Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Repeal NASD Rule 6440(f), 68120-68122 [05-22333]

Download as PDF 68120 Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 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–CHX–2005–26 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 No. SR–CHX–2005–26. 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 the filing also will be available for inspection and copying at 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 No. SR–CHX–2005–26 and should be submitted on or before November 30, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Jonathan G. Katz, Secretary. [FR Doc. 05–22334 Filed 11–8–05; 8:45 am] BILLING CODE 8010–01–P 15 17 CFR 200.30–3(a)(12). VerDate jul<14>2003 16:18 Nov 08, 2005 Jkt 208001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52722; File No. SR–NASD– 2005–124] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Repeal NASD Rule 6440(f) November 2, 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 October 24, 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, and II below, which Items have been prepared by NASD. NASD filed this proposal as a ‘‘non-controversial’’ rule change pursuant to section 19(b)(3)(A)(i) 3 of the Act, and Rule 19b– 4(f)(6) 4 thereunder, which renders the proposal effective upon filing with the Commission.5 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 repeal NASD Rule 6440(f) in light of proposed rule changes that have recently been approved by the Commission expanding market order protection and limit order protection to exchange-listed securities.6 NASD proposes to make the proposed rule change operative on January 9, 2006. Below is the text of the proposed rule change. Proposed deletions are in brackets. * * * * * 6440. Trading Practices (a) through (e) No change. [(f)(1) No member shall:] [(A) personally buy or initiate the purchase of an eligible security for its U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(i). 4 17 CFR 240.19b–4(f)(6). 5 Rule 19b–4(f)(6) allows for a proposed rule change to take effect upon filing with the Commission provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. NASD complied with this pre-filing requirement. See e-mail from Stephanie Dumont, NASD to Katherine A. England, Assistant Director, Division of Market Regulation, dated October 11, 2005. 6 See footnotes 8 and 9, infra. PO 00000 1 15 2 217 Frm 00135 Fmt 4703 Sfmt 4703 own account or for any account in which it or any person associated with it is directly or indirectly interested, while such member holds or has knowledge that any person associated with it holds an unexecuted market order to buy such security in the unit of trading for a customer; or] [(B) sell or initiate the sale of any such security for any such account, while it personally holds or has knowledge that any person associated with it holds an unexecuted market order to sell such security in the unit of trading for a customer.] [(2) No member shall:] [(A) buy or initiate the purchase of any such security for any such account, at or below the price at which it personally holds or has knowledge that any person associated with it holds an unexecuted limited price order to buy such security in the unit of trading for a customer; or] [(B) sell or initiate the sale of any such security for any such account at or above the price at which it personally holds or has knowledge that any person associated with it holds an unexecuted limited price order to sell such security in the unit of trading for a customer.] [(3) The provisions of this paragraph shall not apply:] [(A) to any purchase or sale of any such security in an amount less than the unit of trading made by a member to offset odd-lot orders for customers,] [(B) to any purchase or sale of any such security upon terms for delivery other than those specified in such unexecuted market or limited price order,] [(C) to any unexecuted order that is subject to a condition that has not been satisfied.] [(D) to any purchase or sale for which a member has negotiated specific terms and conditions applicable to the acceptance of limit orders that are:] [(i) for customer accounts that meet the definition of an ‘‘institutional account’’ as that term is defined in Rule 3110(c)(4); or] [(ii) for 10,000 shares or more, unless such orders are less than $100,000 in value.] (g) through (j) redesignated as (f) through (i). * * * * * 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 E:\FR\FM\09NON1.SGM pfrm13 PsN: 09NON1 Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 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 Rule 6440(f)(1) prohibits a member from personally buying (selling) an exchange-listed security 7 for its own account while such member holds an unexecuted market order to buy (sell) such security for a customer. Similarly, NASD Rule 6440(f)(2) prohibits a member from buying (selling) an exchange-listed security for its own account while such member holds an unexecuted limit order to buy (sell) such security for a customer. NASD seeks to repeal NASD Rule 6440(f) in light of two proposed rule changes that have recently been approved by the Commission that also restrict a member’s trading when holding customer market and limit orders in exchange-listed securities. Specifically, on August 4, 2005, the Commission approved proposed rule change SR–NASD–2004–089,8 which, among other things, expands the application of NASD Interpretative Material (IM) 2110–2, Trading Ahead of Customer Limit Order (commonly referred to as the ‘‘Manning Rule’’) to exchange-listed securities. NASD Interpretive Material 2110–2 generally prohibits a member from trading for its own account at prices that would satisfy a customer’s limit order, unless the member immediately thereafter executes the customer’s limit order. In addition, on August 9, 2005, the Commission approved proposed rule change SR– NASD–2004–045 adopting NASD Rule 2111, which prohibits a member that accepts and holds a customer market order from trading for its own account at prices that would satisfy the customer market order in a Nasdaq or exchangelisted security, unless the member 7 NASD Rule 6440(f) applies to over-the-counter transactions in ‘‘eligible securities,’’ which are defined in NASD Rule 6410(d) as ‘‘all common stocks, preferred stocks, long-term warrants, and rights entitling the holder to acquire an eligible security, listed or admitted to unlisted trading privileges on the American Stock Exchange or the New York Stock Exchange, and securities listed on regional stock exchanges, which substantially meet the original listing requirements of the New York Stock Exchange or the American Stock Exchange.’’ 8 See Securities Exchange Act Release No. 52210 (August 4, 2005), 70 FR 46897 (August 11, 2005)(SR–NASD–2004–089). VerDate jul<14>2003 16:18 Nov 08, 2005 Jkt 208001 immediately thereafter executes the customer market order.9 NASD believes that NASD Rule 6440(f) overlaps and is generally duplicative of the above-referenced rule changes.10 Accordingly, NASD is proposing to repeal NASD Rule 6440(f) to ensure consistency in the application of limit order and market order protection and to eliminate potential confusion as to members’ obligations with respect to these orders in exchange-listed securities. NASD has filed the proposed rule change for immediate effectiveness. The implementation date will be January 9, 2006, such that both SR–NASD–2004– 045 and SR–NASD–2004–089 will be in effect by that date. 2. Statutory basis NASD believes that the proposed rule change is consistent with Section 15A(b)(6) of the Act,11 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 ensure consistency in the treatment of customer limit orders and customer market orders for exchange-listed securities and will enhance the integrity of the market. B. Self-Regulatory Organization’s Statement on Burden on Competition NASD does not believe that the proposed rule change will impose 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 NASD has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 9 See Securities Exchange Act Release No. 52226 (August 9, 2005), 70 FR 48219 (August 16, 2005)(SR–NASD–2004–045). 10 In SR–NASD–2004–045 and SR–NASD–2004– 089, NASD specifically noted its intent to repeal NASD Rule 6440(f) in light of the overlap between the proposed rule changes and NASD Rule 6440(f). 11 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00136 Fmt 4703 Sfmt 4703 68121 operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, and NASD provided the Commission with written notice of its intent to file the proposed rule change at least five days prior to the filing date, the proposed rule change has become effective pursuant to section 19(b)(3)(A)(i) 12 of the Act and Rule 19b–4(f)(6) 13 thereunder. NASD has complied with this pre-filing requirement.14 NASD proposes to make the proposed rule change operative on January 9, 2006 to coincide with the implementation of SR–NASD–2004–045 and SR–NASD– 2004–089.15 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, 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 rulecomments@sec.gov. Please include File Number SR–NASD–2005–124 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–2005–124. 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 12 15 U.S.C. 78s(b)(3)(A)(i). CFR 240.19b–4(f)(6). 14 See footnote 5, supra. 15 See discussion footnotes 8–10, supra. 13 17 E:\FR\FM\09NON1.SGM pfrm13 PsN: 09NON1 68122 Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 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 the filing also will be available for inspection and copying at the principal offices 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 File Number SR–NASD–2005–124 and should be submitted on or before November 30, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Jonathan G. Katz, Secretary. [FR Doc. 05–22333 Filed 11–8–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52727; File No. SR–NASD– 2005–121] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to Rule 3012, Rule 3013, and IM–3013 November 3, 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 October 14, 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 pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b– 4(f)(6) thereunder,4 which renders the 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4. 1 15 VerDate jul<14>2003 16:18 Nov 08, 2005 Jkt 208001 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 NASD Rule 3012 (Supervisory Control System), Rule 3013 (Annual Certification of Compliance and Supervisory Processes), and IM–3013 (Annual Compliance and Supervision Certification) to allow members, by no later than April 1, 2006, to submit the initial annual report required by Rule 3012 and to execute the initial annual certification required by Rule 3013 and IM–3013. Below is the text of the proposed rule change. Proposed new language is in italics. * * * * * 3012. Supervisory Control System (a) General Requirements (1) Each member shall designate and specifically identify to NASD one or more principals who shall establish, maintain, and enforce a system of supervisory control policies and procedures that (A) test and verify that the member’s supervisory procedures are reasonably designed with respect to the activities of the member and its registered representatives and associated persons, to achieve compliance with applicable securities laws and regulations, and with applicable NASD rules and (B) create additional or amend supervisory procedures where the need is identified by such testing and verification. The designated principal or principals must submit to the member’s senior management no less than annually, a report 5 detailing each member’s system of supervisory controls, the summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results. (2) No change. 5 Rule 3012 became effective on January 31, 2005, which would require a member’s first Rule 3012 report to be submitted by no later than January 31, 2006 and at least annually thereafter; however, a member may elect to submit its first Rule 3012 report by no later than April 1, 2006. Importantly, a member’s first Rule 3012 report must encompass the period from January 31, 2005 (the effective date of Rule 3012) up to the submission date (or a reasonable period of time immediately preceding the submission date). Each ensuing Rule 3012 report may not be for a period greater than 12 months from the date of the preceding Rule 3012 report (but may be for a shorter time period if a member elects to prepare a report more frequently than annually). PO 00000 Frm 00137 Fmt 4703 Sfmt 4703 * (b) Dual Member No change. * * * * Rule 3013. Annual Certification of Compliance and Supervisory Processes (a) Designation of Chief Compliance Officer No change. (b) Annual Certification. Each member shall have its chief executive officer (or equivalent officer) certify annually,6 as set forth in IM– 3013, that the member has in place processes to establish, maintain, review, test and modify written compliance policies and written supervisory procedures reasonably designed to achieve compliance with applicable NASD rules, MSRB rules and federal securities laws and regulations, and that the chief executive officer has conducted one or more meetings with the chief compliance officer in the preceding 12 months to discuss such processes. * * * * * 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 Rule 3013 requires that each member’s chief executive officer (‘‘CEO’’), or other equivalent officer, certify annually according to the terms set forth in IM–3013 that the member has in place processes to establish, maintain, review, test and modify its written supervisory procedures. The first annual certification is currently due by December 1, 2005.7 Before a CEO can complete the annual certification requirement, IM–3013 requires, among other things, that the CEO, chief 6 Rule 3013 and IM–3013 became effective on December 1, 2004, which would require a member’s first certification to be executed by December 1, 2005 and annually thereafter; however, a member may elect to execute its first certification by no later than April 1, 2006 and annually thereafter. 7 Each ensuing annual certification must be effected no later than on the anniversary date of the previous year’s certification. See IM–3013, n.1. E:\FR\FM\09NON1.SGM pfrm13 PsN: 09NON1

Agencies

[Federal Register Volume 70, Number 216 (Wednesday, November 9, 2005)]
[Notices]
[Pages 68120-68122]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-22333]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52722; File No. SR-NASD-2005-124]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Repeal NASD Rule 6440(f)

November 2, 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 October 24, 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, and 
II below, which Items have been prepared by NASD. NASD filed this 
proposal as a ``non-controversial'' rule change pursuant to section 
19(b)(3)(A)(i) \3\ of the Act, and Rule 19b-4(f)(6) \4\ thereunder, 
which renders the proposal effective upon filing with the 
Commission.\5\ 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\ 217 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Rule 19b-4(f)(6) allows for a proposed rule change to take 
effect upon filing with the Commission provided that the self-
regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, at least five business 
days prior to the date of filing of the proposed rule change. NASD 
complied with this pre-filing requirement. See e-mail from Stephanie 
Dumont, NASD to Katherine A. England, Assistant Director, Division 
of Market Regulation, dated October 11, 2005.
---------------------------------------------------------------------------

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

    NASD is proposing to repeal NASD Rule 6440(f) in light of proposed 
rule changes that have recently been approved by the Commission 
expanding market order protection and limit order protection to 
exchange-listed securities.\6\ NASD proposes to make the proposed rule 
change operative on January 9, 2006. Below is the text of the proposed 
rule change. Proposed deletions are in brackets.
---------------------------------------------------------------------------

    \6\ See footnotes 8 and 9, infra.
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* * * * *
6440. Trading Practices
    (a) through (e) No change.
    [(f)(1) No member shall:]
    [(A) personally buy or initiate the purchase of an eligible 
security for its own account or for any account in which it or any 
person associated with it is directly or indirectly interested, while 
such member holds or has knowledge that any person associated with it 
holds an unexecuted market order to buy such security in the unit of 
trading for a customer; or]
    [(B) sell or initiate the sale of any such security for any such 
account, while it personally holds or has knowledge that any person 
associated with it holds an unexecuted market order to sell such 
security in the unit of trading for a customer.]
    [(2) No member shall:]
    [(A) buy or initiate the purchase of any such security for any such 
account, at or below the price at which it personally holds or has 
knowledge that any person associated with it holds an unexecuted 
limited price order to buy such security in the unit of trading for a 
customer; or]
    [(B) sell or initiate the sale of any such security for any such 
account at or above the price at which it personally holds or has 
knowledge that any person associated with it holds an unexecuted 
limited price order to sell such security in the unit of trading for a 
customer.]
    [(3) The provisions of this paragraph shall not apply:]
    [(A) to any purchase or sale of any such security in an amount less 
than the unit of trading made by a member to offset odd-lot orders for 
customers,]
    [(B) to any purchase or sale of any such security upon terms for 
delivery other than those specified in such unexecuted market or 
limited price order,]
    [(C) to any unexecuted order that is subject to a condition that 
has not been satisfied.]
    [(D) to any purchase or sale for which a member has negotiated 
specific terms and conditions applicable to the acceptance of limit 
orders that are:]
    [(i) for customer accounts that meet the definition of an 
``institutional account'' as that term is defined in Rule 3110(c)(4); 
or]
    [(ii) for 10,000 shares or more, unless such orders are less than 
$100,000 in value.]
    (g) through (j) redesignated as (f) through (i).
* * * * *

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

[[Page 68121]]

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 Rule 6440(f)(1) prohibits a member from personally buying 
(selling) an exchange-listed security \7\ for its own account while 
such member holds an unexecuted market order to buy (sell) such 
security for a customer. Similarly, NASD Rule 6440(f)(2) prohibits a 
member from buying (selling) an exchange-listed security for its own 
account while such member holds an unexecuted limit order to buy (sell) 
such security for a customer. NASD seeks to repeal NASD Rule 6440(f) in 
light of two proposed rule changes that have recently been approved by 
the Commission that also restrict a member's trading when holding 
customer market and limit orders in exchange-listed securities.
---------------------------------------------------------------------------

    \7\ NASD Rule 6440(f) applies to over-the-counter transactions 
in ``eligible securities,'' which are defined in NASD Rule 6410(d) 
as ``all common stocks, preferred stocks, long-term warrants, and 
rights entitling the holder to acquire an eligible security, listed 
or admitted to unlisted trading privileges on the American Stock 
Exchange or the New York Stock Exchange, and securities listed on 
regional stock exchanges, which substantially meet the original 
listing requirements of the New York Stock Exchange or the American 
Stock Exchange.''
---------------------------------------------------------------------------

    Specifically, on August 4, 2005, the Commission approved proposed 
rule change SR-NASD-2004-089,\8\ which, among other things, expands the 
application of NASD Interpretative Material (IM) 2110-2, Trading Ahead 
of Customer Limit Order (commonly referred to as the ``Manning Rule'') 
to exchange-listed securities. NASD Interpretive Material 2110-2 
generally prohibits a member from trading for its own account at prices 
that would satisfy a customer's limit order, unless the member 
immediately thereafter executes the customer's limit order. In 
addition, on August 9, 2005, the Commission approved proposed rule 
change SR-NASD-2004-045 adopting NASD Rule 2111, which prohibits a 
member that accepts and holds a customer market order from trading for 
its own account at prices that would satisfy the customer market order 
in a Nasdaq or exchange-listed security, unless the member immediately 
thereafter executes the customer market order.\9\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 52210 (August 4, 
2005), 70 FR 46897 (August 11, 2005)(SR-NASD-2004-089).
    \9\ See Securities Exchange Act Release No. 52226 (August 9, 
2005), 70 FR 48219 (August 16, 2005)(SR-NASD-2004-045).
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    NASD believes that NASD Rule 6440(f) overlaps and is generally 
duplicative of the above-referenced rule changes.\10\ Accordingly, NASD 
is proposing to repeal NASD Rule 6440(f) to ensure consistency in the 
application of limit order and market order protection and to eliminate 
potential confusion as to members' obligations with respect to these 
orders in exchange-listed securities.
---------------------------------------------------------------------------

    \10\ In SR-NASD-2004-045 and SR-NASD-2004-089, NASD specifically 
noted its intent to repeal NASD Rule 6440(f) in light of the overlap 
between the proposed rule changes and NASD Rule 6440(f).
---------------------------------------------------------------------------

    NASD has filed the proposed rule change for immediate 
effectiveness. The implementation date will be January 9, 2006, such 
that both SR-NASD-2004-045 and SR-NASD-2004-089 will be in effect by 
that date.
2. Statutory basis
    NASD believes that the proposed rule change is consistent with 
Section 15A(b)(6) of the Act,\11\ 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 ensure consistency in the 
treatment of customer limit orders and customer market orders for 
exchange-listed securities and will enhance the integrity of the 
market.
---------------------------------------------------------------------------

    \11\ 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 impose 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

    NASD has neither solicited nor received comments on the proposed 
rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    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 if consistent with 
the protection of investors and the public interest, and NASD provided 
the Commission with written notice of its intent to file the proposed 
rule change at least five days prior to the filing date, the proposed 
rule change has become effective pursuant to section 19(b)(3)(A)(i) 
\12\ of the Act and Rule 19b-4(f)(6) \13\ thereunder. NASD has complied 
with this pre-filing requirement.\14\ NASD proposes to make the 
proposed rule change operative on January 9, 2006 to coincide with the 
implementation of SR-NASD-2004-045 and SR-NASD-2004-089.\15\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(i).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ See footnote 5, supra.
    \15\ See discussion footnotes 8-10, supra.
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    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, 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-2005-124 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-2005-124. 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

[[Page 68122]]

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 the filing also will be available for 
inspection and copying at the principal offices 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 File Number SR-NASD-2005-124 and should be 
submitted on or before November 30, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-22333 Filed 11-8-05; 8:45 am]
BILLING CODE 8010-01-P
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