulation
SHO. To the extent a member or person associated with a member does not
have physical possession or control of the securities, the member or
person associated with a member must document, at the time the order is
taken, the communication with the customer as to the present location
of the securities in question, whether they are in good deliverable
form and the customer's ability to deliver them to the member by
settlement date. For purposes of this rule, the term ``customer''
includes a non-member broker-dealer.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD 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. NASD 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
On June 23, 2004, the SEC adopted certain provisions of a new short
sale regulation, designated Regulation SHO.\4\ Regulation SHO consists
of, among other provisions, SEC Rule 200(g), requirements for marking
sell order of equity securities, and SEC Rule 203(a), delivery
requirements for long sales.\5\ Specifically, SEC Rule 200(g) of
Regulation SHO requires that sell orders in all equity securities be
marked either ``long,'' ``short,'' or ``short exempt.''
[[Page 44708]]
Pursuant to SEC Rule 200(g), an order can be marked ``long'' only when
the seller owns the security being sold and the security either is in
the physical possession or control of the broker-dealer or it is
reasonably expected that the security will be in the physical
possession or control of the broker-dealer no later than settlement.
Subject to certain exceptions, SEC Rule 203(a) requires that a broker-
dealer selling an equity security marked long will be able to deliver
the security on settlement date without borrowing the security.
Regulation SHO's long sale delivery requirements, together with the
long sale order marking requirements, require broker-dealers, prior to
executing the order, to confirm the customer's ownership of the
security and its ability to deliver the security by settlement date.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 50103 (July 28,
2004), 69 FR 48008 (August 6, 2004).
\5\ The compliance date for SEC Rule 200(g) and SEC Rule 203(a)
was January 3, 2005.
---------------------------------------------------------------------------
As noted in the adopting release for Regulation SHO, the SEC has
indicated its expectation that self-regulatory organization (``SRO'')
rules that overlapped with the provisions of Regulation SHO would be
repealed. Accordingly, NASD repealed, among other rules, NASD Rule
3370(b) that, in part, required members to undertake the following
obligations in connection with a long sale: (1) To make an affirmative
determination as to the location of the securities, (2) to determine
whether the securities are in deliverable form and in fact can be
delivered within 3 business days; and (3) to document such information
in writing (collectively, the ``affirmative determination
requirements''). NASD staff has received inquiries as to whether the
affirmative determination requirements continue to apply, given that
these requirements are not explicitly provided in Regulation SHO.
As a result, NASD is proposing to amend Rule 3370 to re-adopt
expressly the affirmative determination requirements as they now relate
to member obligations with respect to long sales under Regulation
SHO.\6\ NASD believes that this proposed amendment will clarify a
member's obligations in connection with sale transactions that are
marked long. Specifically, the member must comply with the requirements
applicable to long sales in Regulation SHO and, to the extent the
member or person associated with the member does not have physical
possession or control of the securities, make and document, at the time
the order is taken, an affirmative determination as to the location of
the security, that they are in good deliverable form, and the
customer's ability to deliver such securities on settlement date. As
with Regulation SHO, absent countervailing circumstances, it may not be
reasonable to rely on the representation of a customer that an order is
``long'' if the customer has had prior failures to deliver in a
security.
---------------------------------------------------------------------------
\6\ Note: The deletion of the affirmative determination
requirements in connection with the adoption of Regulation SHO was
unintentional.
---------------------------------------------------------------------------
NASD proposes to make the proposed rule change operative on the
date of filing.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) \7\ of the Act, which requires, among
other things, that NASD rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change will more
clearly state a member's obligations in connection with sale
transactions that are marked long, and is consistent with the Act.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD 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, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The proposed rule change is filed pursuant to paragraph (A) of
Section 19(b)(3) \8\ and Rule 19b-4(f)(6).\9\ Because the foregoing
proposed rule change does not: (i) Significantly affect the protection
of investors or the public interest; (ii) impose any significant burden
on competition; and (iii) become operative for 30 days from the date on
which it was filed, or such shorter time as the Commission may
designate, it has become effective pursuant to Section 19(b)(3)(A) of
the Act and Rule 19b-4(f)(6) thereunder.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to the thirty days after the date of filing.
However, pursuant to Rule 19b-4(f)(6)(iii), the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. NASD has requested
that the Commission waive the thirty day operative delay requirement to
re-adopt expressly the affirmative determination requirements as they
now relate to member obligations with respect to long sales under
Regulation SHO.
The Commission, consistent with the protection of investors and the
public interest, has determined to make the proposed rule change
effective as of the date of this order.\10\ The Commission notes that
the affirmative determination requirements with respect to member long
sales were unintentionally deleted when NASD repealed rules that
overlapped with the provisions of Regulation SHO.
---------------------------------------------------------------------------
\10\ For purposes only of accelerating the operative date of
this proposal, the Commission has considered the proposed rule's
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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 (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-093 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-093. 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
[[Page 44709]]
post all comments on the Commission's Internet Web site (https://
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 inspection and copying in the Commission's Public
Reference Room, 100 F Street, NE., Washington, DC 20549-9303. Copies of
such filing also will be available for inspection and copying at the
principal office of NASD.
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 available
publicly. All submissions should refer to the File Number SR-NASD-2005-
093 and should be submitted on or before August 23, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4117 Filed 8-2-05; 8:45 am]
BILLING CODE 8010-01-P
