Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to an Extension of the Short Sale Rule and Continued Suspension of Primary Market Maker Standards Set Forth in NASD Rule 4612, 2966-2969 [E6-435]
Download as PDF
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Federal Register / Vol. 71, No. 11 / Wednesday, January 18, 2006 / Notices
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.
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, 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, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 9 and Rule 19b–
4(f)(6) thereunder.10
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.
1. Purpose
Nasdaq proposes to amend the rule
governing delivery of documents in
delisting proceedings to allow the
electronic delivery of documents
without specific consent to that delivery
method. Nasdaq believes that this
change reflects current prevailing
practice and a preference for e-mail
communication by Nasdaq issuers.6
Nasdaq believes this would increase the
efficiency, speed, and transparency of
communication among hearing
participants and would also reduce the
administrative burden on Nasdaq
created by the current requirement of
overnight and facsimile delivery in
some instances.
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act 7 in
general and with Section 15A(b)(6) of
the Act 8 in particular in that the
proposal is designed to prevent
fraudulent and manipulative acts and
practices and to protect investors and
the public interest. Nasdaq believes that
the proposed change is designed to
improve the procedures applicable to
the review of listing determinations, as
well as to provide greater transparency
to these procedures.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
erjones on PROD1PC68 with NOTICES
Nasdaq does not believe that the
proposed rule change would result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
6 Consistent with current practice related to
delivery of documents, the parties will give a
specific address for any delivery of documents
involving electronic (or any other) means.
Telephone conversation between Jeffrey Davis,
Associate Vice President, NASD, and Florence E.
Harmon, Senior Special Counsel, Division of
Market Regulation (‘‘Division’’), Commission, on
January 5, 2006.
7 15 U.S.C. 78o–3.
8 15 U.S.C. 78o–3(b)(6).
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–153 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–NASD–2005–153. 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–2005–153 and
should be submitted on or before
February 8, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Nancy M. Morris,
Secretary.
[FR Doc. E6–434 Filed 1–17–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53093; File No. SR–NASD–
2005–149]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
Thereto Relating to an Extension of the
Short Sale Rule and Continued
Suspension of Primary Market Maker
Standards Set Forth in NASD Rule
4612
January 10, 2006.
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
15, 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
11 17
9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(6).
PO 00000
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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have been prepared by Nasdaq. On
January 6, 2006, Nasdaq filed
Amendment No. 1 to the proposed rule
change.3 Nasdaq has filed the proposal
as a ‘‘non-controversial’’ rule change
pursuant to Section 19(b)(3)(A) of the
Act 4 and Rule 19b–4(f)(6) thereunder,5
which renders it effective upon filing
with the Commission. The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to extend the pilot
effectiveness of NASD Rule 3350 until
December 15, 2006. Nasdaq is also
seeking to continue the suspension of
the effectiveness of the Primary Market
Maker (‘‘PMM’’) standards currently set
forth in NASD Rule 4162 until
December 15, 2006. In addition, Nasdaq
is seeking to extend the pilot
effectiveness of the penny ($0.01) legal
short sale standard contained in
paragraph (b)(2) of NASD Interpretative
Material 3350 (‘‘IM–3350’’).
The text of the proposed rule change,
as amended, is available on the NASD’s
Web site (https://www.nasd.com), at the
principal office of the NASD, and at the
Commission’s Public Reference Room.
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. 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.
erjones on PROD1PC68 with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Background and Description of the
NASD’s Short Sale Rule. Section 10(a)
of the Act 6 gives the Commission
plenary authority to regulate short sales
of securities registered on a national
securities exchange, as needed to
protect investors. In 1992, Nasdaq,
believing that short sale regulation is
3 In Amendment No. 1, Nasdaq made technical
changes to the text of the proposed rule change.
4 15 U.S.C. 78s(b)(3)(A).
5 17 CFR 240.19b–4(f)(6).
6 15 U.S.C. 78j(a).
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important to the orderly operation of
securities markets, proposed a short sale
rule for trading of its National Market
securities that incorporates the
protections provided by Rule 10a–1
under the Act.7 On June 29, 1994, the
Commission approved the NASD’s short
sale rule (the ‘‘Rule’’) applicable to short
sales 8 in Nasdaq National Market
(‘‘NNM’’) securities on an eighteenmonth pilot basis through March 5,
1996.9 The NASD has proposed, and the
Commission has approved, extensions
of NASD Rule 3350 numerous times,
most recently, until December 15,
2005.10
The Rule employs a ‘‘bid’’ test rather
than a tick test because Nasdaq trades
are not currently reported to the tape in
chronological order. The Rule prohibits
short sales at or below the inside bid
when the current inside bid is below the
previous inside bid. Nasdaq calculates
the inside bid from all market makers in
the security and disseminates symbols
to denote whether the current inside bid
is an ‘‘up-bid’’ or a ‘‘down-bid.’’ To
effect a ‘‘legal’’ short sale on a downbid, the short sale must be executed at
a price at least $.01 above the current
inside bid. The Rule is in effect from
9:30 a.m. EST until 4 p.m. EST each
trading day.
In December of 2002, Nasdaq
modified the method it uses to calculate
the last bid by having it refer to the
‘‘Nasdaq Inside’’ which is comprised of
quotations from all participants in
Nasdaq execution systems (e.g.,
SuperMontage), rather than referring to
the National Best Bid and Offer
(‘‘NBBO’’). Nasdaq currently calculates
and applies the Nasdaq-based bid tick
indicator to all SuperMontage trades.
With respect to trades executed outside
Nasdaq execution systems and reported
to Nasdaq, Nasdaq participants have
been permitted to transition from the
NBBO-based bid tick to the Nasdaqbased bid tick, provided that each firm
select and apply a single bid tick
indicator for all such trades executed by
that firm. That transition has not been
completed and, as explained below, in
light of the Commission’s adoption of
7 17
CFR 240.10a–1.
short sale is a sale of a security that the seller
does not own or any sale that is consummated by
the delivery of a security borrowed by, or for the
account of, the seller. To determine whether a sale
is a short sale members must adhere to the
definition of a ‘‘short sale’’ contained in Rule 200
of Regulation SHO. 17 CFR 242.200.
9 See Securities Exchange Act Release No. 34277
(June 29, 1994), 59 FR 26212 (July 7, 1994) (SR–
NASD–92–12) (‘‘Short Sale Rule Approval Order’’).
10 See Securities Exchange Act Release No. 50922
(Dec. 22, 2004), 69 FR 78079 (Dec. 29, 2004) (SR–
NASD–2004–187).
8A
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2967
Regulation SHO,11 Nasdaq has alerted
members that it would not be prudent
to transition from the NBBO bid tick to
the Nasdaq bid tick at this time.
Background of the Primary Market
Maker Standards. To ensure that market
maker activities that provide liquidity
and continuity to the market are not
adversely constrained when the short
sale rule is invoked, NASD Rule 3350
provides an exemption for ‘‘qualified’’
market makers (i.e., market makers that
meet the PMM standards). Presently,
NASD Rule 4612 provides that a
member registered as a market maker
pursuant to NASD Rule 4611 may be
deemed a PMM if that member meets
certain threshold standards. On
February 14, 1997, the PMM standards
were waived for all NNM securities due
to the impacts of the Commission’s
Order Handling Rules and
corresponding NASD rule change and
system modifications on the operation
of the four quantitative standards.12
Proposal to Extend the Short Sale
Rule and Suspend the PMM Standards.
Nasdaq believes that it is in the best
interest of investors to extend the short
sale regulation pilot program. When the
Commission approved the NASD’s short
sale rule on a pilot basis, it made
specific findings that NASD Rule 3350
was consistent with Sections 11A,
15A(b)(6), 15A(b)(9), and 15A(b)(11) of
the Act. Specifically, the Commission
stated that, ‘‘recognizing the potential
for problems associated with short
selling, the changing expectations of
Nasdaq market participants and the
competitive disparity between the
exchange markets and the OTC market,
the Commission believes that regulation
of short selling of Nasdaq National
Market securities is consistent with the
Act.’’ 13 In addition, the Commission
stated that it ‘‘believes that the NASD’s
short sale bid-test, including the market
maker exemptions, is a reasonable
approach to short sale regulation of
Nasdaq National Market securities and
reflects the realities of its market
structure.’’ 14 The benefits that the
Commission recognized when it first
approved NASD Rule 3350 applied with
equal force today.
Similarly, the concerns that caused
the Commission to waive the PMM
standards in February 1997 continue to
exist today. Nasdaq and the Commission
11 See Securities Exchange Act Release No. 50103
(July 28, 2004), 69 FR 48008 (August 6, 2004) (S7–
23–03).
12 See Securities Exchange Act Release No. 38294
(February 14, 1997), 62 FR 8289 (February 24, 1997)
(SR–NASD–97–07).
13 See Short Sale Rule Approval Order, supra note
9.
14 Id.
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erjones on PROD1PC68 with NOTICES
agreed to waive the PMM standards for
three reasons that were discovered only
after the Order Handling Rules were
implemented.15 Through late 1999,
Nasdaq worked diligently to address
those concerns to the Commission’s
satisfaction, including convening a
special subcommittee on PMM issues,
proposing two different sets of PMM
standards, and being continuously
available and responsive to Commission
staff to discuss this issue. Despite these
efforts, the Commission and Nasdaq
were unable to establish satisfactory
PMM standards. Re-instating the PMM
standards set forth in NASD Rule 4612
would be extremely disruptive to the
market and harmful to investors.
Proposal to Extend Penny Short Sale
Standard. On March 2, 2001, the
Commission approved, on a pilot
basis,16 Nasdaq’s proposal to establish a
$0.01 above the bid standard for legal
short sales in Nasdaq National Market
securities as part of the Decimals
Implementation Plan for the Equities
and Options Markets. This pilot
program has been continuously
extended since that date.17 Nasdaq now
proposes to extend, through December
15, 2006, that pilot program. Extension
until December 15, 2006 will allow
Nasdaq and the Commission to continue
to evaluate the impact of the penny
short sale pilot. If the instant filing is
approved, Nasdaq will continue during
the pilot period to require NASD
members seeking to effect ‘‘legal’’ short
sales when the current best (inside) bid
displayed by Nasdaq is lower that the
previous bid, to execute those short
sales at a price that is at least $0.01
above the current inside bid in that
security. Nasdaq believes that
continuation of this pilot standard
appropriately takes into account the
important investor protections provided
by NASD Rule 3350 and NASD IM–3350
and the ongoing relationship of the
valid short sale price amount to the
15 Implementation of the Order Handling Rules
created the following three issues: (1) Many market
makers voluntarily chose to display customer limit
orders in their quotes although the Limit Order
Display Rule does not require it; (2) decrementation
for all Nasdaq stocks significantly affected market
makers’ ability to meet several of the primary
market maker standards; and (3) with the inability
to meet the existing criteria for a larger number of
securities, a market maker may be prevented from
registering as a primary market maker in an initial
public offering because it fails to meet the 80%
primary market maker test contained in NASD Rule
4612(g)(2)(B).
16See Securities Exchange Act Release No. 44030
(March 2, 2001), 66 FR 14235 (March 9, 2001) (SR–
NASD–01–09).
17 See Securities Exchange Act Release No. 50922
(Dec. 22, 2004), 69 FR 78079 (December 29, 2004)
(SR–NASD–2004–187).
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minimum quotation increment of the
Nasdaq market (currently also $0.01).
2. Statutory Basis
Nasdaq believes that the proposed
rule change is consistent with the
provisions of Section 15A of the Act,18
in general and with Section 15A(b)(6) of
the Act,19 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, remove impediments to a free and
open market and a national market
system, and, in general, to protect
investors and the public interest. The
proposed rule change is being made so
that the pilot programs, which achieve
these goals, may continue without
interruption.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Nasdaq believes that the proposed
rule change will not result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Comments were neither solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the forgoing rule change does
not: (1) Significantly affect the
protection of investors or the public
interest; (2) impose any significant
burden on competition; and (3) become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21 Nasdaq will
implement this rule change
immediately.
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.22 However, Rule 19b–
4(f)(6)(iii) 23 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest.
Nasdaq has requested that the
Commission waive the five-day prefiling notice requirement and the 30-day
18 15
U.S.C. 78o–3.
U.S.C. 78o–3(b)(6).
20 15 U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(6).
22 17 CFR 240.19b–4(f)(6)(iii).
23 Id.
19 15
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pre-operative delay. The Commission is
exercising its authority to waive the
five-day pre-filing requirement and
believes that waiver of the 30-day preoperative delay is consistent with the
protection of investors and in the public
interest. Waiving the five-day pre-filing
requirement and 30-day pre-operative
delay will allow the pilot programs to
continue uninterrupted.24
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 Act.25
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–2005–149 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
Station Place, 100 F Street, NE.,
Washington, DC 20549–9303.
All submissions should refer to File
Number SR–NASD–2005–149. 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
24 For the purposes only of waiving the operative
date of this proposal, the Commission has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
25 The effective date of the original proposed rule
change is December 15, 2005, and the effective date
of Amendment No. 1 is January 6, 2006. For
purposes of calculating the 60-day period within
which the Commission may summarily abrogate the
proposed rule change, as amended, under Section
19(b)(3)(C) of the Act, the Commission considers
the period to commence on January 6, 2006, the
date on which Nasdaq submitted Amendment No.
1. See 15 U.S.C. 78s(b)(3)(C).
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Federal Register / Vol. 71, No. 11 / Wednesday, January 18, 2006 / Notices
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549. 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
No. SR–NASD–2005–149 and should be
submitted on or before February 8, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.26
Nancy M. Morris,
Secretary.
[FR Doc. E6–435 Filed 1–17–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53099; File No. SR–NSCC–
2005–16]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Revise the Fee
Structure of NSCC
January 11, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 notice is hereby given that on
December 22, 2005, the National
Securities Clearing Corporation
(‘‘NSCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change described in
Items I, II, and III below, which items
have been prepared primarily by NSCC.
NSCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(ii) of the
Act 2 and Rule 19b–4(f)(2) thereunder 3
so that the proposal was effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested parties.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The proposed rule change consists of
changes to the fee structure of NSCC.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NSCC 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. NSCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.4
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
The purpose of the proposed rule
change is to update the fees of NSCC.
The rule change makes the following
changes to NSCC’s fees.
• Change ACATS Transfer Initiation
Form (‘‘TIF’’) input fees to realign fees
with costs. The fee for standard TIF
input will be reduced from $.85 to $.40
per TIF entered, and a new fee of $.40
will be imposed for non-standard TIF
input.
• Increase the fee for ACATS account
transfer rejects from $.25 to $1.00.
• Create a fee for ACATS insurance
registrations of $.25 per insurance
registration submitted, which is charged
to the receiver and the deliverer.
• Implement fee reductions in trade
comparison and recording services,
including: (a) A reduction in the trade
recording fee for each side of stock,
warrant, or right item originally
compared by an other party from $.0025
to $.0015 per 100 shares with the
minimum fee reduced from $.0075 to
$.0045 per 100 shares and the maximum
fee reduced from $.15 to $.09 per 100
shares and (b) a reduction in the flip
trade fee from $.025 to $.005 per side.
• Reduce the trade clearance netting
fee from $0.015 per side to $.007 per
side.
• Reduce the mutual fund Fund/
SERV settling transaction fee from $.175
to $.110 per side.
• Restructure the mutual fund
networking fees to eliminate the two
account base fees and position record
fees of $.02 per month/per side, $.01 per
month/per side, and $1.50 per month/
per thousand subaccount records,
respectively, and replace them with an
activity fee of $.0025 per transaction.5
In addition, the proposed rule change
will increase settlement service fees for
improved cost recovery as follows:
Service
Current fee
erjones on PROD1PC68 with NOTICES
Envelope Settlement Service:
Intra-city deliveries
Night Zone .................................................................................................................................................
Early a.m. Zone .........................................................................................................................................
Late a.m. Zone ..........................................................................................................................................
Reclamations .............................................................................................................................................
ESS Receives ...................................................................................................................................................
Inter-City Deliveries and Receives (IESS) .......................................................................................................
Funds Only Settlement Service:
Deliveries or Reclamations ...............................................................................................................................
Receives ...........................................................................................................................................................
Dividend Settlement Service ...................................................................................................................................
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78s(b)(3)(A)(ii).
3 17
CFR 240.19b–4(f)(2).
Commission has modified the text of the
summaries prepared by NSCC.
1 15
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15:06 Jan 17, 2006
4 The
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Revised fee
$1.00
1.50
2.50
1.00
1.00
2.50
$2.00
3.00
5.00
5.00
2.00
5.00
1.00
1.00
.30
5.00
5.00
1.00
5 The new mutual fund networking fee will go
into effect on February 1, 2006.
E:\FR\FM\18JAN1.SGM
18JAN1
]]>Agencies
[Federal Register Volume 71, Number 11 (Wednesday, January 18, 2006)]
[Notices]
[Pages 2966-2969]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-435]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53093; File No. SR-NASD-2005-149]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1 Thereto Relating to an Extension of the
Short Sale Rule and Continued Suspension of Primary Market Maker
Standards Set Forth in NASD Rule 4612
January 10, 2006.
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 15, 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
[[Page 2967]]
have been prepared by Nasdaq. On January 6, 2006, Nasdaq filed
Amendment No. 1 to the proposed rule change.\3\ Nasdaq has filed the
proposal as a ``non-controversial'' rule change pursuant to Section
19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ which
renders it effective upon filing with the Commission. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, Nasdaq made technical changes to the
text of the proposed rule change.
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to extend the pilot effectiveness of NASD Rule 3350
until December 15, 2006. Nasdaq is also seeking to continue the
suspension of the effectiveness of the Primary Market Maker (``PMM'')
standards currently set forth in NASD Rule 4162 until December 15,
2006. In addition, Nasdaq is seeking to extend the pilot effectiveness
of the penny ($0.01) legal short sale standard contained in paragraph
(b)(2) of NASD Interpretative Material 3350 (``IM-3350'').
The text of the proposed rule change, as amended, is available on
the NASD's Web site (https://www.nasd.com), at the principal office of
the NASD, and at the Commission's Public Reference Room.
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. 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
Background and Description of the NASD's Short Sale Rule. Section
10(a) of the Act \6\ gives the Commission plenary authority to regulate
short sales of securities registered on a national securities exchange,
as needed to protect investors. In 1992, Nasdaq, believing that short
sale regulation is important to the orderly operation of securities
markets, proposed a short sale rule for trading of its National Market
securities that incorporates the protections provided by Rule 10a-1
under the Act.\7\ On June 29, 1994, the Commission approved the NASD's
short sale rule (the ``Rule'') applicable to short sales \8\ in Nasdaq
National Market (``NNM'') securities on an eighteen-month pilot basis
through March 5, 1996.\9\ The NASD has proposed, and the Commission has
approved, extensions of NASD Rule 3350 numerous times, most recently,
until December 15, 2005.\10\
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\6\ 15 U.S.C. 78j(a).
\7\ 17 CFR 240.10a-1.
\8\ A short sale is a sale of a security that the seller does
not own or any sale that is consummated by the delivery of a
security borrowed by, or for the account of, the seller. To
determine whether a sale is a short sale members must adhere to the
definition of a ``short sale'' contained in Rule 200 of Regulation
SHO. 17 CFR 242.200.
\9\ See Securities Exchange Act Release No. 34277 (June 29,
1994), 59 FR 26212 (July 7, 1994) (SR-NASD-92-12) (``Short Sale Rule
Approval Order'').
\10\ See Securities Exchange Act Release No. 50922 (Dec. 22,
2004), 69 FR 78079 (Dec. 29, 2004) (SR-NASD-2004-187).
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The Rule employs a ``bid'' test rather than a tick test because
Nasdaq trades are not currently reported to the tape in chronological
order. The Rule prohibits short sales at or below the inside bid when
the current inside bid is below the previous inside bid. Nasdaq
calculates the inside bid from all market makers in the security and
disseminates symbols to denote whether the current inside bid is an
``up-bid'' or a ``down-bid.'' To effect a ``legal'' short sale on a
down-bid, the short sale must be executed at a price at least $.01
above the current inside bid. The Rule is in effect from 9:30 a.m. EST
until 4 p.m. EST each trading day.
In December of 2002, Nasdaq modified the method it uses to
calculate the last bid by having it refer to the ``Nasdaq Inside''
which is comprised of quotations from all participants in Nasdaq
execution systems (e.g., SuperMontage), rather than referring to the
National Best Bid and Offer (``NBBO''). Nasdaq currently calculates and
applies the Nasdaq-based bid tick indicator to all SuperMontage trades.
With respect to trades executed outside Nasdaq execution systems and
reported to Nasdaq, Nasdaq participants have been permitted to
transition from the NBBO-based bid tick to the Nasdaq-based bid tick,
provided that each firm select and apply a single bid tick indicator
for all such trades executed by that firm. That transition has not been
completed and, as explained below, in light of the Commission's
adoption of Regulation SHO,\11\ Nasdaq has alerted members that it
would not be prudent to transition from the NBBO bid tick to the Nasdaq
bid tick at this time.
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\11\ See Securities Exchange Act Release No. 50103 (July 28,
2004), 69 FR 48008 (August 6, 2004) (S7-23-03).
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Background of the Primary Market Maker Standards. To ensure that
market maker activities that provide liquidity and continuity to the
market are not adversely constrained when the short sale rule is
invoked, NASD Rule 3350 provides an exemption for ``qualified'' market
makers (i.e., market makers that meet the PMM standards). Presently,
NASD Rule 4612 provides that a member registered as a market maker
pursuant to NASD Rule 4611 may be deemed a PMM if that member meets
certain threshold standards. On February 14, 1997, the PMM standards
were waived for all NNM securities due to the impacts of the
Commission's Order Handling Rules and corresponding NASD rule change
and system modifications on the operation of the four quantitative
standards.\12\
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\12\ See Securities Exchange Act Release No. 38294 (February 14,
1997), 62 FR 8289 (February 24, 1997) (SR-NASD-97-07).
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Proposal to Extend the Short Sale Rule and Suspend the PMM
Standards. Nasdaq believes that it is in the best interest of investors
to extend the short sale regulation pilot program. When the Commission
approved the NASD's short sale rule on a pilot basis, it made specific
findings that NASD Rule 3350 was consistent with Sections 11A,
15A(b)(6), 15A(b)(9), and 15A(b)(11) of the Act. Specifically, the
Commission stated that, ``recognizing the potential for problems
associated with short selling, the changing expectations of Nasdaq
market participants and the competitive disparity between the exchange
markets and the OTC market, the Commission believes that regulation of
short selling of Nasdaq National Market securities is consistent with
the Act.'' \13\ In addition, the Commission stated that it ``believes
that the NASD's short sale bid-test, including the market maker
exemptions, is a reasonable approach to short sale regulation of Nasdaq
National Market securities and reflects the realities of its market
structure.'' \14\ The benefits that the Commission recognized when it
first approved NASD Rule 3350 applied with equal force today.
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\13\ See Short Sale Rule Approval Order, supra note 9.
\14\ Id.
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Similarly, the concerns that caused the Commission to waive the PMM
standards in February 1997 continue to exist today. Nasdaq and the
Commission
[[Page 2968]]
agreed to waive the PMM standards for three reasons that were
discovered only after the Order Handling Rules were implemented.\15\
Through late 1999, Nasdaq worked diligently to address those concerns
to the Commission's satisfaction, including convening a special
subcommittee on PMM issues, proposing two different sets of PMM
standards, and being continuously available and responsive to
Commission staff to discuss this issue. Despite these efforts, the
Commission and Nasdaq were unable to establish satisfactory PMM
standards. Re-instating the PMM standards set forth in NASD Rule 4612
would be extremely disruptive to the market and harmful to investors.
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\15\ Implementation of the Order Handling Rules created the
following three issues: (1) Many market makers voluntarily chose to
display customer limit orders in their quotes although the Limit
Order Display Rule does not require it; (2) decrementation for all
Nasdaq stocks significantly affected market makers' ability to meet
several of the primary market maker standards; and (3) with the
inability to meet the existing criteria for a larger number of
securities, a market maker may be prevented from registering as a
primary market maker in an initial public offering because it fails
to meet the 80% primary market maker test contained in NASD Rule
4612(g)(2)(B).
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Proposal to Extend Penny Short Sale Standard. On March 2, 2001, the
Commission approved, on a pilot basis,\16\ Nasdaq's proposal to
establish a $0.01 above the bid standard for legal short sales in
Nasdaq National Market securities as part of the Decimals
Implementation Plan for the Equities and Options Markets. This pilot
program has been continuously extended since that date.\17\ Nasdaq now
proposes to extend, through December 15, 2006, that pilot program.
Extension until December 15, 2006 will allow Nasdaq and the Commission
to continue to evaluate the impact of the penny short sale pilot. If
the instant filing is approved, Nasdaq will continue during the pilot
period to require NASD members seeking to effect ``legal'' short sales
when the current best (inside) bid displayed by Nasdaq is lower that
the previous bid, to execute those short sales at a price that is at
least $0.01 above the current inside bid in that security. Nasdaq
believes that continuation of this pilot standard appropriately takes
into account the important investor protections provided by NASD Rule
3350 and NASD IM-3350 and the ongoing relationship of the valid short
sale price amount to the minimum quotation increment of the Nasdaq
market (currently also $0.01).
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\16\See Securities Exchange Act Release No. 44030 (March 2,
2001), 66 FR 14235 (March 9, 2001) (SR-NASD-01-09).
\17\ See Securities Exchange Act Release No. 50922 (Dec. 22,
2004), 69 FR 78079 (December 29, 2004) (SR-NASD-2004-187).
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\18\ in general and with
Section 15A(b)(6) of the Act,\19\ in particular, in that it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, remove impediments to a free
and open market and a national market system, and, in general, to
protect investors and the public interest. The proposed rule change is
being made so that the pilot programs, which achieve these goals, may
continue without interruption.
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\18\ 15 U.S.C. 78o-3.
\19\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq believes that the proposed rule change will not result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the forgoing rule change does not: (1) Significantly affect
the protection of investors or the public interest; (2) impose any
significant burden on competition; and (3) become operative for 30 days
after the date of this filing, or such shorter time as the Commission
may designate, it has become effective pursuant to Section 19(b)(3)(A)
of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ Nasdaq will
implement this rule change immediately.
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under 19b-4(f)(6) normally may not
become operative prior to 30 days after the date of filing.\22\
However, Rule 19b-4(f)(6)(iii) \23\ permits the Commission to designate
a shorter time if such action is consistent with the protection of
investors and the public interest. Nasdaq has requested that the
Commission waive the five-day pre-filing notice requirement and the 30-
day pre-operative delay. The Commission is exercising its authority to
waive the five-day pre-filing requirement and believes that waiver of
the 30-day pre-operative delay is consistent with the protection of
investors and in the public interest. Waiving the five-day pre-filing
requirement and 30-day pre-operative delay will allow the pilot
programs to continue uninterrupted.\24\
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\22\ 17 CFR 240.19b-4(f)(6)(iii).
\23\ Id.
\24\ For the purposes only of waiving the operative date of this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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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 Act.\25\
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\25\ The effective date of the original proposed rule change is
December 15, 2005, and the effective date of Amendment No. 1 is
January 6, 2006. For purposes of calculating the 60-day period
within which the Commission may summarily abrogate the proposed rule
change, as amended, under Section 19(b)(3)(C) of the Act, the
Commission considers the period to commence on January 6, 2006, the
date on which Nasdaq submitted Amendment No. 1. See 15 U.S.C.
78s(b)(3)(C).
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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-2005-149 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-NASD-2005-149. 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
[[Page 2969]]
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for inspection and copying in the Commission's Public
Reference Room, 100 F Street, NE., Washington, DC 20549. 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 No. SR-NASD-2005-149 and
should be submitted on or before February 8, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-435 Filed 1-17-06; 8:45 am]
BILLING CODE 8010-01-P
