Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Nasdaq's Minimum Pricing Increment Rules, 77225-77228 [E5-8069]
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–139 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and NASD Commission, 100
F Street, NE., Washington, DC 20549–
9303.
All submissions should refer to File
Number SR–NASD–2005–139. 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 the 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–2005–139 and
should be submitted on or before
January 19, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.12
Jonathan G. Katz,
Secretary.
[FR Doc. E5–8064 Filed 12–28–05; 8:45 am]
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BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53017; File No. SR–NASD–
2005–150]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify Nasdaq’s
Minimum Pricing Increment Rules
December 22, 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 December
22, 2005, the National Association of
Securities Dealers, Inc. (‘‘NASD’’),
through its subsidiary, The Nasdaq
Stock Market, Inc. (‘‘Nasdaq’’), filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by Nasdaq. Nasdaq
filed this proposal pursuant to section
19(b)(3)(A) of the Act 3 and Rule 19b–
4(f)(6) thereunder,4 therefore making the
proposed rule change effective
immediately upon filing. Nasdaq
intends for this rule change to become
operative on January 31, 2006. 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 the Substance
of the Proposed Rule Change
Nasdaq proposes to modify NASD
Rules 4613, 4701, 4710, 4901, 4904, and
6330 to align Nasdaq’s rules on
minimum pricing increments with the
corresponding provisions in the
Commission’s Regulation NMS.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
*
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4613. Character of Quotations
(a) Quotation Requirements and
Obligations
(1) Two-Sided Quote Obligation. For each
security in which a member is registered as
a market maker, the member shall be willing
to buy and sell such security for its own
account on a continuous basis and shall enter
and maintain a two-sided quotation
(‘‘Principal Quote’’), which is attributed to
the market maker by a special maker
participant identifier (‘‘MPID’’) and is
displayed in the Nasdaq Quotation Montage
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6).
2 17
12 17
CFR 200.30–3(a)(12).
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at all times, subject to the procedures for
excused withdrawal set forth in Rule 4619.
(A) No change
(B) Minimum Price Variation [for Decimalbased Quotations]—The minimum quotation
increment for Nasdaq National Market and
Capital Market securities [authorized for
decimal pricing] shall be $0.01 for quotations
priced at or above $1.00 per share and
$0.0001 for quotations priced below $1.00
per share; provided, however, that if the
Securities and Exchange Commission
(‘‘SEC’’) permits, with respect to any security,
the display, rank or acceptance of quotations
priced at or above $1.00 per share in an
increment smaller than $0.01, then the
minimum quotation increment for such a
security shall be the minimum permitted by
the SEC or $0.0001, whichever is greater.
Quotations failing to meet this standard shall
be rejected.
(2) and (3) No change
(b) through (e) No change
* * *
4701. Definitions
Unless stated otherwise, the terms
described below shall have the following
meaning:
(a) through (ll) No change
(mm) The term ‘‘Pegged’’ shall mean, for
priced limit orders so designated, that after
entry into the Nasdaq Market Center, the
price of the order is automatically adjusted
by the Nasdaq Market Center in response to
changes in either the Nasdaq Market Center
inside bid or offer or the national best bid or
offer, as appropriate. A Nasdaq Market Center
Participant may enter either a Regular Pegged
Order or a Reverse Pegged Order.
A Nasdaq Market Center Participant
entering a Regular Pegged Order may specify
that the price of the order will deviate from
either the Nasdaq inside quote on the same
side of the market or the national best bid or
offer on the same side of the market by an
offset amount of $0 to $0.99. A Nasdaq
Market Center Participant entering a Reverse
Pegged Order may specify that the price of
the order will deviate from either the Nasdaq
inside quote on the contra side of the market
or the national best bid or offer on the contra
side of the market by an offset amount of
$0.01 to $0.99. The market participant
entering a Pegged Order may (but is not
required to) specify a cap price, to define a
price at which pegging of the order will stop
and the order will be permanently converted
into an unpegged limit order. Pegged Orders
shall not be available for ITS Securities.
Pegged orders shall not be eligible for routing
as set out in Rule 4714. Offset amounts for
Pegged Orders are priced in $0.01
increments. However, if at any time an offset
amount specified by a Nasdaq Market Center
Participant does not result in an offer or a bid
that is fully compliant with the minimum
price variation provisions of Rule 4613, then,
for an offer, the applicable offset amount will
be the smallest amount that results in a
compliant order and is greater than the
specified offset amount, and, for a bid, the
applicable offset amount will be the largest
amount that results in a compliant order and
is smaller than the specified offset amount.
(nn) The term ‘‘Discretionary’’ shall mean,
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
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(1) for priced limit orders in Nasdaq listed
securities so designated, an order that when
entered into the Nasdaq Market Center has
both a displayed bid or offer price, as well
as a non-displayed discretionary price range
in which the participant is also willing to
buy or sell, if necessary. The displayed price
may be fixed or may be pegged to deviate
from the Nasdaq inside quote or the national
best bid or offer on the same side of the
market by an offset amount of $0 to $0.99.
The pegging of the Discretionary Order may
be capped in the same manner as that of a
Pegged Order. The discretionary price range
of a Discretionary Order that is pegged will
be adjusted to follow the pegged displayed
price. Discretionary price ranges (and offset
amounts, if any) for Discretionary Orders are
priced in $0.01 increments. Compliance with
the minimum price variation provisions of
Rule 4613 in connection with range
adjustments and pegging in Discretionary
Orders will be ensured in the same manner
as for Pegged Orders. Discretionary Orders
for Nasdaq listed securities shall be eligible
for routing as set out in Rule 4714.
(2) No change
(oo) through (vv) No change
* * *
4710. Participant Obligations in the Nasdaq
Market Center
(a) No change
(b) Non-Directed Orders
(1) through (4) No change
(5) If a Nasdaq Market Maker’s Attributable
Quote/Order is reduced to less than a roundlot amount on one side of the market due to
Nasdaq Market Center executions, the
Nasdaq Market Center will close the Market
Maker’s quote in the Nasdaq Market Center
on that side of the market, and the Nasdaq
Market Maker will be permitted a grace
period of 30 seconds within which to take
action to restore its Attributable Quote/Order,
if the market maker has not authorized use
of the AQR functionality or does not
otherwise have an Attributable Quote/Order
on both sides of the market in the system. A
Nasdaq Market Maker that fails to transmit an
Attributable Quote/Order in a security within
the allotted time will have the exhausted side
of its quotation restored by the system at a
price $0.01 inferior to the lowest displayed
bid price or the highest displayed offer price
in that security as appropriate. If all bids
and/or offers are exhausted so that there are
no longer any Quote/Orders displayed on the
bid and/or offer side of the market, the
system will refresh a market maker’s
exhausted bid or offer quote to a normal unit
of trading priced $0.01 inferior to the lesser
of either: a) the last valid displayed inside
bid/offer in the security before all such bids/
offers were exhausted; or b) the market
maker’s last displayed bid/offer before
exhaustion. If the resulting bid/offer quote
would create a locked or crossed market, the
Nasdaq Market Center will instead re-open
the exhausted market maker’s bid/offer quote
at a price $0.01 inferior to the unexhausted
inside bid/offer in that security. If at any time
an offer derived pursuant to this paragraph
would not be fully compliant with the
minimum price variation provisions of Rule
4613, then the system will create an offer that
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is priced higher than the non-compliant offer
by the smallest amount necessary to make
such an offer compliant with Rule 4613. If at
any time this automatic quote restoration
process would result in the creation of a bid/
offer of less than $0.01, the system will
refresh that bid/offer to a price of $0.01.
Except as provided in subparagraph (b)(6) of
this rule, a Nasdaq Market Maker that
withdraws from a security may not re-register
in the system as a market maker in that
security for twenty (20) business days.
(6) through (8) No change
(c) through (e) No change
* * *
4901. Definitions
Unless stated otherwise, the terms
described below shall have the following
meaning:
(a) through (q) No change
(r) The term ‘‘Pegged’’ shall mean, for
priced limit orders so designated, that after
entry into the System, the price of the order
is automatically adjusted by the System in
response to changes in the Nasdaq inside bid
or offer (for Nasdaq-listed securities) or the
national best bid or offer (for ITS securities),
as appropriate. The Participant entering a
Pegged Order can specify that order’s price
will either equal the inside quote or improves
the inside quote by an amount set by the
entering party on the same side of the market
(a ‘‘Regular Pegged Order’’) or offset the
inside quote on the contra side of the market
by an amount (the ‘‘Offset Amount’’) set by
the Participant (e.g., $0.01 less than the
inside offer or $0.02 more than the inside
bid) (a ‘‘Reverse Pegged Order’’). The
Participant entering a Pegged Order may (but
is not required to) specify a limit price, to
define a price at which pegging of the order
will stop and the order will be permanently
converted into an un-pegged limit order at
limit price. This order type is available for
Nasdaq-listed and Exchange-listed securities.
Offset amounts for Pegged Orders are priced
in $0.01 increments. However, if at any time
an offset amount specified by a Participant
does not result in an offer or a bid that is
fully compliant with the minimum price
variation provisions of Rule 4904, then, for
an offer, the applicable offset amount will be
the smallest amount that results in a
compliant order and is greater than the
specified offset amount, and, for a bid, the
applicable offset amount will be the largest
amount that results in a compliant order and
is smaller than the specified offset amount.
(s) through (w) No change
* * *
4904. Entry and Display of Orders
(a) No change
(b) Display of Orders—The System will
display orders submitted to the System as
follows:
(1) and (2) No change
(3) Minimum Price Variation—The
minimum quotation increment for System
Securities shall be $0.01 for quotations
priced at or above $1.00 per share and
$0.0001 for quotations priced below $1.00
per share; provided, however, that if the
Securities and Exchange Commission
(‘‘SEC’’) permits, with respect to any security,
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the display, rank or acceptance of quotations
priced at or above $1.00 per share in an
increment smaller than $0.01, then the
minimum quotation increment for such a
security shall be the minimum permitted by
the SEC or $0.0001, whichever is greater.
Quotations failing to meet this standard shall
be rejected.
(4) Exceptions—The following exceptions
shall apply to the display parameters set
forth in paragraphs (1) and (2) above:
(A) No change
(B) [Minimum Increments and Rounding—
The minimum trading increment for System
quotations priced $1.00 and above is $.01.
For quotations priced below $1.00 the
minimum increment is $.0001.
(i) For System display purposes, quotations
in sub-penny increments $1.00 and above
will be rounded down (for bids) or up (for
offers) by the System to the nearest $.01
increment. Orders so rounded shall have no
superior execution priority compared to
orders previously submitted at the relevant
$.01 increment.
(ii) For Nasdaq Market Center display
purposes, any quotations in sub-penny
increments shall be rounded down (for bids)
and up (for offers) to the nearest $.01
increment. Sub-penny quotations that are
rounded for display purposes shall be
executed at their actual price, rather than the
rounded price at which they are displayed.
(C)] Reserve Size—Reserve Size shall not
be displayed in the System, but shall be
accessible as described in Rule 4905.
[(D)] (C) Discretionary & Hunter Orders—
Hunter Orders, and the discretionary portion
of Discretionary Orders shall be available for
execution only upon the appearance of
contra-side marketable trading interest, and
shall be executed pursuant to Rule 4905.
* * *
6330. Obligations of CQS Market Makers
(a) through (c) No change
(d) Minimum Price Variation [for Decimalbased Quotations]
(1) The minimum quotation increment [for
securities authorized for decimal pricing as
part of the SEC-approved Decimals
Implementation Plan for the Equities and
Options Markets] shall be $0.01 for
quotations priced at or above $1.00 per share
and $0.0001 for quotations priced below
$1.00 per share; provided, however, that if
the Securities and Exchange Commission
(‘‘SEC’’) permits, with respect to any security,
the display, rank or acceptance of quotations
priced at or above $1.00 per share in an
increment smaller than $0.01, then the
minimum quotation increment for such a
security shall be the minimum permitted by
the SEC or $0.0001, whichever is greater.
Quotations failing to meet this standard shall
be rejected.
(2) When a quotation properly (not in
violation of paragraph (1) above) priced in an
increment of less than $0.01 is routed for
execution via the ITS System to a market that
does not accept quotations in increments of
less than $0.01, such a quotation is rounded
down (for bids) or up (for offers) to the
nearest $0.01 increment.
*
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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. Nasdaq 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
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The purpose of this change is to align
Nasdaq’s rules with Rule 612 of the
Commission’s Regulation NMS.5
Consistent with that rule, neither
Nasdaq nor Nasdaq’s Brut facility will
accept sub-penny quotes 6 priced at
$1.00 or above, except for sub-penny
quotes in securities for which subpenny quoting is authorized by the
Commission at higher price levels. For
quotes priced below $1.00 (and for
quotes in securities exempted by the
Commission), Nasdaq and Brut 7 will
accept sub-penny quotes but only in
increments of at least $0.0001, as
specified in Rule 612.
The proposed rule language also
clarifies how Nasdaq will handle several
special situations that will arise in
implementing Rule 612. First, if a
proper sub-penny quote submitted to
Nasdaq is routed via the ITS System to
a different market for execution, and
such market does not accept sub-penny
orders, then such quote will be rounded
up (for offers) or down (for bids) to the
nearest one cent increment. However,
Nasdaq notes that any market routing an
order to any facility of Nasdaq must be
prepared to accept a sub-penny
execution even if such market itself
does not accept sub-penny orders. A
proper execution priced in an increment
of less than a cent would remain valid
even if the sending market failed to
meet its responsibilities in this regard
(and the sending market would then
have to assume full responsibility for
any resulting losses and other harm).
5 17
CFR 242.612.
this filing, ‘‘quote’’ or ‘‘quotation’’ is used to
denote both quotations and orders.
7 This filing does not contain any changes to the
rules of the INET System. If any such changes are
necessary, they will be made in a separate filing at
a later date.
6 In
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Second, for pegged and discretionary
orders, the new rule language clarifies
that participants must continue to
specify the offset amounts and the
discretionary price ranges in whole
cents. This will remain the case even
when the stock can be properly priced
in sub-penny increments.
Third, in the case of pegged or
discretionary orders, when changes in
the underlying price being ‘‘pegged’’
would result in a sub-penny order
priced over $1.00, the rule language
provides that the ‘‘offset’’ amount be
deemed slightly higher (for offers) or
lower (for bids) than specified by the
market participant, as necessary to
create a compliant quote. For example,
if the offset amount specified by a
market participant for a pegged offer is
$0.01 and the national best offer is
$0.995, this would result in a pegged
offer of $1.005, which would violate
Rule 612. The proposed rule states that
in this situation Nasdaq should deem
the offset amount to be higher than
specified by the smallest amount
necessary to produce a quote priced in
whole cents. Therefore, in this example,
under the proposed rule the offset
amount would be deemed $0.015,
producing a pegged offer of $1.01. In the
case of discretionary orders, this same
logic and approach will apply in
determining the discretionary price
`
range vis-a-vis the displayed price and
in determining the offset amount if the
displayed price is ‘‘pegged’’ to the
national best bid or offer. In each case,
the discretionary price range limit
amount and the offset amount will be
deemed higher (for offers) or lower (for
bids) by the smallest amount necessary
to produce a Rule 612-compliant quote.
Fourth, the same approach will be
used when automatically refreshing the
quotes of a market participant that has
authorized the use of the Auto Quote
Refresh (‘‘AQR’’) functionality. NASD
Rule 4710(b)(5) describes the algorithm
used to determine AQR pricing, and it
could result in a sub-penny offer priced
over $1.00 (generally, if the stock is
trading in sub-penny increments just
below the $1 threshold). In such a
situation, the AQR-generated offer price
will be adjusted upwards to the next
whole penny.
Nasdaq notes that while it generally
(subject to any security-specific
exemptions the Commission may grant)
will not accept sub-penny quotes priced
above $1.00, it will, consistent with
Rule 612, still permit trade executions at
such prices. For example, trades in subpenny increments priced above $1.00
could be produced in Nasdaq’s Opening
Cross or Closing Cross. Nasdaq will
permit such trades to proceed. At the
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same time, Nasdaq notes that, because
of technological limitations, trades will
never be executed in increments below
$0.0001, but will always be rounded up
to the nearest $0.0001 increment. Such
a situation could arise, for example, in
the Opening or Closing Cross if the bids
and offers for a stock are priced below
$1.00 in $0.0001 increments. Under
such a scenario, the system would
round the execution price up to the next
$0.0001 increment.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,8 in
general and with Section 15A(b)(6) of
the Act,9 in particular, in that it is
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market.
Specifically, the proposal aligns
Nasdaq’s rules on sub-penny trading
with the Commission’s Regulation NMS.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq 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.
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
This proposal has become effective
pursuant to section 19(b)(3)(A) of the
Act 10 and subparagraph (f)(6) of Rule
19b–4 thereunder 11 because the
proposal: (1) Does not significantly
affect the protection of investors or the
public interest, (2) does not impose any
significant burden on competition, and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest.12
8 15
U.S.C. 78o–3.
U.S.C. 78o–3(b)(6).
10 15 U.S.C. 78s(b)(3)(A).
11 17 CFR 240.19b–4(f)(6).
12 Pursuant to Rule 19b–4(f)(6)(iii) of the Act, a
proposed rule change does not become operative for
30 days after the date of its filing, or such shorter
time as the Commission may designate if consistent
with the protection of investors and the public
interest, provided that the self-regulatory
9 15
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Federal Register / Vol. 70, No. 249 / Thursday, December 29, 2005 / Notices
Nasdaq intends for this rule change to
become operative on January 31, 2006.
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.
the principal office of the 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–2005–150 and
should be submitted on or before
January 19, 2006.
IV. Solicitation of Comments
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Jonathan G. Katz,
Secretary.
[FR Doc. E5–8069 Filed 12–28–05; 8:45 am]
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–2005–150 on the
subject line.
Paper Comments
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• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–NASD–2005–150. 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
organization has given the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. Nasdaq complied with the five day
pre-filing requirement.
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BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53014; File No. SR–NYSE–
2005–89]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Extend the
Pilot for NYSE Direct+ Until
December 23, 2006
December 22, 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 December
13, 2005, the New York Stock Exchange,
Inc. (‘‘NYSE’’ or ‘‘Exchange’’) 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 NYSE. 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
This proposal is to extend until
December 23, 2006, the effectiveness of
the pilot (the ‘‘Pilot’’) for NYSE Direct+
(‘‘Direct +’’). The Pilot was approved
initially on a one-year basis and
extended for several additional years,
and now expires on December 23, 2005.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
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. The
Exchange 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
In light of the fact that the
Commission is still considering the
Exchange’s filing on proposed
enhancements to NYSE Direct+ (the
NYSE HYBRID MARKETS SM—‘‘Hybrid
Market’’) as described in SR–NYSE–
2004–05 and subsequent amendments
thereto 3, the Exchange hereby is filing
to renew its Pilot, as it currently
operates, for an additional year.
Background
NYSE Direct+ was originally
approved as a one-year pilot in SR–
NYSE–2000–18,4 ending on December
21, 2001. The Exchange then extended
the Pilot for an additional one-year,
ending December 23, 2002.5 The Pilot
was subsequently extended for an
additional one-year, ending December
23, 2003.6 It was again extended for two
additional one-year periods and now
expires on December 23, 2005.7
The NYSE Direct+ pilot provides for
the automatic execution of limit orders
of 1,099 shares or less (‘‘auto ex’’ orders)
against trading interest reflected in the
Exchange’s published quotation. It is
3 See Securities Exchange Act Release No. 50173
(August 10, 2004), 69 FR 50407 (August 16, 2004)
(Amendment No. 1 to SR–NYSE–2004–05);
Securities Exchange Act Release No. 50667
(November 15, 2004), 69 FR 67980 (November 22,
2004) (Amendment Nos. 2 and 3 to SR–NYSE–
2004–05); (The Exchange withdrew Amendment
No. 4 and replaced it with Amendment No. 5);
Securities Exchange Act Release No. 51906 (June
22, 2005), 70 FR 37463 (June 29, 2005) (Amendment
No. 5 to SR–NYSE–2004–05). See also Amendment
No. 6 to SR–NYSE–2004–05 (September 16, 2005)
and Amendment No. 7 to SR–NYSE–2004–05
(October 11, 2005).
4 See Securities Exchange Act Release No. 43767
(December 22, 2000), 66 FR 834 (January 4, 2001)
(SR–NYSE–2000–18).
5 See Securities Exchange Act Release No. 45331
(January 24, 2002), 67 FR 5024 (February 1, 2002)
(SR–NYSE–2001–50).
6 See Securities Exchange Act Release No. 46906
(November 25, 2002), 67 FR 72260 (December 4,
2002) (SR–NYSE–2002–47).
7 See Securities Exchange Act Release No. 48772
(November 12, 2003), 68 FR 65756 (November 21,
2003) (SR–NYSE–2003–30). See Securities
Exchange Act Release No. 50828 (December 9,
2004), 69 FR 75579 (December 17, 2004) (SR–
NYSE–2004–66).
E:\FR\FM\29DEN1.SGM
29DEN1
Agencies
[Federal Register Volume 70, Number 249 (Thursday, December 29, 2005)]
[Notices]
[Pages 77225-77228]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-8069]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53017; File No. SR-NASD-2005-150]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Modify Nasdaq's Minimum Pricing Increment Rules
December 22, 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 December 22, 2005, the National Association of Securities Dealers,
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc.
(``Nasdaq''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by Nasdaq. Nasdaq filed
this proposal pursuant to section 19(b)(3)(A) of the Act \3\ and Rule
19b-4(f)(6) thereunder,\4\ therefore making the proposed rule change
effective immediately upon filing. Nasdaq intends for this rule change
to become operative on January 31, 2006. 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\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
Nasdaq proposes to modify NASD Rules 4613, 4701, 4710, 4901, 4904,
and 6330 to align Nasdaq's rules on minimum pricing increments with the
corresponding provisions in the Commission's Regulation NMS.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
4613. Character of Quotations
(a) Quotation Requirements and Obligations
(1) Two-Sided Quote Obligation. For each security in which a
member is registered as a market maker, the member shall be willing
to buy and sell such security for its own account on a continuous
basis and shall enter and maintain a two-sided quotation
(``Principal Quote''), which is attributed to the market maker by a
special maker participant identifier (``MPID'') and is displayed in
the Nasdaq Quotation Montage at all times, subject to the procedures
for excused withdrawal set forth in Rule 4619.
(A) No change
(B) Minimum Price Variation [for Decimal-based Quotations]--The
minimum quotation increment for Nasdaq National Market and Capital
Market securities [authorized for decimal pricing] shall be $0.01
for quotations priced at or above $1.00 per share and $0.0001 for
quotations priced below $1.00 per share; provided, however, that if
the Securities and Exchange Commission (``SEC'') permits, with
respect to any security, the display, rank or acceptance of
quotations priced at or above $1.00 per share in an increment
smaller than $0.01, then the minimum quotation increment for such a
security shall be the minimum permitted by the SEC or $0.0001,
whichever is greater. Quotations failing to meet this standard shall
be rejected.
(2) and (3) No change
(b) through (e) No change
* * *
4701. Definitions
Unless stated otherwise, the terms described below shall have
the following meaning:
(a) through (ll) No change
(mm) The term ``Pegged'' shall mean, for priced limit orders so
designated, that after entry into the Nasdaq Market Center, the
price of the order is automatically adjusted by the Nasdaq Market
Center in response to changes in either the Nasdaq Market Center
inside bid or offer or the national best bid or offer, as
appropriate. A Nasdaq Market Center Participant may enter either a
Regular Pegged Order or a Reverse Pegged Order.
A Nasdaq Market Center Participant entering a Regular Pegged
Order may specify that the price of the order will deviate from
either the Nasdaq inside quote on the same side of the market or the
national best bid or offer on the same side of the market by an
offset amount of $0 to $0.99. A Nasdaq Market Center Participant
entering a Reverse Pegged Order may specify that the price of the
order will deviate from either the Nasdaq inside quote on the contra
side of the market or the national best bid or offer on the contra
side of the market by an offset amount of $0.01 to $0.99. The market
participant entering a Pegged Order may (but is not required to)
specify a cap price, to define a price at which pegging of the order
will stop and the order will be permanently converted into an
unpegged limit order. Pegged Orders shall not be available for ITS
Securities. Pegged orders shall not be eligible for routing as set
out in Rule 4714. Offset amounts for Pegged Orders are priced in
$0.01 increments. However, if at any time an offset amount specified
by a Nasdaq Market Center Participant does not result in an offer or
a bid that is fully compliant with the minimum price variation
provisions of Rule 4613, then, for an offer, the applicable offset
amount will be the smallest amount that results in a compliant order
and is greater than the specified offset amount, and, for a bid, the
applicable offset amount will be the largest amount that results in
a compliant order and is smaller than the specified offset amount.
(nn) The term ``Discretionary'' shall mean,
[[Page 77226]]
(1) for priced limit orders in Nasdaq listed securities so
designated, an order that when entered into the Nasdaq Market Center
has both a displayed bid or offer price, as well as a non-displayed
discretionary price range in which the participant is also willing
to buy or sell, if necessary. The displayed price may be fixed or
may be pegged to deviate from the Nasdaq inside quote or the
national best bid or offer on the same side of the market by an
offset amount of $0 to $0.99. The pegging of the Discretionary Order
may be capped in the same manner as that of a Pegged Order. The
discretionary price range of a Discretionary Order that is pegged
will be adjusted to follow the pegged displayed price. Discretionary
price ranges (and offset amounts, if any) for Discretionary Orders
are priced in $0.01 increments. Compliance with the minimum price
variation provisions of Rule 4613 in connection with range
adjustments and pegging in Discretionary Orders will be ensured in
the same manner as for Pegged Orders. Discretionary Orders for
Nasdaq listed securities shall be eligible for routing as set out in
Rule 4714.
(2) No change
(oo) through (vv) No change
* * *
4710. Participant Obligations in the Nasdaq Market Center
(a) No change
(b) Non-Directed Orders
(1) through (4) No change
(5) If a Nasdaq Market Maker's Attributable Quote/Order is
reduced to less than a round-lot amount on one side of the market
due to Nasdaq Market Center executions, the Nasdaq Market Center
will close the Market Maker's quote in the Nasdaq Market Center on
that side of the market, and the Nasdaq Market Maker will be
permitted a grace period of 30 seconds within which to take action
to restore its Attributable Quote/Order, if the market maker has not
authorized use of the AQR functionality or does not otherwise have
an Attributable Quote/Order on both sides of the market in the
system. A Nasdaq Market Maker that fails to transmit an Attributable
Quote/Order in a security within the allotted time will have the
exhausted side of its quotation restored by the system at a price
$0.01 inferior to the lowest displayed bid price or the highest
displayed offer price in that security as appropriate. If all bids
and/or offers are exhausted so that there are no longer any Quote/
Orders displayed on the bid and/or offer side of the market, the
system will refresh a market maker's exhausted bid or offer quote to
a normal unit of trading priced $0.01 inferior to the lesser of
either: a) the last valid displayed inside bid/offer in the security
before all such bids/offers were exhausted; or b) the market maker's
last displayed bid/offer before exhaustion. If the resulting bid/
offer quote would create a locked or crossed market, the Nasdaq
Market Center will instead re-open the exhausted market maker's bid/
offer quote at a price $0.01 inferior to the unexhausted inside bid/
offer in that security. If at any time an offer derived pursuant to
this paragraph would not be fully compliant with the minimum price
variation provisions of Rule 4613, then the system will create an
offer that is priced higher than the non-compliant offer by the
smallest amount necessary to make such an offer compliant with Rule
4613. If at any time this automatic quote restoration process would
result in the creation of a bid/offer of less than $0.01, the system
will refresh that bid/offer to a price of $0.01. Except as provided
in subparagraph (b)(6) of this rule, a Nasdaq Market Maker that
withdraws from a security may not re-register in the system as a
market maker in that security for twenty (20) business days.
(6) through (8) No change
(c) through (e) No change
* * *
4901. Definitions
Unless stated otherwise, the terms described below shall have
the following meaning:
(a) through (q) No change
(r) The term ``Pegged'' shall mean, for priced limit orders so
designated, that after entry into the System, the price of the order
is automatically adjusted by the System in response to changes in
the Nasdaq inside bid or offer (for Nasdaq-listed securities) or the
national best bid or offer (for ITS securities), as appropriate. The
Participant entering a Pegged Order can specify that order's price
will either equal the inside quote or improves the inside quote by
an amount set by the entering party on the same side of the market
(a ``Regular Pegged Order'') or offset the inside quote on the
contra side of the market by an amount (the ``Offset Amount'') set
by the Participant (e.g., $0.01 less than the inside offer or $0.02
more than the inside bid) (a ``Reverse Pegged Order''). The
Participant entering a Pegged Order may (but is not required to)
specify a limit price, to define a price at which pegging of the
order will stop and the order will be permanently converted into an
un-pegged limit order at limit price. This order type is available
for Nasdaq-listed and Exchange-listed securities. Offset amounts for
Pegged Orders are priced in $0.01 increments. However, if at any
time an offset amount specified by a Participant does not result in
an offer or a bid that is fully compliant with the minimum price
variation provisions of Rule 4904, then, for an offer, the
applicable offset amount will be the smallest amount that results in
a compliant order and is greater than the specified offset amount,
and, for a bid, the applicable offset amount will be the largest
amount that results in a compliant order and is smaller than the
specified offset amount.
(s) through (w) No change
* * *
4904. Entry and Display of Orders
(a) No change
(b) Display of Orders--The System will display orders submitted
to the System as follows:
(1) and (2) No change
(3) Minimum Price Variation--The minimum quotation increment for
System Securities shall be $0.01 for quotations priced at or above
$1.00 per share and $0.0001 for quotations priced below $1.00 per
share; provided, however, that if the Securities and Exchange
Commission (``SEC'') permits, with respect to any security, the
display, rank or acceptance of quotations priced at or above $1.00
per share in an increment smaller than $0.01, then the minimum
quotation increment for such a security shall be the minimum
permitted by the SEC or $0.0001, whichever is greater. Quotations
failing to meet this standard shall be rejected.
(4) Exceptions--The following exceptions shall apply to the
display parameters set forth in paragraphs (1) and (2) above:
(A) No change
(B) [Minimum Increments and Rounding--The minimum trading
increment for System quotations priced $1.00 and above is $.01. For
quotations priced below $1.00 the minimum increment is $.0001.
(i) For System display purposes, quotations in sub-penny
increments $1.00 and above will be rounded down (for bids) or up
(for offers) by the System to the nearest $.01 increment. Orders so
rounded shall have no superior execution priority compared to orders
previously submitted at the relevant $.01 increment.
(ii) For Nasdaq Market Center display purposes, any quotations
in sub-penny increments shall be rounded down (for bids) and up (for
offers) to the nearest $.01 increment. Sub-penny quotations that are
rounded for display purposes shall be executed at their actual
price, rather than the rounded price at which they are displayed.
(C)] Reserve Size--Reserve Size shall not be displayed in the
System, but shall be accessible as described in Rule 4905.
[(D)] (C) Discretionary & Hunter Orders--Hunter Orders, and the
discretionary portion of Discretionary Orders shall be available for
execution only upon the appearance of contra-side marketable trading
interest, and shall be executed pursuant to Rule 4905.
* * *
6330. Obligations of CQS Market Makers
(a) through (c) No change
(d) Minimum Price Variation [for Decimal-based Quotations]
(1) The minimum quotation increment [for securities authorized
for decimal pricing as part of the SEC-approved Decimals
Implementation Plan for the Equities and Options Markets] shall be
$0.01 for quotations priced at or above $1.00 per share and $0.0001
for quotations priced below $1.00 per share; provided, however, that
if the Securities and Exchange Commission (``SEC'') permits, with
respect to any security, the display, rank or acceptance of
quotations priced at or above $1.00 per share in an increment
smaller than $0.01, then the minimum quotation increment for such a
security shall be the minimum permitted by the SEC or $0.0001,
whichever is greater. Quotations failing to meet this standard shall
be rejected.
(2) When a quotation properly (not in violation of paragraph (1)
above) priced in an increment of less than $0.01 is routed for
execution via the ITS System to a market that does not accept
quotations in increments of less than $0.01, such a quotation is
rounded down (for bids) or up (for offers) to the nearest $0.01
increment.
* * * * *
[[Page 77227]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq 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. Nasdaq 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
The purpose of this change is to align Nasdaq's rules with Rule 612
of the Commission's Regulation NMS.\5\ Consistent with that rule,
neither Nasdaq nor Nasdaq's Brut facility will accept sub-penny quotes
\6\ priced at $1.00 or above, except for sub-penny quotes in securities
for which sub-penny quoting is authorized by the Commission at higher
price levels. For quotes priced below $1.00 (and for quotes in
securities exempted by the Commission), Nasdaq and Brut \7\ will accept
sub-penny quotes but only in increments of at least $0.0001, as
specified in Rule 612.
---------------------------------------------------------------------------
\5\ 17 CFR 242.612.
\6\ In this filing, ``quote'' or ``quotation'' is used to denote
both quotations and orders.
\7\ This filing does not contain any changes to the rules of the
INET System. If any such changes are necessary, they will be made in
a separate filing at a later date.
---------------------------------------------------------------------------
The proposed rule language also clarifies how Nasdaq will handle
several special situations that will arise in implementing Rule 612.
First, if a proper sub-penny quote submitted to Nasdaq is routed via
the ITS System to a different market for execution, and such market
does not accept sub-penny orders, then such quote will be rounded up
(for offers) or down (for bids) to the nearest one cent increment.
However, Nasdaq notes that any market routing an order to any facility
of Nasdaq must be prepared to accept a sub-penny execution even if such
market itself does not accept sub-penny orders. A proper execution
priced in an increment of less than a cent would remain valid even if
the sending market failed to meet its responsibilities in this regard
(and the sending market would then have to assume full responsibility
for any resulting losses and other harm).
Second, for pegged and discretionary orders, the new rule language
clarifies that participants must continue to specify the offset amounts
and the discretionary price ranges in whole cents. This will remain the
case even when the stock can be properly priced in sub-penny
increments.
Third, in the case of pegged or discretionary orders, when changes
in the underlying price being ``pegged'' would result in a sub-penny
order priced over $1.00, the rule language provides that the ``offset''
amount be deemed slightly higher (for offers) or lower (for bids) than
specified by the market participant, as necessary to create a compliant
quote. For example, if the offset amount specified by a market
participant for a pegged offer is $0.01 and the national best offer is
$0.995, this would result in a pegged offer of $1.005, which would
violate Rule 612. The proposed rule states that in this situation
Nasdaq should deem the offset amount to be higher than specified by the
smallest amount necessary to produce a quote priced in whole cents.
Therefore, in this example, under the proposed rule the offset amount
would be deemed $0.015, producing a pegged offer of $1.01. In the case
of discretionary orders, this same logic and approach will apply in
determining the discretionary price range vis-[agrave]-vis the
displayed price and in determining the offset amount if the displayed
price is ``pegged'' to the national best bid or offer. In each case,
the discretionary price range limit amount and the offset amount will
be deemed higher (for offers) or lower (for bids) by the smallest
amount necessary to produce a Rule 612-compliant quote.
Fourth, the same approach will be used when automatically
refreshing the quotes of a market participant that has authorized the
use of the Auto Quote Refresh (``AQR'') functionality. NASD Rule
4710(b)(5) describes the algorithm used to determine AQR pricing, and
it could result in a sub-penny offer priced over $1.00 (generally, if
the stock is trading in sub-penny increments just below the $1
threshold). In such a situation, the AQR-generated offer price will be
adjusted upwards to the next whole penny.
Nasdaq notes that while it generally (subject to any security-
specific exemptions the Commission may grant) will not accept sub-penny
quotes priced above $1.00, it will, consistent with Rule 612, still
permit trade executions at such prices. For example, trades in sub-
penny increments priced above $1.00 could be produced in Nasdaq's
Opening Cross or Closing Cross. Nasdaq will permit such trades to
proceed. At the same time, Nasdaq notes that, because of technological
limitations, trades will never be executed in increments below $0.0001,
but will always be rounded up to the nearest $0.0001 increment. Such a
situation could arise, for example, in the Opening or Closing Cross if
the bids and offers for a stock are priced below $1.00 in $0.0001
increments. Under such a scenario, the system would round the execution
price up to the next $0.0001 increment.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\8\ in general and with
Section 15A(b)(6) of the Act,\9\ in particular, in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market.
Specifically, the proposal aligns Nasdaq's rules on sub-penny trading
with the Commission's Regulation NMS.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78o-3.
\9\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq 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.
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
This proposal has become effective pursuant to section 19(b)(3)(A)
of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 thereunder \11\
because the proposal: (1) Does not significantly affect the protection
of investors or the public interest, (2) does not impose any
significant burden on competition, and (3) by its terms does not become
operative for 30 days after the date of this filing, or such shorter
time as the Commission may designate, if consistent with the protection
of investors and the public interest.\12\
[[Page 77228]]
Nasdaq intends for this rule change to become operative on January 31,
2006.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
\12\ Pursuant to Rule 19b-4(f)(6)(iii) of the Act, a proposed
rule change does not become operative for 30 days after the date of
its filing, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest,
provided that the self-regulatory organization has given the
Commission written notice of its intent to file the proposed rule
change, along with a brief description and text of the proposed rule
change, at least five business days prior to the date of filing of
the proposed rule change, or such shorter time as designated by the
Commission. Nasdaq complied with the five day pre-filing
requirement.
---------------------------------------------------------------------------
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-2005-150 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-150. 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 the 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-2005-150 and
should be submitted on or before January 19, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
---------------------------------------------------------------------------
\13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. E5-8069 Filed 12-28-05; 8:45 am]
BILLING CODE 8010-01-P