Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Sub-Penny Restrictions for Non-Nasdaq Over-the-Counter Equity Securities, 49959-49960 [E5-4650]

Download as PDF Federal Register / Vol. 70, No. 164 / Thursday, August 25, 2005 / Notices 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 rulecomments@sec.gov. Please include File Number SR–NASD–2005–057 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52280; File No. SR–NASD– 2005–095] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Sub-Penny Restrictions for NonNasdaq Over-the-Counter Equity Securities August 17, 2005. Paper Comments Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 • Send paper comments in triplicate (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to Jonathan G. Katz, Secretary, notice is hereby given that on July 28, Securities and Exchange Commission, 2005, the National Association of 100 F Street, NE., Washington, DC Securities Dealers, Inc. (‘‘NASD’’) filed 20549–9303. with the Securities and Exchange All submissions should refer to File Commission (‘‘Commission’’) the Number SR–NASD–2005–057. This file proposed rule change as described in number should be included on the Items I, II, and III, which Items have subject line if e-mail is used. To help the been prepared by NASD. On August 16, Commission process and review your 2005, NASD submitted Amendment No. comments more efficiently, please use 1 to the proposed rule change.3 The only one method. The Commission will Commission is publishing this notice to post all comments on the Commission’s solicit comments on the proposed rule change from interested persons. Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s submission, all subsequent Statement of the Terms of Substance of amendments, all written statements the Proposed Rule Change with respect to the proposed rule NASD is proposing to amend NASD change that are filed with the Rule 6750 to impose restrictions on the Commission, and all written display of quotes and orders in subcommunications relating to the penny increments for non-Nasdaq OTC proposed rule change between the equity securities. Below is the text of the Commission and any person, other than proposed rule change. Proposed new those that may be withheld from the language is in italics; proposed public in accordance with the deletions are in brackets. provisions of 5 U.S.C. 552, will be * * * * * available for inspection and copying in the Commission’s Public Reference 6750. [Minimum] Quotation [Size] Room. Copies of such filing also will be Requirements for OTC Equity Securities available for inspection and copying at (a) No change. the principal office of Nasdaq. All (b) No member shall display, rank, or comments received will be posted accept a bid or offer, an order, or an without change; the Commission does indication of interest in any OTC Equity not edit personal identifying Security priced in an increment smaller information from submissions. You than $0.01 if that bid or offer, order or should submit only information that indication of interest is priced equal to you wish to make available publicly. All or greater than $1.00 per share. submissions should refer to File (c) No member shall display, rank, or Number SR–NASD–2005–057 and accept a bid or offer, an order, or an should be submitted on or before indication of interest in any OTC Equity September 15, 2005. Security priced in an increment smaller than $0.0001 if that bid or offer, order For the Commission, by the Division of or indication of interest is priced equal Market Regulation, pursuant to delegated to or greater than $0.01 per share and authority.5 less than $1.00 per share. Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–4637 Filed 8–24–05; 8:45 am] BILLING CODE 8010–01–P 5 17 CFR 200.30–3(a)(12). VerDate jul<14>2003 15:58 Aug 24, 2005 Jkt 205001 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 In Amendment No. 1, NASD made minor clarification to the proposed rule text, corrected typographical errors, and changed the proposed compliance date for the rule change. PO 00000 1 15 2 17 Frm 00057 Fmt 4703 Sfmt 4703 49959 [(b)](d) For purposes of this Rule, the term ‘‘OTC Equity Security’’ means any equity security not classified as a ‘‘designated security’’ for purposes of the Rule 4630 and 4640 Series, or as an ‘‘eligible security,’’ for purposes of the Rule 6400 Series. The term does not include ‘‘restricted securities,’’ as defined by SEC Rule 144(a)(3) under the Securities Act of 1933, nor any securities designated in the PORTAL MarketSM. * * * * * 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 NASD is proposing a rule change that would prohibit the accepting, ranking, or displaying of quotes, orders, or indications of interest in sub-penny increments for all non-Nasdaq OTC equity securities in any quotation medium,4 except for quotes, orders, and indications of interest priced at less than $1.00 per share. NASD believes that the existing quotation environment, in which market participants use quotation increments ranging from pennies to hundredths of pennies, can harm investors by creating a two-tiered market, one for ordinary investors and another for professionals, undermining important Commission and selfregulatory organization policy objectives. The potential harm associated with sub-penny quoting in national market stocks is described in the Commission’s Proposing Release and Adopting Release for Regulation NMS,5 and, in NASD’s view, essentially 4 ‘‘Quotation medium’’ is defined in NASD Rule 6710(f) and includes, among others, the Over-theCounter Bulletin Board and the Electronic Pink Sheets. 5 See Securities Exchange Act Release No. 49325 (February 26, 2004), 69 FR 11126 (March 9, 2004) (Proposing Release); Securities Exchange Act Release No. 50870 (December 16, 2004), 69 FR 77423 (December 27, 2004) (Reproposing Release); E:\FR\FM\25AUN1.SGM Continued 25AUN1 49960 Federal Register / Vol. 70, No. 164 / Thursday, August 25, 2005 / Notices the same potential problems exist with respect to OTC equity securities. Accordingly, NASD is proposing a rule change that would prohibit members from displaying, ranking, or accepting a bid, offer, order, or indication of interest in any non-Nasdaq OTC equity security in any quotation medium priced in an increment smaller than $0.01 if such bid, offer, order, or indication of interest is priced equal to or greater than $1.00 per share. In addition, members also would be prohibited from displaying, ranking, or accepting a bid, offer, order, or indication of interest in any non-Nasdaq OTC Equity Security priced in an increment smaller than $0.0001 if such bid, offer, order, or indication of interest is priced equal to or greater than $0.01 per share and less than $1.00 per share. This is consistent with the sub-penny requirements in Regulation NMS. However, unlike Regulation NMS, members would not be prohibited from displaying, ranking, or accepting a bid, offer, order, or indication of interest in any non-Nasdaq OTC equity security priced in an increment smaller than $0.0001 if such bid, offer, order, or indication of interest is priced less than $0.01 per share. This reflects the fact that it is not uncommon for non-Nasdaq OTC equity securities to trade at prices below $0.01, and the proposal is not intended to restrict quoting or trading of such securities. If the Commission approves this proposed rule change, NASD would announce the effective date of the proposed rule change in a Notice to Members to be published no later than 60 days following Commission approval. The compliance date of the proposed rule change will coincide with the compliance date of Rule 612 (‘‘the Sub-Penny Rule’’) under Regulation NMS,6 assuming Commission approval Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (Adopting Release). Regulation NMS, among other things, prohibits market participants from accepting, ranking, or displaying orders, quotes, or indications of interest in NMS stocks in a pricing increment finer than a penny, except for orders, quotations, or indications or interest that are priced at less than $1.00 per share. In Regulation NMS, the Commission indicated that other potential harms associated with sub-penny quoting include a decrease in market depth, an increase in the incidence of market participants stepping ahead of standing limit orders for an economically insignificant amount, and added difficultly for broker-dealers to meet certain of their regulatory obligations by increasing the incidence of so-called ‘‘flickering’’ quotes. Further, the Commission expressed concern that sub-penny quotes could impair broker-dealers’ efforts to meet their best execution obligations and interfere with investors’ understanding of securities prices. 6 Currently, the compliance date of the Sub-Penny Rule under Regulation NMS is January 31, 2006. VerDate jul<14>2003 15:58 Aug 24, 2005 Jkt 205001 of the proposed rule change prior to that date. NASD will announce the compliance date of the proposed rule change in a Notice to Members to be published no later than 60 days following Commission approval. 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,7 which requires, among other things, that NASD rules 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 would reduce the potential harms associated with sub-penny quoting in non-Nasdaq OTC equity securities. B. Self-Regulatory Organization’s Statement on Burden on Competition NASD does not believe that the proposed rule change would result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 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 Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: A. By order approve such proposed rule change, or B. Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: See Securities Exchange Act Release No. 52196 (Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005). 7 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 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–2005–095 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–2005–095. 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 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. 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–2005–095 and should be submitted on or before September 15, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–4650 Filed 8–24–05; 8:45 am] BILLING CODE 8010–01–P 8 17 E:\FR\FM\25AUN1.SGM CFR 200.30–3(a)(12). 25AUN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 164 (Thursday, August 25, 2005)]
[Notices]
[Pages 49959-49960]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4650]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52280; File No. SR-NASD-2005-095]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of a Proposed Rule Change and Amendment 
No. 1 Thereto Relating to Sub-Penny Restrictions for Non-Nasdaq Over-
the-Counter Equity Securities

August 17, 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 28, 2005, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III, which Items have been prepared by NASD. On August 16, 2005, 
NASD submitted Amendment No. 1 to the proposed rule change.\3\ 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\ In Amendment No. 1, NASD made minor clarification to the 
proposed rule text, corrected typographical errors, and changed the 
proposed compliance date for the rule change.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 6750 to impose restrictions on 
the display of quotes and orders in sub-penny increments for non-Nasdaq 
OTC equity securities. Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
brackets.
* * * * *

6750. [Minimum] Quotation [Size] Requirements for OTC Equity Securities

    (a) No change.
    (b) No member shall display, rank, or accept a bid or offer, an 
order, or an indication of interest in any OTC Equity Security priced 
in an increment smaller than $0.01 if that bid or offer, order or 
indication of interest is priced equal to or greater than $1.00 per 
share.
    (c) No member shall display, rank, or accept a bid or offer, an 
order, or an indication of interest in any OTC Equity Security priced 
in an increment smaller than $0.0001 if that bid or offer, order or 
indication of interest is priced equal to or greater than $0.01 per 
share and less than $1.00 per share.
    [(b)](d) For purposes of this Rule, the term ``OTC Equity 
Security'' means any equity security not classified as a ``designated 
security'' for purposes of the Rule 4630 and 4640 Series, or as an 
``eligible security,'' for purposes of the Rule 6400 Series. The term 
does not include ``restricted securities,'' as defined by SEC Rule 
144(a)(3) under the Securities Act of 1933, nor any securities 
designated in the PORTAL Market\SM\.
* * * * *

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
    NASD is proposing a rule change that would prohibit the accepting, 
ranking, or displaying of quotes, orders, or indications of interest in 
sub-penny increments for all non-Nasdaq OTC equity securities in any 
quotation medium,\4\ except for quotes, orders, and indications of 
interest priced at less than $1.00 per share. NASD believes that the 
existing quotation environment, in which market participants use 
quotation increments ranging from pennies to hundredths of pennies, can 
harm investors by creating a two-tiered market, one for ordinary 
investors and another for professionals, undermining important 
Commission and self-regulatory organization policy objectives. The 
potential harm associated with sub-penny quoting in national market 
stocks is described in the Commission's Proposing Release and Adopting 
Release for Regulation NMS,\5\ and, in NASD's view, essentially

[[Page 49960]]

the same potential problems exist with respect to OTC equity 
securities.
---------------------------------------------------------------------------

    \4\ ``Quotation medium'' is defined in NASD Rule 6710(f) and 
includes, among others, the Over-the-Counter Bulletin Board and the 
Electronic Pink Sheets.
    \5\ See Securities Exchange Act Release No. 49325 (February 26, 
2004), 69 FR 11126 (March 9, 2004) (Proposing Release); Securities 
Exchange Act Release No. 50870 (December 16, 2004), 69 FR 77423 
(December 27, 2004) (Reproposing Release); Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) 
(Adopting Release). Regulation NMS, among other things, prohibits 
market participants from accepting, ranking, or displaying orders, 
quotes, or indications of interest in NMS stocks in a pricing 
increment finer than a penny, except for orders, quotations, or 
indications or interest that are priced at less than $1.00 per 
share. In Regulation NMS, the Commission indicated that other 
potential harms associated with sub-penny quoting include a decrease 
in market depth, an increase in the incidence of market participants 
stepping ahead of standing limit orders for an economically 
insignificant amount, and added difficultly for broker-dealers to 
meet certain of their regulatory obligations by increasing the 
incidence of so-called ``flickering'' quotes. Further, the 
Commission expressed concern that sub-penny quotes could impair 
broker-dealers' efforts to meet their best execution obligations and 
interfere with investors' understanding of securities prices.
---------------------------------------------------------------------------

    Accordingly, NASD is proposing a rule change that would prohibit 
members from displaying, ranking, or accepting a bid, offer, order, or 
indication of interest in any non-Nasdaq OTC equity security in any 
quotation medium priced in an increment smaller than $0.01 if such bid, 
offer, order, or indication of interest is priced equal to or greater 
than $1.00 per share. In addition, members also would be prohibited 
from displaying, ranking, or accepting a bid, offer, order, or 
indication of interest in any non-Nasdaq OTC Equity Security priced in 
an increment smaller than $0.0001 if such bid, offer, order, or 
indication of interest is priced equal to or greater than $0.01 per 
share and less than $1.00 per share. This is consistent with the sub-
penny requirements in Regulation NMS. However, unlike Regulation NMS, 
members would not be prohibited from displaying, ranking, or accepting 
a bid, offer, order, or indication of interest in any non-Nasdaq OTC 
equity security priced in an increment smaller than $0.0001 if such 
bid, offer, order, or indication of interest is priced less than $0.01 
per share. This reflects the fact that it is not uncommon for non-
Nasdaq OTC equity securities to trade at prices below $0.01, and the 
proposal is not intended to restrict quoting or trading of such 
securities.
    If the Commission approves this proposed rule change, NASD would 
announce the effective date of the proposed rule change in a Notice to 
Members to be published no later than 60 days following Commission 
approval. The compliance date of the proposed rule change will coincide 
with the compliance date of Rule 612 (``the Sub-Penny Rule'') under 
Regulation NMS,\6\ assuming Commission approval of the proposed rule 
change prior to that date. NASD will announce the compliance date of 
the proposed rule change in a Notice to Members to be published no 
later than 60 days following Commission approval.
---------------------------------------------------------------------------

    \6\ Currently, the compliance date of the Sub-Penny Rule under 
Regulation NMS is January 31, 2006. See Securities Exchange Act 
Release No. 52196 (Aug. 2, 2005), 70 FR 45529 (Aug. 8, 2005).
---------------------------------------------------------------------------

2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ which requires, among 
other things, that NASD rules 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 would 
reduce the potential harms associated with sub-penny quoting in non-
Nasdaq OTC equity securities.
---------------------------------------------------------------------------

    \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 would result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-095 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-2005-095. 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 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. 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-2005-095 and should be submitted on or before September 
15, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4650 Filed 8-24-05; 8:45 am]
BILLING CODE 8010-01-P

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