Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change To Adopt New NASD Rule 5150 Relating to Trade-Throughs, 42698-42700 [E6-11984]
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42698
Federal Register / Vol. 71, No. 144 / Thursday, July 27, 2006 / Notices
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–2006–057 and
should be submitted on or before
August 17, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6–11982 Filed 7–26–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54186; File No. SR–NASD–
2006–081]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing of
Proposed Rule Change To Adopt New
NASD Rule 5150 Relating to TradeThroughs
July 20, 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 July 11,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the NASD. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
rwilkins on PROD1PC63 with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The NASD is proposing to adopt, in
anticipation of The NASDAQ Stock
Market LLC (the ‘‘Nasdaq Exchange’’)
beginning to trade non-Nasdaq
exchange-listed securities on an
unlisted trading privileges (‘‘UTP’’)
basis, new NASD Rule 5150 to require
an NASD member that is registered as
a market maker with the Nasdaq
Exchange in a non-Nasdaq exchangelisted security to comply with the
provisions of NASD Rule 5262 relating
to trade-throughs with respect to that
security for trades reported to the
NASD. Below is the text of the proposed
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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16:46 Jul 26, 2006
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rule change. Proposed new language is
in italics.
*
*
*
*
*
5000. Other Nasdaq and NASD Markets
*
*
*
*
*
5150. Applicability of Trade-Through
Rule to Nasdaq Market Makers
An NASD member shall comply with
the provisions of Rule 5262 (TradeThroughs), as if it were an ITS/CAES
market maker, for purposes of
transactions that are reported to NASD
in any ITS Security, as that term is
defined in Rule 5210(c), in which such
member is registered as a market maker
with The NASDAQ Stock Market LLC.
For purposes of this Rule 5150, the term
‘‘Block Transaction’’ under Rule
5262(a)(7)(B) shall mean any trade that
involves 10,000 or more shares of an ITS
security or a quantity of any such
security having a market value of
$200,000 or more.
*
*
*
*
*
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
NASD included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. The NASD has
prepared summaries, set forth in
Sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The proposed rule change is filed in
anticipation of the Nasdaq Exchange
operating as a national securities
exchange for purposes of trading nonNasdaq exchange-listed securities on a
UTP basis. The NASD is proposing a
new rule to require an NASD member
that is registered as a market maker with
the Nasdaq Exchange in an ITS Security,
as defined Rule 5210(c), to comply with
the provisions of NASD Rule 5262
(Trade-Throughs) with respect to that
security for trades reported to the
NASD.
Background
On July 11, 2005, the NASD filed with
the Commission proposed rule change
SR–NASD–2005–087, which, among
other things, proposed amendments to
PO 00000
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Sfmt 4703
the Plan of Allocation and Delegation of
Functions by the NASD to Subsidiaries,
NASD By-Laws and NASD rules to
reflect The Nasdaq Stock Market, Inc.’s
(‘‘Nasdaq’’) separation from the NASD
upon the Nasdaq Exchange’s operation
as a national securities exchange.3 On
June 15, 2006, the NASD filed
Amendment No. 1 to SR–NASD–2005–
087, which, among other things,
proposed the NASD’s and Nasdaq’s
implementation strategy for Nasdaq’s
operation as a national securities
exchange. On June 30, 2006, the
Commission approved SR–NASD–2005–
087, as amended, the effective date of
which will be the date upon which the
Nasdaq Exchange operates as an
exchange for Nasdaq-listed securities.4
The NASD intends to file a second
proposed rule change proposing an
NASD facility for over-the-counter
quoting and trading of non-Nasdaq
exchange-listed securities, to be made
available when the Nasdaq Exchange
begins to trade such securities on a UTP
basis.
Currently, NASD Rule 5262, also
known as the Trade-Through Rule,
restricts a member registered as an
NASD ITS/CAES Market Maker 5 in an
ITS/CAES security 6 from purchasing or
selling such security, whether as
principal or agent, at a price that is
lower than the bid or higher than the
offer displayed from an ITS Participant
Exchange or ITS/CAES Market Maker.
Current NASD Rule 5262 applies to all
over-the-counter trading by NASD ITS/
CAES Market Makers in that security,
including trades executed outside of
CAES and reported to the NASD.
The Nasdaq Exchange established a
substantially similar rule, Nasdaq Rule
5262, which, by its terms, would apply
to market makers registered with the
Nasdaq Exchange (‘‘Nasdaq market
3 The Commission approved the Nasdaq
Exchange application on January 13, 2006. See
Securities Exchange Act Release No. 53128 (January
13, 2006), 71 FR 3550 (January 23, 2006).
4 See Securities Exchange Act Release No. 54084
(June 30, 2006), 71 FR 38935 (July 10, 2006).
5 For purposes of NASD Rule 5262, ‘‘ITS/CAES
Market Maker’’ is defined in NASD Rule 5210(e) as
a member that is registered as a market maker for
the purposes of participating in the Intermarket
Trading System (‘‘ITS’’) through the Computer
Assisted Execution System (‘‘CAES’’) with respect
to one or more specified ITS securities in which the
member is then actively registered. The term also
includes members that meet the definition of
electronic communications network or alternative
trading network. CAES is an automated system that
is currently operated by The Nasdaq Stock Market,
Inc. NASD members can direct agency and
principal orders in exchange-listed securities to
CAES for automated execution in the third market.
6 The term ‘‘ITS Security’’ is defined in NASD
Rule 5210(c) as ‘‘any security which may be traded
through the [ITS] System by an ITS/CAES Market
Maker.’’
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Federal Register / Vol. 71, No. 144 / Thursday, July 27, 2006 / Notices
makers’’) in ITS Securities. However,
because the ITS Plan does not require
the Nasdaq Exchange, or any other
exchange, to have a trade-through rule
applicable to its individual market
participants, the Nasdaq Exchange has
proposed to delete the rule upon
integration of the Nasdaq Market Center
and Nasdaq’s Brut and INET systems
into a single book.7 If approved, the
Nasdaq Exchange’s rule would be
replaced with a trade-through obligation
imposed on the Nasdaq Exchange itself.
Further, once the Nasdaq Exchange is
operating as an exchange for nonNasdaq exchange-listed securities, it is
expected that some of the current NASD
ITS/CAES Market Makers will no longer
be registered with the NASD in this
capacity, but instead will become
registered solely as Nasdaq Market
Makers. As such, no trade-through rule
would apply to over-the-counter trading
activity by these Nasdaq market makers
that are not also registered as NASD
ITS/CAES market makers. Specifically,
NASD Rule 5262 only applies to trading
by NASD ITS/CAES market makers.
Nasdaq Rule 5262 would be similarly
limited in its application to Nasdaq
market makers trading on or through the
Nasdaq Exchange, and is expected to be
eliminated altogether upon approval of
the Nasdaq Exchange’s system
integration.
rwilkins on PROD1PC63 with NOTICES
Proposed New NASD Rule 5150
The NASD is proposing new NASD
Rule 5150 8 that would subject an NASD
member registered as a market maker
with the Nasdaq Exchange in an ITS
Security to the provisions of NASD Rule
5262 for purposes of trades in that ITS
Security reported to the NASD, as if
such market maker were an ITS/CAES
Market Maker. Thus, an NASD member
that is a Nasdaq market maker trading
ITS Securities otherwise than on an
exchange—for example, through the
Trade Reporting Facility approved as
part of SR–NASD–2005–087—would be
subject to the provisions of NASD Rule
5262, including its trade-through
complaint procedures.
All of the exclusions to the TradeThrough Rule applicable under NASD
Rule 5262(a) would be available to
Nasdaq market makers subject to
proposed NASD Rule 5150 and would
apply as they do today to ITS/CAES
7 See Securities Exchange Act Release No. 53583
(March 31, 2006), 71 FR 19573 (April 14, 2006)
(SR–NASDAQ–2006–001).
8 Pursuant to SR–NASD–2005–087, the NASD
Rule 5000 Series will be renamed ‘‘Trading
Otherwise Than On An Exchange’’ and for purposes
of the NASD Rule 5000 Series, ‘‘otherwise than on
an exchange’’ will mean a trade effected by an
NASD member otherwise than on or through a
national securities exchange.
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Market Makers, with one limited
exception. The NASD is proposing that,
for purposes of applying the term
‘‘Block Transaction’’ under NASD Rule
5262(a)(7)(B) to Nasdaq market makers
that are not NASD ITS/CAES Market
Makers, the term mean any trade that
involves 10,000 or more shares of an ITS
security or a quantity of any such
security having a market value of
$200,000 or more. This limitation makes
the term consistent with the definition
of ‘‘block size’’ in Regulation NMS Rule
600, which currently serves to exempt
certain NASD members from a
requirement to become NASD ITS/CAES
Market Makers under certain
circumstances. As such, Nasdaq market
makers that are not also NASD ITS/
CAES Market Makers would not be
subject to the requirement in Rule
5264(a) to send commitments to other
venues when executing block size trades
or the other block transaction
requirements in NASD Rule 5264(b)(2)
and (3), such as the requirement to
effect a block trade as a cross or at a
price other than the ITS/CAES Market
Maker’s quote.
The NASD believes proposed NASD
Rule 5150 is necessary to maintain the
application of the Trade-Through Rule
until implementation of Regulation
NMS, and specifically the Order
Protection Rule mandating intermarket
protection against trade-throughs for all
Nasdaq and exchange-listed securities.9
Effective upon the implementation of
the Order Protection Rule, the NASD
would repeal NASD Rule 5150 in favor
of a more general rule complying with
Regulation NMS.
The effective date of the proposed
rule change will be the date upon which
the Nasdaq Exchange begins to trade
non-Nasdaq exchange-listed securities
on a UTP basis.
investor protection by maintaining trade
through protection for over-the-counter
trades in exchange-listed securities.
2. Statutory Basis
The NASD believes that the proposed
rule change is consistent with the
provisions of Section 15A(b)(6) of the
Act,10 which requires, among other
things, that NASD rules be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. The NASD believes that
the proposed rule change will enhance
• 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–2006–081 on the
subject line.
9 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005) (Final
Rule). The effective date for NMS Rule 611, the
Order Protection Rule, was August 29, 2005;
however, the initial compliance date has been
extended from June 29, 2006 to a series of five
dates, beginning on October 16, 2006. See Securities
Exchange Act Release No. 53829 (May 18, 2006), 71
FR 30038 (May 24, 2006).
10 15 U.S.C. 78o–3(b)(6).
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Fmt 4703
Sfmt 4703
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The NASD 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
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASD–2006–081. 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
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Federal Register / Vol. 71, No. 144 / Thursday, July 27, 2006 / Notices
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–2006–081 and
should be submitted on or before
August 17, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6–11984 Filed 7–26–06; 8:45 am]
thereunder,2 a proposal to list and trade
Index-Linked Securities (the ‘‘Notes’’) of
Barclays Bank PLC (‘‘Barclays’’) linked
to the performance of the Goldman
Sachs Crude Oil Total Return IndexTM
(the ‘‘Index’’). On March 27, 2006,
NYSE filed Amendment No. 1 to the
proposed rule change.3 On May 26,
2006, NYSE filed Amendment No. 2 to
the proposed rule change.4 The
proposed rule change, as amended was
published for comment in the Federal
Register on June 16, 2006 for a 15-day
comment period.5 The Commission
received no comments regarding the
proposal. This order approves the
proposed rule change.
II. Description of the Proposal
The NYSE proposes to list and trade
the Notes that will track the
performance of the Index pursuant to
§ 703.19 (‘‘Other Securities’’) of the
NYSE Listed Company Manual
(‘‘Manual’’). Barclays intends to issue
the Notes under the name ‘‘iPathSM
Exchange-Traded Notes.’’ The Exchange
believes that the Notes will conform to
the initial listing standards for equity
securities under Section 703.19 of the
Manual because Barclays is an affiliate
of Barclays PLC,6 an Exchange listed
company in good standing. Under
Section 703.19 of the Manual, the
Exchange may approve for listing and
2 17
BILLING CODE 8010–01–P
CFR 240.19b–4.
Amendment No. 1, the Exchange noted
Supplementary Material to NYSE Rule 1301B,
which set forth the guidelines in NYSE Rules
1300B(b) and 1301 for specialists applicable to this
product. The Exchange also made clarifying and
technical change to this proposal in Amendment
No. 1.
4 In Amendment No. 2, the Exchange inserted in
the ‘‘Purpose’’ section of the Form 19b–4: (i) A
description of the process by which the West Texas
Intermediate (‘‘WTI’’) crude oil futures contract
traded on the New York Mercantile Exchange (the
‘‘NYMEX’’) that is included in the Index changes on
a monthly basis to the contract with the closest
expiration date; and (ii) a continued listing standard
stating that the Exchange will delist the Notes if the
Index ceases in whole or in part to be based on the
WTI Crude Oil futures contract traded on the
NYMEX.
5 See Securities Exchange Act Release No. 53967
(June 9, 2006), 71 FR 34976 (June 16, 2006) (SR–
NYSE–2006–19) (‘‘Notice’’).
6 The issuer of the Notes, Barclays, is an affiliate
of an Exchange-listed company (Barclays PLC) and
not an Exchange-listed company itself. However,
Barclays, though an affiliate of Barclays PLC, would
exceed the Exchange’s earnings and minimum
tangible net worth requirements in Section 102 of
the Manual. Additionally, the Exchange states that
the Notes, when combined with the original issue
price of all other Note offerings of the issuer that
are listed on a national securities exchange (or
association), does not exceed 25% of the issuer’s
net worth. Telephone conference between Florence
E. Harmon, Senior Special Counsel, Division of
Market Regulation (‘‘Division’’), Commission, and
John Carey, Assistant General Counsel, Exchange,
on April 11, 2006 (‘‘April 11 Telephone
Conference’’).
3 In
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54177; File No. SR–NYSE–
2006–19]
Self-Regulatory Organizations; New
York Stock Exchange, Inc. (n/k/a New
York Stock Exchange LLC); Order
Granting Approval of Proposed Rule
Change and Amendment Nos. 1 and 2
Thereto To List and Trade IndexLinked Notes of Barclays Bank PLC
Linked to the Performance of the
Goldman Sachs Crude Oil Total Return
IndexTM
July 19, 2006.
rwilkins on PROD1PC63 with NOTICES
I. Introduction
On March 13, 2006, the New York
Stock Exchange, Inc. (n/k/a New York
Stock Exchange LLC) (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
11 17
1 15
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
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16:46 Jul 26, 2006
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trading securities not otherwise covered
by the criteria of Sections 1 and 7 of the
Manual, provided the issue is suited for
auction market trading.7 The Notes will
have a minimum life of one year, the
minimum public market value of the
Notes at the time of issuance will
exceed $4 million, there will be at least
one million Notes outstanding, and
there will be at least 400 holders at the
time of issuance.
The Notes are a series of mediumterm debt securities of Barclays that
provide for a cash payment at maturity
or upon earlier exchange at the holder’s
option, based on the performance of the
Index. The principal amount of each
Note is $50. The Notes will trade on the
Exchange’s equity trading floor, and the
Exchange’s existing equity trading rules
will apply to trading in the Notes. The
Notes will not have a minimum
principal amount that will be repaid
and, accordingly, payment on the Notes
prior to or at maturity may be less than
the original issue price of the Notes. In
fact, the value of the Index must
increase for the investor to receive at
least the $50 principal amount per Note
at maturity or upon exchange or
redemption. If the value of the Index
decreases or does not increase
sufficiently to offset the investor fee
(described below), the investor will
receive less, and possibly significantly
less, than the $50 principal amount per
Note. In addition, holders of the Notes
will not receive any interest payments
from the Notes. The Notes will have a
term of 30 years. The Notes are not
callable.8
Description of ‘‘GSCI’’ and the Index
The investment objective of the Notes
is to track the Index, The Index is a subindex of the Goldman Sachs Commodity
Index (the ‘‘GSCI’’) and reflects the
excess returns that are potentially
available through an unleveraged
investment in the contracts comprising
the relevant components of the Index
(which currently includes only the WTI
Crude Oil futures contract traded on the
NYMEX), plus the Treasury Bill rate of
interest that could be earned on funds
committed to the trading of the
underlying contracts.9 Both indexes are
7 See Securities Exchange Act Release No. 28217
(July 18, 1990), 55 FR 30056 (July 24, 1990) (SR–
NYSE–90–30).
8 April 11 Telephone Conference.
9 The Treasury Bill rate of interest used for
purposes of calculating the index on any day is the
91-day auction high rate for U.S. Treasury Bills, as
reported on Telerate page 56, or any successor page,
on the most recent of the weekly auction dates prior
to such day.
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Agencies
[Federal Register Volume 71, Number 144 (Thursday, July 27, 2006)]
[Notices]
[Pages 42698-42700]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11984]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54186; File No. SR-NASD-2006-081]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change To Adopt New
NASD Rule 5150 Relating to Trade-Throughs
July 20, 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 July 11, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the NASD. 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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to adopt, in anticipation of The NASDAQ Stock
Market LLC (the ``Nasdaq Exchange'') beginning to trade non-Nasdaq
exchange-listed securities on an unlisted trading privileges (``UTP'')
basis, new NASD Rule 5150 to require an NASD member that is registered
as a market maker with the Nasdaq Exchange in a non-Nasdaq exchange-
listed security to comply with the provisions of NASD Rule 5262
relating to trade-throughs with respect to that security for trades
reported to the NASD. Below is the text of the proposed rule change.
Proposed new language is in italics.
* * * * *
5000. Other Nasdaq and NASD Markets
* * * * *
5150. Applicability of Trade-Through Rule to Nasdaq Market Makers
An NASD member shall comply with the provisions of Rule 5262
(Trade-Throughs), as if it were an ITS/CAES market maker, for purposes
of transactions that are reported to NASD in any ITS Security, as that
term is defined in Rule 5210(c), in which such member is registered as
a market maker with The NASDAQ Stock Market LLC. For purposes of this
Rule 5150, the term ``Block Transaction'' under Rule 5262(a)(7)(B)
shall mean any trade that involves 10,000 or more shares of an ITS
security or a quantity of any such security having a market value of
$200,000 or more.
* * * * *
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 NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The proposed rule change is filed in anticipation of the Nasdaq
Exchange operating as a national securities exchange for purposes of
trading non-Nasdaq exchange-listed securities on a UTP basis. The NASD
is proposing a new rule to require an NASD member that is registered as
a market maker with the Nasdaq Exchange in an ITS Security, as defined
Rule 5210(c), to comply with the provisions of NASD Rule 5262 (Trade-
Throughs) with respect to that security for trades reported to the
NASD.
Background
On July 11, 2005, the NASD filed with the Commission proposed rule
change SR-NASD-2005-087, which, among other things, proposed amendments
to the Plan of Allocation and Delegation of Functions by the NASD to
Subsidiaries, NASD By-Laws and NASD rules to reflect The Nasdaq Stock
Market, Inc.'s (``Nasdaq'') separation from the NASD upon the Nasdaq
Exchange's operation as a national securities exchange.\3\ On June 15,
2006, the NASD filed Amendment No. 1 to SR-NASD-2005-087, which, among
other things, proposed the NASD's and Nasdaq's implementation strategy
for Nasdaq's operation as a national securities exchange. On June 30,
2006, the Commission approved SR-NASD-2005-087, as amended, the
effective date of which will be the date upon which the Nasdaq Exchange
operates as an exchange for Nasdaq-listed securities.\4\ The NASD
intends to file a second proposed rule change proposing an NASD
facility for over-the-counter quoting and trading of non-Nasdaq
exchange-listed securities, to be made available when the Nasdaq
Exchange begins to trade such securities on a UTP basis.
---------------------------------------------------------------------------
\3\ The Commission approved the Nasdaq Exchange application on
January 13, 2006. See Securities Exchange Act Release No. 53128
(January 13, 2006), 71 FR 3550 (January 23, 2006).
\4\ See Securities Exchange Act Release No. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006).
---------------------------------------------------------------------------
Currently, NASD Rule 5262, also known as the Trade-Through Rule,
restricts a member registered as an NASD ITS/CAES Market Maker \5\ in
an ITS/CAES security \6\ from purchasing or selling such security,
whether as principal or agent, at a price that is lower than the bid or
higher than the offer displayed from an ITS Participant Exchange or
ITS/CAES Market Maker. Current NASD Rule 5262 applies to all over-the-
counter trading by NASD ITS/CAES Market Makers in that security,
including trades executed outside of CAES and reported to the NASD.
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\5\ For purposes of NASD Rule 5262, ``ITS/CAES Market Maker'' is
defined in NASD Rule 5210(e) as a member that is registered as a
market maker for the purposes of participating in the Intermarket
Trading System (``ITS'') through the Computer Assisted Execution
System (``CAES'') with respect to one or more specified ITS
securities in which the member is then actively registered. The term
also includes members that meet the definition of electronic
communications network or alternative trading network. CAES is an
automated system that is currently operated by The Nasdaq Stock
Market, Inc. NASD members can direct agency and principal orders in
exchange-listed securities to CAES for automated execution in the
third market.
\6\ The term ``ITS Security'' is defined in NASD Rule 5210(c) as
``any security which may be traded through the [ITS] System by an
ITS/CAES Market Maker.''
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The Nasdaq Exchange established a substantially similar rule,
Nasdaq Rule 5262, which, by its terms, would apply to market makers
registered with the Nasdaq Exchange (``Nasdaq market
[[Page 42699]]
makers'') in ITS Securities. However, because the ITS Plan does not
require the Nasdaq Exchange, or any other exchange, to have a trade-
through rule applicable to its individual market participants, the
Nasdaq Exchange has proposed to delete the rule upon integration of the
Nasdaq Market Center and Nasdaq's Brut and INET systems into a single
book.\7\ If approved, the Nasdaq Exchange's rule would be replaced with
a trade-through obligation imposed on the Nasdaq Exchange itself.
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\7\ See Securities Exchange Act Release No. 53583 (March 31,
2006), 71 FR 19573 (April 14, 2006) (SR-NASDAQ-2006-001).
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Further, once the Nasdaq Exchange is operating as an exchange for
non-Nasdaq exchange-listed securities, it is expected that some of the
current NASD ITS/CAES Market Makers will no longer be registered with
the NASD in this capacity, but instead will become registered solely as
Nasdaq Market Makers. As such, no trade-through rule would apply to
over-the-counter trading activity by these Nasdaq market makers that
are not also registered as NASD ITS/CAES market makers. Specifically,
NASD Rule 5262 only applies to trading by NASD ITS/CAES market makers.
Nasdaq Rule 5262 would be similarly limited in its application to
Nasdaq market makers trading on or through the Nasdaq Exchange, and is
expected to be eliminated altogether upon approval of the Nasdaq
Exchange's system integration.
Proposed New NASD Rule 5150
The NASD is proposing new NASD Rule 5150 \8\ that would subject an
NASD member registered as a market maker with the Nasdaq Exchange in an
ITS Security to the provisions of NASD Rule 5262 for purposes of trades
in that ITS Security reported to the NASD, as if such market maker were
an ITS/CAES Market Maker. Thus, an NASD member that is a Nasdaq market
maker trading ITS Securities otherwise than on an exchange--for
example, through the Trade Reporting Facility approved as part of SR-
NASD-2005-087--would be subject to the provisions of NASD Rule 5262,
including its trade-through complaint procedures.
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\8\ Pursuant to SR-NASD-2005-087, the NASD Rule 5000 Series will
be renamed ``Trading Otherwise Than On An Exchange'' and for
purposes of the NASD Rule 5000 Series, ``otherwise than on an
exchange'' will mean a trade effected by an NASD member otherwise
than on or through a national securities exchange.
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All of the exclusions to the Trade-Through Rule applicable under
NASD Rule 5262(a) would be available to Nasdaq market makers subject to
proposed NASD Rule 5150 and would apply as they do today to ITS/CAES
Market Makers, with one limited exception. The NASD is proposing that,
for purposes of applying the term ``Block Transaction'' under NASD Rule
5262(a)(7)(B) to Nasdaq market makers that are not NASD ITS/CAES Market
Makers, the term mean any trade that involves 10,000 or more shares of
an ITS security or a quantity of any such security having a market
value of $200,000 or more. This limitation makes the term consistent
with the definition of ``block size'' in Regulation NMS Rule 600, which
currently serves to exempt certain NASD members from a requirement to
become NASD ITS/CAES Market Makers under certain circumstances. As
such, Nasdaq market makers that are not also NASD ITS/CAES Market
Makers would not be subject to the requirement in Rule 5264(a) to send
commitments to other venues when executing block size trades or the
other block transaction requirements in NASD Rule 5264(b)(2) and (3),
such as the requirement to effect a block trade as a cross or at a
price other than the ITS/CAES Market Maker's quote.
The NASD believes proposed NASD Rule 5150 is necessary to maintain
the application of the Trade-Through Rule until implementation of
Regulation NMS, and specifically the Order Protection Rule mandating
intermarket protection against trade-throughs for all Nasdaq and
exchange-listed securities.\9\ Effective upon the implementation of the
Order Protection Rule, the NASD would repeal NASD Rule 5150 in favor of
a more general rule complying with Regulation NMS.
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\9\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (Final Rule). The effective date
for NMS Rule 611, the Order Protection Rule, was August 29, 2005;
however, the initial compliance date has been extended from June 29,
2006 to a series of five dates, beginning on October 16, 2006. See
Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR
30038 (May 24, 2006).
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The effective date of the proposed rule change will be the date
upon which the Nasdaq Exchange begins to trade non-Nasdaq exchange-
listed securities on a UTP basis.
2. Statutory Basis
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\10\ which requires,
among other things, that NASD rules be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. The NASD believes that the proposed rule change will
enhance investor protection by maintaining trade through protection for
over-the-counter trades in exchange-listed securities.
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\10\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change 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-2006-081 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-081. 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
[[Page 42700]]
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-2006-081 and should be
submitted on or before August 17, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-11984 Filed 7-26-06; 8:45 am]
BILLING CODE 8010-01-P