Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend NASD Rule 11890, 15792-15794 [E6-4541]

Download as PDF 15792 Federal Register / Vol. 71, No. 60 / Wednesday, March 29, 2006 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.20 Nancy M. Morris, Secretary. [FR Doc. E6–4540 Filed 3–28–06; 8:45 am] on March 13, 2006.6 The text of the proposed rule change is below.7 Proposed new language is italicized; proposed deletions are in brackets. BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53541; File No. SR–NASD– 2006–033] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendments No. 1 and 2 Thereto To Amend NASD Rule 11890 March 22, 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 March 1, 2006, 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 and II below, which Items have been prepared by Nasdaq. On March 13, 2006 and March 22, 2006, Nasdaq submitted Amendments No. 13 and 2,4 respectively, to the proposed rule change. Nasdaq has designated the proposed rule change as constituting a non-controversial rule change under Rule 19b–4(f)(6) under the Act,5 which renders the proposal 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 clarify the scope of NASD Rule 11890. Nasdaq proposes to implement the proposed rule change 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Form 19b–4 dated March 13, 2006 (‘‘Amendment No. 1’’). In Amendment No. 1, Nasdaq amended its filing to indicate that Nasdaq proposes to implement the proposed rule change on March 13, 2006, rather than immediately, in the event the Commission waives the 30-day operative waiting period. 4 See Form 19b–4 dated March 21, 2006 (‘‘Amendment No. 2’’). In Amendment No. 2, Nasdaq amended its proposed definition of ‘‘Nasdaq security’’ and ‘‘non-Nasdaq security.’’ 5 17 CFR 240.19b–4(f)(6). hsrobinson on PROD1PC68 with NOTICES 1 15 VerDate Aug<31>2005 17:39 Mar 28, 2006 Jkt 208001 11890. Clearly Erroneous Transactions (a) Authority To Review Transactions Pursuant to Complaint of Market Participant (1) No change. (2) Procedures for Reviewing Transactions (A)—(B) No change. (C) Following the expiration of the period for submission of supporting material, a Nasdaq officer shall determine whether the complaint is eligible for review. A complaint shall not be eligible for review under paragraph (a) unless: (i) The complainant has provided all of the supporting information required under paragraph (a)(2)(B), and (ii) For trades in Nasdaq securities executed between 9:30 a.m. and 4 p.m. Eastern Time, or trades in non-Nasdaq securities executed between the time when the primary market for the security first posts an executable twosided quote for its regular market trading session and 4 p.m. Eastern Time, the price of transaction to buy (sell) that is the subject of the complaint is greater than (less than) the best offer (best bid) by an amount that equals or exceeds the minimum threshold set forth below: Inside Price Minimum Threshold $0–$0.99—$0.02 + (0.10 × Inside Price) $1.00–$4.99—$0.12 + (0.07 × (Inside Price—$1.00)) $5.00–$14.99—$0.40 + (0.06 × (Inside Price—$5.00)) $15 or more $1.00 For a transaction to buy (sell) a Nasdaq [listed] security, the inside price shall be the best offer (best bid) in Nasdaq at the time that the first share of the order that resulted in the disputed transaction was executed, and for a transaction to buy (sell) a[n exchange-listed] nonNasdaq security, the inside price shall be the national best offer (best bid) at the time that the first share of the order that resulted in the disputed transaction was executed. A ‘‘Nasdaq security’’ means a security for which transaction reports are disseminated under the Nasdaq UTP Plan, and a ‘‘non-Nasdaq security’’ means a security for which 6 See Amendment No. 1, supra note 3. proposed rule change is marked to show changes from the rule as it appears in the electronic NASD Manual available at http://www.nasd.com. Prior to the date when The NASDAQ Stock Market LLC (‘‘NASDAQ LLC’’) commences operations, NASDAQ LLC will file a conforming change to the rules of NASDAQ LLC approved in Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006). 7 The PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 transaction reports are disseminated under the Consolidated Tape Association Plan. The ‘‘primary market’’ for a non-Nasdaq Security is the market designated as the primary market under the Consolidated Tape Association Plan. (D)–(G) No change. (b)–(d) No change. * * * * * 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 NASD Rule 11890(a) allows designated officers of Nasdaq to declare transactions that arise out of the use or operation of Nasdaq execution or communications systems to be clearly erroneous and to nullify or modify the terms of such transactions. In SR– NASD–2004–009,8 Nasdaq established a minimum price deviation threshold to provide a ‘‘bright line’’ rule standard for determining when transactions are considered eligible for review. A transaction price that meets these thresholds does not automatically trigger a clearly erroneous determination, but if the transaction price does not meet these thresholds the transaction will not be considered for clearly erroneous review. Thus, there is now a conclusive presumption that a transaction to buy (sell) is not clearly erroneous unless its price is greater than (less than) the best offer (best bid) by an amount that equals or exceeds the minimum threshold set forth below: Inside price Minimum threshold $0–$0.99 ................... $0.02 + (0.10 × Inside Price). 8 See Securities Exchange Act Release No. 52141 (July 27, 2005), 70 FR 44709 (August 3, 2005) (SR– NASD–2004–009). E:\FR\FM\29MRN1.SGM 29MRN1 Federal Register / Vol. 71, No. 60 / Wednesday, March 29, 2006 / Notices Inside price Minimum threshold $1.00–$4.99 .............. $0.12 + (0.07 × (Inside Price—$1.00)). $0.40 + (0.06 × (Inside Price—$5.00)). $1.00 $5.00–$14.99 ............ hsrobinson on PROD1PC68 with NOTICES $15 or more .............. In SR–NASD–2005–115,9 Nasdaq amended this rule to clarify that the minimum price deviation thresholds are applicable only to transactions executed during regular market hours, i.e., between 9:30 a.m. and 4 p.m. This amendment reflected the fact that the analysis conducted by Nasdaq to determine the appropriate levels for the thresholds was based on pricing during normal market hours, and that therefore application of the thresholds during other trading sessions was not consistent with the intent underlying the rule. During pre-market and postmarket trading sessions, the inside price of many stocks may not fully reflect trading interest in the stock, since the range of market participants in these trading sessions is far more limited than during regular market hours. As a result, a trade that occurs at a price that deviates significantly from a stock’s trading range during the most recent regular market session may nevertheless be sufficiently close to the pre-market or post-market inside price that it would not meet the minimum deviation threshold for the stock. Because the thresholds established by Nasdaq were based on analysis of trading patterns during regular market hours, Nasdaq concluded that the rule should be clarified by limiting the thresholds’ application to such hours. The change has resulted in a larger number of transactions being eligible for review under NASD Rule 11890, since transactions occurring during premarket and post-market sessions are always be eligible for adjudication under the rule unless the market participant seeking an adjudication failed to provide the information required under NASD Rule 11890(a)(2)(B) (i.e., the approximate time of transaction(s), security symbol, number of shares, price(s), contra broker(s) if the transactions are not anonymous, Nasdaq system used to execute the transactions, and the reason the review is being sought). Nasdaq has now concluded that further clarification of the rule, in accordance with the foregoing discussion, is needed with respect to non-Nasdaq stocks (i.e., stocks for which transaction reports are 9 See Securities Exchange Act Release No. 52549 (October 3, 2005), 70 FR 58762 (October 7, 2005) (SR–NASD–2005–115). VerDate Aug<31>2005 15:39 Mar 28, 2006 Jkt 208001 disseminated through the Consolidated Tape Association Plan).10 Because the primary market 11 for such stocks may not post an executable two-sided quotation precisely at 9:30 a.m., the premarket trading session for such stocks may, in effect, run beyond that time. As a result, Nasdaq has found that trades in these stocks occurring after 9:30 but before the time when the primary market quote is available are frequently not subject to adjudication even though the price of the trades may deviate significantly from a stock’s trading range during the most recent regular market session. The proposed rule change will address this concern by clarifying that for non-Nasdaq securities, the thresholds do not apply before the time when the primary market for the security first posts an executable twosided quote for its regular market trading session. 2. Statutory Basis Nasdaq believes that the proposed rule change, as amended, is consistent with the provisions of Section 15A of the Act,12 in general and with Section 15A(b)(6) of the Act,13 in particular, in that the proposal is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The proposed rule change will ensure that NASD Rule 11890’s minimum price deviation thresholds do not bar adjudication of clearly erroneous petitions in circumstances where the wider spreads prevailing before the primary market for a non-Nasdaq stock posts a quotation may make the application of such thresholds excessively restrictive. 10 See Amendment No. 2, supra note 4. rule defines ‘‘primary market’’ with reference to the Consolidated Tape Association Plan (‘‘CTA Plan’’), which references the market in which the greatest number of transactions in the security reported on the consolidated tape during the preceding six month period (or such shorter period as the security has been reported on the consolidated tape if it has not been so reported for a full six month period) has taken place. See CTA Plan (second restatement), Section XI, Operational Matters. 12 15 U.S.C. 78o–3. 13 15 U.S.C. 78o–3(b)(6). 11 The PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 15793 B. Self-Regulatory Organization’s Statement on Burden on Competition Nasdaq does not believe that the proposed rule change, as amended, 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 Nasdaq neither solicited nor received any written comments. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change, as amended, 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 after the date of the filing 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 14 and Rule 19b–4(f)(6) thereunder.15 Nasdaq has requested that the Commission waive the 30-day operative delay to permit Nasdaq to implement the rule proposal on March 13, 2006. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because such waiver will ensure that NASD Rule 11890’s minimum price deviation thresholds do not bar adjudication of clearly erroneous petitions for transactions occurring prior to the time that the primary market for a non-Nasdaq security disseminates a two-sided quote for the security, which is a period when wider spreads can prevail. Accordingly, the Commission has determined to waive the operative delay, and the proposed rule change has become effective upon filing with the Commission and operative as of March 13, 2006.16 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, 14 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 16 For 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. See 15 U.S.C. 78c(f). 15 17 E:\FR\FM\29MRN1.SGM 29MRN1 15794 Federal Register / Vol. 71, No. 60 / Wednesday, March 29, 2006 / Notices or otherwise in furtherance of the purposes of the Act.17 should be submitted on or before April 19, 2006. 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: For the Commission, by the Division of Market Regulation, pursuant to delegated authority.18 Nancy M. Morris, Secretary. [FR Doc. E6–4541 Filed 3–28–06; 8:45 am] Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASD–2006–033 on the subject line. SECURITIES AND EXCHANGE COMMISSION hsrobinson on PROD1PC68 with NOTICES Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASD–2006–033. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change, as amended, that are filed with the Commission, and all written communications relating to the proposed rule change, as amended, 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. 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–2006–033 and 17 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 March 22, 2006, the date on which Nasdaq submitted Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C). VerDate Aug<31>2005 15:39 Mar 28, 2006 Jkt 208001 BILLING CODE 8010–01–P [Release No. 34–53526; File No. SR–PCX– 2006–19] Self-Regulatory Organizations; Pacific Exchange, Inc. (Now Known As NYSE Arca, Inc.); Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 2 Thereto Relating to Rebates and Credits a Market Maker is Eligible To Receive for Executions That Result From Principal Acting as Agent Orders Sent to and Executed at Away Market Centers March 21, 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 March 3, 2006, the Pacific Exchange, Inc. (‘‘PCX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items were prepared by the PCX. On March 15, 2006, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) 3 filed Amendment No. 1 to the proposed rule change. On March 16, 2006, the Exchange withdrew Amendment No. 1 and filed Amendment No. 2 to the proposed rule change.4 The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by a self18 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 On March 6, 2006, the PCX filed a proposed rule change (SR–PCX–2006–24) to amend its rules to reflect the following name changes: (i) From PCX to NYSE Arca; (ii) from PCX Equities, Inc. to NYSE Arca Equities, Inc.; (iii) from PCX Holdings, Inc., to NYSE Arca Holdings, Inc.; and (iv) from the Archipelago Exchange, L.L.C. to NYSE Arca, L.L.C. That proposed rule change became effective upon filing. Amendment No. 2 to the instant proposed rule change reflects these name changes. The Exchange states that it plans to subsequently file a proposed rule change to update such names in its Schedule of Rates and Charges (‘‘Schedule’’). 4 In Amendment No. 2, the Exchange made clarifying and technical changes to the original filing and added a provision in the Schedule that requires Market Makers to reimburse the Exchange for any excessive credits received by such Market Makers. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 regulatory organization pursuant to section 19(b)(3)(A)(ii) of the Act 5 and Rule 19b–4(f)(2) thereunder,6 which renders the proposal effective upon filing with the Commission.7 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 The Exchange proposes to amend its Schedule to create a credit associated with the fees that a Market Maker is charged for executions that result from principal acting as agent orders sent to and executed at away market centers. The Exchange also proposes to make a minor housekeeping correction to footnote 2 under the Trade Related Charges section of the Schedule. The text of the proposed rule change is available at the Commission’s Public Reference Room, at the Exchange’s Web site (http://www.archipelago.com/ regulation/filings.asp) and at the Exchange’s Office of the Secretary. 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 concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposal. 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 The Exchange proposes to amend the Schedule in order to create a credit associated with the fees a Market Maker is charged for executions that result from principal acting as agent orders sent to and executed at away market centers. Presently, the Exchange charges Market Makers a $0.26 per contract fee for all transactions. On transactions that 5 15 U.S.C. 78s(b)(3)(A)(ii). CFR 240.19b–4(f)(2). 7 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change, the Commission considers the period to commence on March 16, 2006, the date on which the Exchange filed Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C). 6 17 E:\FR\FM\29MRN1.SGM 29MRN1

Agencies

[Federal Register Volume 71, Number 60 (Wednesday, March 29, 2006)]
[Notices]
[Pages 15792-15794]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4541]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53541; File No. SR-NASD-2006-033]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendments No. 1 and 2 Thereto To Amend NASD Rule 11890

March 22, 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 March 1, 2006, 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 and 
II below, which Items have been prepared by Nasdaq. On March 13, 2006 
and March 22, 2006, Nasdaq submitted Amendments No. 1\3\ and 2,\4\ 
respectively, to the proposed rule change. Nasdaq has designated the 
proposed rule change as constituting a non-controversial rule change 
under Rule 19b-4(f)(6) under the Act,\5\ which renders the proposal 
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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated March 13, 2006 (``Amendment No. 1''). 
In Amendment No. 1, Nasdaq amended its filing to indicate that 
Nasdaq proposes to implement the proposed rule change on March 13, 
2006, rather than immediately, in the event the Commission waives 
the 30-day operative waiting period.
    \4\ See Form 19b-4 dated March 21, 2006 (``Amendment No. 2''). 
In Amendment No. 2, Nasdaq amended its proposed definition of 
``Nasdaq security'' and ``non-Nasdaq security.''
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    Nasdaq proposes to clarify the scope of NASD Rule 11890. Nasdaq 
proposes to implement the proposed rule change on March 13, 2006.\6\ 
The text of the proposed rule change is below.\7\ Proposed new language 
is italicized; proposed deletions are in brackets.
---------------------------------------------------------------------------

    \6\ See Amendment No. 1, supra note 3.
    \7\ The proposed rule change is marked to show changes from the 
rule as it appears in the electronic NASD Manual available at http:/
/www.nasd.com. Prior to the date when The NASDAQ Stock Market LLC 
(``NASDAQ LLC'') commences operations, NASDAQ LLC will file a 
conforming change to the rules of NASDAQ LLC approved in Securities 
Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 
(January 23, 2006).
---------------------------------------------------------------------------

11890. Clearly Erroneous Transactions
    (a) Authority To Review Transactions Pursuant to Complaint of 
Market Participant
    (1) No change.
    (2) Procedures for Reviewing Transactions
    (A)--(B) No change.
    (C) Following the expiration of the period for submission of 
supporting material, a Nasdaq officer shall determine whether the 
complaint is eligible for review. A complaint shall not be eligible for 
review under paragraph (a) unless:
    (i) The complainant has provided all of the supporting information 
required under paragraph (a)(2)(B), and
    (ii) For trades in Nasdaq securities executed between 9:30 a.m. and 
4 p.m. Eastern Time, or trades in non-Nasdaq securities executed 
between the time when the primary market for the security first posts 
an executable two-sided quote for its regular market trading session 
and 4 p.m. Eastern Time, the price of transaction to buy (sell) that is 
the subject of the complaint is greater than (less than) the best offer 
(best bid) by an amount that equals or exceeds the minimum threshold 
set forth below:

Inside Price Minimum Threshold

$0-$0.99--$0.02 + (0.10 x Inside Price)
$1.00-$4.99--$0.12 + (0.07 x (Inside Price--$1.00))
$5.00-$14.99--$0.40 + (0.06 x (Inside Price--$5.00))
$15 or more $1.00

For a transaction to buy (sell) a Nasdaq [listed] security, the inside 
price shall be the best offer (best bid) in Nasdaq at the time that the 
first share of the order that resulted in the disputed transaction was 
executed, and for a transaction to buy (sell) a[n exchange-listed] non-
Nasdaq security, the inside price shall be the national best offer 
(best bid) at the time that the first share of the order that resulted 
in the disputed transaction was executed. A ``Nasdaq security'' means a 
security for which transaction reports are disseminated under the 
Nasdaq UTP Plan, and a ``non-Nasdaq security'' means a security for 
which transaction reports are disseminated under the Consolidated Tape 
Association Plan. The ``primary market'' for a non-Nasdaq Security is 
the market designated as the primary market under the Consolidated Tape 
Association Plan.


    (D)-(G) No change.
    (b)-(d) No change.
* * * * *

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
    NASD Rule 11890(a) allows designated officers of Nasdaq to declare 
transactions that arise out of the use or operation of Nasdaq execution 
or communications systems to be clearly erroneous and to nullify or 
modify the terms of such transactions. In SR-NASD-2004-009,\8\ Nasdaq 
established a minimum price deviation threshold to provide a ``bright 
line'' rule standard for determining when transactions are considered 
eligible for review. A transaction price that meets these thresholds 
does not automatically trigger a clearly erroneous determination, but 
if the transaction price does not meet these thresholds the transaction 
will not be considered for clearly erroneous review. Thus, there is now 
a conclusive presumption that a transaction to buy (sell) is not 
clearly erroneous unless its price is greater than (less than) the best 
offer (best bid) by an amount that equals or exceeds the minimum 
threshold set forth below:
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 52141 (July 27, 
2005), 70 FR 44709 (August 3, 2005) (SR-NASD-2004-009).

------------------------------------------------------------------------
            Inside price                       Minimum threshold
------------------------------------------------------------------------
$0-$0.99............................  $0.02 + (0.10 x Inside Price).

[[Page 15793]]

 
$1.00-$4.99.........................  $0.12 + (0.07 x (Inside Price--
                                       $1.00)).
$5.00-$14.99........................  $0.40 + (0.06 x (Inside Price--
                                       $5.00)).
$15 or more.........................  $1.00
------------------------------------------------------------------------

    In SR-NASD-2005-115,\9\ Nasdaq amended this rule to clarify that 
the minimum price deviation thresholds are applicable only to 
transactions executed during regular market hours, i.e., between 9:30 
a.m. and 4 p.m. This amendment reflected the fact that the analysis 
conducted by Nasdaq to determine the appropriate levels for the 
thresholds was based on pricing during normal market hours, and that 
therefore application of the thresholds during other trading sessions 
was not consistent with the intent underlying the rule. During pre-
market and post-market trading sessions, the inside price of many 
stocks may not fully reflect trading interest in the stock, since the 
range of market participants in these trading sessions is far more 
limited than during regular market hours. As a result, a trade that 
occurs at a price that deviates significantly from a stock's trading 
range during the most recent regular market session may nevertheless be 
sufficiently close to the pre-market or post-market inside price that 
it would not meet the minimum deviation threshold for the stock. 
Because the thresholds established by Nasdaq were based on analysis of 
trading patterns during regular market hours, Nasdaq concluded that the 
rule should be clarified by limiting the thresholds' application to 
such hours. The change has resulted in a larger number of transactions 
being eligible for review under NASD Rule 11890, since transactions 
occurring during pre-market and post-market sessions are always be 
eligible for adjudication under the rule unless the market participant 
seeking an adjudication failed to provide the information required 
under NASD Rule 11890(a)(2)(B) (i.e., the approximate time of 
transaction(s), security symbol, number of shares, price(s), contra 
broker(s) if the transactions are not anonymous, Nasdaq system used to 
execute the transactions, and the reason the review is being sought).
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 52549 (October 3, 
2005), 70 FR 58762 (October 7, 2005) (SR-NASD-2005-115).
---------------------------------------------------------------------------

    Nasdaq has now concluded that further clarification of the rule, in 
accordance with the foregoing discussion, is needed with respect to 
non-Nasdaq stocks (i.e., stocks for which transaction reports are 
disseminated through the Consolidated Tape Association Plan).\10\ 
Because the primary market \11\ for such stocks may not post an 
executable two-sided quotation precisely at 9:30 a.m., the pre-market 
trading session for such stocks may, in effect, run beyond that time. 
As a result, Nasdaq has found that trades in these stocks occurring 
after 9:30 but before the time when the primary market quote is 
available are frequently not subject to adjudication even though the 
price of the trades may deviate significantly from a stock's trading 
range during the most recent regular market session. The proposed rule 
change will address this concern by clarifying that for non-Nasdaq 
securities, the thresholds do not apply before the time when the 
primary market for the security first posts an executable two-sided 
quote for its regular market trading session.
---------------------------------------------------------------------------

    \10\ See Amendment No. 2, supra note 4.
    \11\ The rule defines ``primary market'' with reference to the 
Consolidated Tape Association Plan (``CTA Plan''), which references 
the market in which the greatest number of transactions in the 
security reported on the consolidated tape during the preceding six 
month period (or such shorter period as the security has been 
reported on the consolidated tape if it has not been so reported for 
a full six month period) has taken place. See CTA Plan (second 
restatement), Section XI, Operational Matters.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 15A of the Act,\12\ in 
general and with Section 15A(b)(6) of the Act,\13\ in particular, in 
that the proposal is designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The proposed rule change will ensure that NASD Rule 11890's 
minimum price deviation thresholds do not bar adjudication of clearly 
erroneous petitions in circumstances where the wider spreads prevailing 
before the primary market for a non-Nasdaq stock posts a quotation may 
make the application of such thresholds excessively restrictive.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78o-3.
    \13\ 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, as amended, 
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

    Nasdaq neither solicited nor received any written comments.

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

    Because the foregoing proposed rule change, as amended, 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 after the date of the filing 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 \14\ and Rule 19b-
4(f)(6) thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Nasdaq has requested that the Commission waive the 30-day operative 
delay to permit Nasdaq to implement the rule proposal on March 13, 
2006. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest 
because such waiver will ensure that NASD Rule 11890's minimum price 
deviation thresholds do not bar adjudication of clearly erroneous 
petitions for transactions occurring prior to the time that the primary 
market for a non-Nasdaq security disseminates a two-sided quote for the 
security, which is a period when wider spreads can prevail. 
Accordingly, the Commission has determined to waive the operative 
delay, and the proposed rule change has become effective upon filing 
with the Commission and operative as of March 13, 2006.\16\ 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,

[[Page 15794]]

or otherwise in furtherance of the purposes of the Act.\17\
---------------------------------------------------------------------------

    \16\ For 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. See 15 U.S.C. 
78c(f).
    \17\ 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 March 22, 2006, the date on 
which Nasdaq submitted Amendment No. 2. See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2006-033 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 20549-1090.

All submissions should refer to File Number SR-NASD-2006-033. 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 (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change, as 
amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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. 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-2006-033 and should be 
submitted on or before April 19, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Nancy M. Morris,
Secretary.
 [FR Doc. E6-4541 Filed 3-28-06; 8:45 am]
BILLING CODE 8010-01-P