Self-Regulatory Organizations: National Association of Securities Dealers, Inc.; Notice of Filing of a Proposed Rule Change Relating to a New NASD Trade Reporting Facility Established in Conjunction With the National Stock Exchange, 56573-56577 [E6-15792]
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Federal Register / Vol. 71, No. 187 / Wednesday, September 27, 2006 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Nancy M. Morris,
Secretary.
[FR Doc. E6–15799 Filed 9–26–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54479; File No. SR–NASD–
2006–108]
Self-Regulatory Organizations:
National Association of Securities
Dealers, Inc.; Notice of Filing of a
Proposed Rule Change Relating to a
New NASD Trade Reporting Facility
Established in Conjunction With the
National Stock Exchange
September 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
September 14, 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 NASD. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to adopt rules
relating to a new Trade Reporting
Facility (the ‘‘NASD/NSX TRF’’) to be
established by NASD, in conjunction
with the National Stock Exchange
(‘‘NSX’’), that would provide members
another mechanism for reporting trades
in Nasdaq-listed equity securities
effected otherwise than on an exchange.
The proposed NASD/NSX TRF structure
and rules are substantially similar to the
Trade Reporting Facility (‘‘TRF’’)
established by NASD and Nasdaq Stock
Market, Inc. (the ‘‘NASD/Nasdaq TRF’’)
and rules relating thereto, which were
approved by the Commission pursuant
to proposed rule change SR–NASD–
2005–087.3 Pursuant to the proposed
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 54084
(June 30, 2006), 71 FR 38935 (July 10, 2006) (SR–
NASD–2005–087) (‘‘Approval Order’’). SR–NASD–
2005–087 became effective upon the date on which
The NASDAQ Stock Market LLC (the ‘‘Nasdaq
Exchange’’) commenced operation as a national
securities exchange for Nasdaq-listed securities,
which was August 1, 2006.
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rule change, NASD is also proposing: (1)
Amendments to certain NASD rules to
reflect the operation of more than one
Trade Reporting Facility established by
NASD; and (2) new NASD Rule 5140
relating to the use of multiple Market
Participant Symbols by members
reporting trades to a Trade Reporting
Facility established by NASD.
The text of the proposed rule change
is available on NASD’s Web site at
(https://www.nasd.com), at the principal
office of the NASD, at the Commission’s
Public Reference Room, and the
Commission’s Web site at (https://
www.sec.gov).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. NASD has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On June 30, 2006, the Commission
approved SR–NASD–2005–087.4 Among
other things, the Approval Order
proposed: (1) Amendments to the NASD
Delegation Plan, NASD By-Laws and
NASD rules to reflect a proposed phased
implementation strategy for the
operation of the Nasdaq Exchange as a
national securities exchange with
respect to Nasdaq-listed securities
during a transitional period; and (2)
rules for reporting trades effected
otherwise than on an exchange to the
NASD/Nasdaq TRF. Pursuant to SR–
NASD–2005–087, NASD proposed the
NASD Rule 4000 Series (The Trade
Reporting Facility) and the NASD Rule
6100 Series (Clearing and Comparison
Rules), which generally apply to trade
reporting and clearing and comparison
services via the NASD/Nasdaq TRF.
NASD/NSX Trade Reporting Facility
The NASD proposes to establish a
new NASD/NSX TRF on substantially
the same terms as the NASD/Nasdaq
TRF.5 The NASD/NSX TRF will provide
4 Id.
5 In response to comments submitted to the
Commission in connection with the Approval
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56573
members another mechanism, which
has been developed by NSX, for
reporting transactions in Nasdaq-listed
equity securities executed otherwise
than on an exchange.6 Members will
match and/or execute orders internally
or through proprietary systems and
submit these trades to the NASD/NSX
TRF with the appropriate information
and modifiers. The NASD/NSX TRF
will report the trades to the appropriate
exclusive securities information
processor (‘‘SIP’’).7 As with trades
reported to the NASD/Nasdaq TRF,
NASD/NSX TRF transactions
disseminated to the media will include
a modifier indicating the source of such
transactions that would distinguish
them from transactions executed on or
through the NSX. In addition, the
NASD/NSX TRF will provide NASD
with a real-time copy of each trade
report for regulatory review purposes.
At the option of the participant, the
NASD/NSX TRF may also provide the
necessary clearing information
regarding transactions to the National
Securities Clearing Corporation
(‘‘NSCC’’).
Like the NASD/Nasdaq TRF, the
NASD/NSX TRF will be a facility of
NASD, subject to regulation by NASD
and NASD’s registration as a national
securities association. It will not be a
service ‘‘for the purpose of effecting or
reporting a transaction’’ on the NSX;
rather, it will be a service for the
purpose of reporting over-the-counter
transactions in Nasdaq-listed equity
securities to NASD.8 Thus, members
that meet all applicable requirements
will now have the option of reporting
transactions in Nasdaq-listed equity
securities executed otherwise than on
an exchange to the NASD/NSX TRF,
Order, NASD indicated that it was prepared to
implement a TRF with any exchange based on
whatever technology the exchange has available to
it. See Letter to Honorable Christopher Cox,
Chairman, Commission, dated May 2, 2006 from
Robert Glauber, Chairman and Chief Executive
Officer, NASD.
As the Commission noted in its Approval Order,
the Act does not prohibit NASD from establishing
different facilities for purposes of fulfilling its
regulatory obligations. See Approval Order.
6 NASD will submit a second proposed rule
change relating to reporting to the NASD/NSX TRF
of transactions in all exchange-listed securities
executed otherwise than on an exchange.
7 The NASD/NSX TRF will have controls in place
to ensure that transactions that are reported to the
NASD/NSX TRF, but are priced significantly away
from the current market, will not be submitted to
the SIP. This is consistent with current practice,
which is designed to preserve the integrity of the
tape; today, such trades are not submitted to the SIP
by the ADF or the NASD/Nasdaq TRF.
8 See Approval Order.
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NASD’s Alternative Display Facility
(‘‘ADF’’) or the NASD/Nasdaq TRF.9
NSX has developed the system that
participants will use to access the
NASD/NSX TRF. Technical
Specifications to connect to the NASD/
NSX TRF system are available upon
request to NASD and will be accessible
through the NASD’s Web site at a later
date.
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NASD/NSX TRF Limited Liability
Company Agreement
NASD and NSX propose to enter into
a Limited Liability Company Agreement
of NASD/NSX Trade Reporting Facility
LLC (‘‘the NASD/NSX LLC
Agreement’’). The terms of the NASD/
NSX LLC Agreement are substantially
similar to the terms of the LLC
agreement that NASD entered with
Nasdaq Stock Market Inc. (‘‘Nasdaq’’).
NASD will have sole regulatory
responsibility for the NASD/NSX TRF,
while NSX agrees to pay the cost of
regulation and will provide systems to
enable members to report trades to the
NASD/NSX TRF. NSX will be entitled
to the profits and losses, if any, derived
from the operation of the NASD/NSX
TRF.
NASD, the SRO Member under the
NASD/NSX LLC Agreement, will
perform SRO Responsibilities including,
but not limited to:
(1) Adoption, amendment and
interpretation of policies arising out of
and regarding any aspect of the
operation of the facility considered
material by the SRO Member, or
regarding the meaning, administration,
or enforcement of an existing rule of the
SRO Member, including any generally
applicable exemption from such a rule;
(2) Approval of rule filings of the SRO
Member prior to filing with the
Commission;
(3) Regulation of the NASD/NSX
TRF’s activities of or relating to SRO
Responsibilities, including the right to
review and approve, in the SRO
Member’s sole reasonable discretion, the
regulatory budget for the NASD/NSX
TRF;
(4) Securities regulation and any other
matter implicating SRO
Responsibilities; and
(5) Real-time market surveillance.10
9 NASD will have an integrated audit trail of
NASD/Nasdaq TRF, NASD/NSX TRF and ADF
transactions and will have integrated surveillance
capabilities. NASD expects that comprehensive
audit trail and surveillance integration on an
automated basis will be completed by the end of the
fourth quarter of 2006. Prior to that time, NASD
staff will be able to create an integrated audit trail
on a manual basis as needed for regulatory
purposes.
10 The SRO Member will perform real-time
market surveillance related to trades reported to the
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NSX, the ‘‘Business Member’’ under
the NASD/NSX LLC Agreement, will be
primarily responsible for the
management of the facility’s business
affairs to the extent those activities are
not inconsistent with the regulatory and
oversight functions of NASD. Under
Section 9(d) of the NASD/NSX LLC
Agreement, each Member agrees to
comply with the Federal securities laws
and the rules and regulations
thereunder and to cooperate with the
Commission pursuant to its regulatory
authority and the provisions of the
NASD/NSX LLC Agreement.
The NASD/NSX TRF will be managed
by or under the direction of a Board of
Directors to be established by the
parties. NASD will have the right to
designate at least one Director, the SRO
Member Director, who may be a member
of NASD’s Board of Governors or an
officer or employee of NASD designated
by the NASD Board of Governors. The
SRO Member Director will have veto
power over all major actions of the
NASD/NSX LLC Board. Major Actions
are defined in Section 10(e) of the
NASD/NSX LLC Agreement to include:
(1) Approving pricing decisions that
are subject to the SEC filing process;
(2) Approving contracts between the
NASD/NSX TRF and the Business
Member, any of its affiliates, directors,
officers or employees;
(3) Approving Director compensation;
(4) Selling, licensing, leasing or
otherwise transferring material assets
used in the operation of the NASD/NSX
TRF’s business outside of the ordinary
course of business with an aggregate
value in excess of $3 million;
(5) Approving or undertaking a
merger, consolidation or reorganization
of the NASD/NSX TRF with any other
entity;
(6) Entering into any partnership,
joint venture or other similar joint
business undertaking;
(7) Making any fundamental change
in the market structure of the NASD/
NSX TRF from that contemplated by the
Members as of the date of the NASD/
NSX LLC Agreement;
(8) To the fullest extent permitted by
law, taking any action to effect the
voluntary, or which would precipitate
an involuntary, dissolution or winding
up of the Company, other than as
contemplated by Section 21 of the
NASD/NSX LLC Agreement;
NASD/NSX TRF. However, because the NASD/NSX
TRF via the Business Member will submit
transaction information directly to the SIP, the
NASD/NSX TRF via the Business Member also will
establish and implement controls to ensure that
transactions that are reported to the NASD/NSX
TRF, but are priced significantly away from the
current market, will not be submitted to the SIP.
See supra note 7.
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(9) Conversion of the NASD/NSX TRF
from a Delaware limited liability
company into any other type of entity;
(10) Expansion of or modification to
the business which results in the NASD/
NSX TRF engaging in material business
unrelated to the business of Non-System
Trading; 11
(11) Changing the number of Directors
on or composition of the Board; and
(12) Adopting or amending policies
regarding access and credit matters
affecting the NASD/NSX TRF.
In addition, each Director agrees to
comply with the Federal securities laws
and the rules and regulations
thereunder and to cooperate with the
Commission and the SRO Member
pursuant to their regulatory authority.
The principal difference between the
NASD/NSX LLC Agreement and the
LLC Agreement NASD entered with
Nasdaq relates to termination. The
initial term of the agreement is three
years. During that time, until the NASD/
NSX TRF reaches ‘‘Substantial Trade
Volume’’ (defined as 250,000 trades or
more per day for three consecutive
months), NSX may terminate the
arrangement for convenience. After the
NASD/NSX TRF reaches Substantial
Trade Volume, either Member may
terminate NASD/NSX Trade Reporting
Facility LLC by providing to the other
Member prior written notice of at least
one year (as in the case with Nasdaq).
Neither Member may deliver such
notice before the second anniversary of
the effective date of the NASD/NSX LLC
Agreement. In addition, at any time,
NASD may terminate in the event its
status or reputation as a preeminent
SRO is called into jeopardy by the
actions of NSX or the NASD/NSX TRF.
In the event of termination of the
NASD/NSX TRF arrangement, NASD
will be able to fulfill all of its regulatory
obligations with respect to over-thecounter trade reporting through its other
facilities, including the NASD/Nasdaq
TRF and ADF.
NASD/NSX Trade Reporting Facility
Rules
Members will report trades in Nasdaqlisted equity securities effected
otherwise than on an exchange to the
NASD/NSX TRF pursuant to NASD
rules. As such, NASD is proposing rules
relating to the use and operation of the
NASD/NSX TRF that are substantially
similar to the rules approved by the
Commission relating to the NASD/
11 Pursuant to the NASD/NSX LLC Agreement,
‘‘Non-System Trading’’ means trading otherwise
than on an exchange of securities for which the SEC
has approved a transaction reporting plan pursuant
to Rule 601 of Regulation NMS under the Act.
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Nasdaq TRF.12 Specifically, NASD is
proposing the new NASD Rule 4000C
and NASD Rule 6100C Series, which
track the NASD Rule 4000 and NASD
Rule 6100 Series adopted pursuant to
the Approval Order.
Similar to the NASD/Nasdaq TRF
rules, to become a participant in the
NASD/NSX TRF, an NASD member
must meet minimum requirements as
outlined in NASD Rule 6120C. These
include execution of, and continuing
compliance with, a Participant
Application Agreement; membership in,
or maintenance of an effective clearing
arrangement with a participant of a
clearing agency registered pursuant to
the Act; and the acceptance and
settlement of each trade that the NASD/
NSX TRF identifies as having been
effected by the participant.
Members that report trades to the
NASD/NSX TRF must include the
details of the trade, as required by the
proposed rules. Participants must also
include the unique order identifier
assigned for purposes of reporting to the
Order Audit Trail System, thus enabling
NASD to match the order against the
trade that was reported to the tape by
the NASD/NSX TRF.
As with the NASD/Nasdaq TRF,
participants may enter into ‘‘give-up’’
arrangements whereby one member
reports to the NASD/NSX TRF on behalf
of another member. Participants must
complete and submit to the NASD/NSX
TRF the appropriate documentation
reflecting the arrangement. Proposed
NASD Rule 4632C(g) provides that the
member with the reporting obligation
remains responsible for the transaction
submitted on its behalf. Further, both
the member with the reporting
obligation and the member submitting
the trade to the NASD/NSX TRF are
responsible for ensuring that the
information submitted is in compliance
with all applicable rules and
regulations.13
In addition, participants will be able
to submit ‘‘riskless principal’’
transactions 14 to the NASD/NSX TRF.
Similar to the NASD/Nasdaq TRF, the
12 See
Approval Order.
noted above, NASD/Nasdaq TRF
participants may enter into ‘‘give-up’’ arrangements;
however, the NASD/Nasdaq TRF rules currently do
not contain a provision similar to proposed NASD
Rule 4632C(g). NASD has submitted a proposed
rule change to amend the NASD/Nasdaq TRF rules
to include a provision that is identical to proposed
NASD Rule 4632C(g). See Securities Exchange Act
Release No. 54451 (September 15, 2006) (SR–
NASD–2006–104) (Notice).
14 A riskless principal transaction is a transaction
in which a member, after having received a
customer order, executes an offsetting transaction,
as principal, with another customer or broker-dealer
to fill that customer order and both transactions are
executed at the same price.
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non-media portion of a riskless
principal transaction will not be
reported to the tape, but will be
submitted real-time to NASD for
regulatory purposes and, at the option of
the user, to NSCC. Proposed NASD Rule
4632C(d)(3)(B) 15 would clarify that
where the media leg of the riskless
principal transaction is reported to the
NASD/NSX TRF, the second, non-media
leg must also be reported to the NASD/
NSX TRF. However, where the media
leg of the riskless principal transaction
was previously reported by an
exchange, the member would be
permitted, but not required, to report
the second, non-media leg to the NASD/
NSX TRF. Members that choose to
report such transactions to the NASD/
NSX TRF must include all data
elements required under the rules.
Members should note, however, that
transactions reported by an exchange
should not be reported to NASD/NSX
TRF for media purposes, as that would
result in double reporting of the same
transaction.16
Finally, NASD will have the authority
to halt trading otherwise than on an
exchange reported to the NASD/NSX
TRF. The scope of NASD’s authority
under proposed NASD Rule 4633C is
identical to its authority to halt trading
reported to the NASD/Nasdaq TRF and
the ADF.
As described below, the proposed
rules differ from the NASD/Nasdaq TRF
rules in certain respects. Currently,
NASD Rules 4100 and 4200(a)(2) of the
NASD/Nasdaq TRF rules define
‘‘designated securities’’ as all Nasdaq
National Market (now Nasdaq Global
Market) and Nasdaq Capital Market
securities and convertible bonds listed
on Nasdaq.17 As defined in proposed
15 Proposed NASD Rule 4632C(d)(3)(B) mirrors
recently proposed amendments to NASD Rule
4632(d)(3)(B) of the NASD/Nasdaq TRF rules. See
Securities Exchange Act Release No. 54451
(September 15, 2006) (SR–NASD–2006–104)
(Notice).
16 Proposed NASD Rule 4632C(e)(6) provides that
transactions reported on or through an exchange
shall not be reported to the NASD/NSX TRF for
purposes of publication. This proposed rule mirrors
NASD Rule 4632(e)(6) of the NASD/Nasdaq TRF
rules. See Securities Exchange Act Release Nos.
54084 (June 30, 2006), 71 FR 38935 (July 10, 2006)
(File No. SR–NASD–2005–087); 53977 (June 12,
2006), 71 FR 34976 (June 16, 2006) (File No. SR–
NASD–2006–055); and 54318 (August 15, 2006), 71
FR 48959 (August 22, 2006) (File No. SR–NASD–
2006–098).
17 On September 5, 2006, NASD filed a proposed
rule change that proposes, among other things, to
amend the definition of ‘‘designated securities’’ in
NASD Rules 4100 and 4200(a)(2) to apply to all
NMS stocks as defined in NASD Rule 600(b)(47) of
Regulation NMS under the Act. See Securities
Exchange Act Release No. 54451 (September 15,
2006) (SR–NASD–2006–104) (Notice). NASD
intends to propose a similar amendment to the
definition of ‘‘designated securities’’ in proposed
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56575
NASD Rules 4100C and 4200C(a)(2),
‘‘designated securities’’ for purposes of
reporting trades to the NASD/NSX TRF
means ‘‘all equity securities listed on
the Nasdaq Stock Market LLC.’’ The
proposed definition is intended to
capture the same universe of Nasdaqlisted securities (except for convertible
bonds) in current NASD Rules 4100 and
4200(a)(2), without specifying the
various Nasdaq tiers.
Second, pursuant to proposed NASD
Rule 6120C, only members of NASD
may use the NASD/NSX TRF. Nonmembers will not be permitted to
submit trade reports to the NASD/NSX
TRF. Under very limited circumstances,
certain Non-Member Clearing
Organizations are granted access to and
participation in the NASD/Nasdaq TRF.
Third, pursuant to proposed NASD
Rule 6140C, all trades submitted to the
NASD/NSX TRF must be locked-in prior
to entry into the System. The NASD/
NSX TRF will have no trade comparison
functionality. Thus, there are no
proposed rules relating to trade
matching, trade acceptance or aggregate
volume matching. Similarly, there will
be no ‘‘Browse’’ function, meaning that
participants will not be able to review
or query for trades in the NASD/NSX
TRF identifying the participant as a
party to the transaction.
Fourth, on the first day of operation,
the NASD/NSX TRF will not be able to
support trade reporting for certain
transactions. Specifically, transactions
executed outside of normal market
hours cannot be reported to the NASD/
NSX TRF on an ‘‘as/of’’ or next day
(T+1) basis, pursuant to NASD Rule
4632C(a)(2). In addition, the NASD/NSX
TRF will not support the .W or .PRP
modifiers and therefore proposed NASD
Rule 4632C(a)(7) provides that Stop
Stock Transactions (as such term is
defined in NASD Rule 4200C),
transactions at prices based on averageweighting or other special pricing
formulae, and transactions that reflect a
price different from the current market
when the execution price is based on a
prior reference point in time cannot be
reported to the NASD/NSX TRF. Thus,
proposed NASD Rules 4632C(a)(2) and
(7) expressly require members to report
such trades to NASD via an alternative
electronic mechanism.18
Similarly, proposed NASD Rule
4632C(a)(3) provides that participants
NASD Rules 4100C and 4200C(a)(2) in a separate
rule filing.
18 The NASD/NSX TRF is intended to ultimately
have much of the same functionality that will be
provided by the NASD/Nasdaq TRF. When and if
such functionality is developed, NASD will file a
proposed rule change to amend the NASD/NSX
TRF trade reporting rules accordingly.
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must use an alternative electronic
mechanism, and comply with all rules
applicable to such alternative
mechanism, to report transactions to
NASD for which electronic submission
to the NASD/NSX TRF is not possible.
Where last sale reports of transactions in
designated securities cannot be
submitted to NASD via an alternative
electronic mechanism such as the ADF
or another Trade Reporting Facility (for
example, where the ticker symbol for
the security is no longer available or a
market participant identifier is no
longer active), members shall report
such transactions as soon as practicable
to the NASD Market Regulation
Department on Form T. Transactions
that can be reported to NASD
electronically, whether on trade date or
on a subsequent date on an ‘‘as of’’ basis
(T+N), shall not be reported on Form T.
Fifth, members will not be permitted
to aggregate individual executions of
orders in a security at the same price
into a single transaction report
submitted to the NASD/NSX TRF. Thus,
the proposed rule change does not
contain a counterpart to NASD Rule
4632(f) or NASD Rule 6100(e)
permitting ‘‘bunched’’ trades to be
reported to the NASD/Nasdaq TRF.
Finally, cancellation of any trade that
has been submitted to the NASD/NSX
TRF must be reported in accordance
with proposed NASD Rule 4632C(f). For
trades that are cancelled after the day of
execution of the trade or trade
cancellations that are not reported on
the day of execution of the trade,
members must contact Trade Reporting
Facility Operations to report the trade
cancellation.
NASD notes that the proposed rule
change does not include any proposed
rules relating to fees, assessments and
credits specifically related to the NASD/
NSX TRF. Fees, assessments and
credits, if any, with respect to the
NASD/NSX TRF will be the subject of
a future rule filing with the SEC.
NASD’s Alternative Display Facility or
the Trade Reporting Facility, no member
shall effect a short sale in a Nasdaq
Global Market Security otherwise than
on an exchange at or below the current
national best (inside) bid when the
current national best (inside) bid is
below the preceding national best
(inside) bid. NASD is proposing a
technical amendment to NASD Rule
5100 to change the reference to ‘‘the
Trade Reporting Facility’’ to ‘‘a Trade
Reporting Facility’’ to clarify that the
rule applies to trades reported to any
Trade Reporting Facility established by
NASD. NASD is proposing an identical
technical amendment to NASD
Interpretive Material (IM)–5100(b) to
change the reference to ‘‘the Trade
Reporting Facility’’ to ‘‘a Trade
Reporting Facility.’’ NASD believes that
the current language is too narrow and
may suggest that the rule applies only
to trades reported to the NASD/Nasdaq
TRF.
In addition, NASD Rule 6120
currently provides that participation in
the System 19 is mandatory for members
that are participants of a clearing agency
registered with the Commission
pursuant to Section 17A of the Act, and
for members that have a clearing
arrangement with such a participant,
unless a member subscribes to TRACS.
NASD is proposing to amend this rule
to provide that participation in the
System is mandatory for any member
that has an obligation to report an overthe-counter transaction to NASD, unless
the member has an alternative
mechanism pursuant to NASD rules for
reporting and clearing such transaction.
Thus, for example, participation in the
System under NASD Rule 6120 for
purposes of reporting trades in Nasdaqlisted equity securities would not be
mandatory for a member that is a
Participant in the NASD/NSX TRF.
Proposed Amendments to Certain
Existing NASD Rules
Although not explicitly detailed
herein, it is important to note that all
other NASD rules that apply to over-thecounter trading generally will apply to
trades reported to the NASD/NSX TRF.
However, certain NASD rules must be
amended in order to reflect the
operation of more than one Trade
Reporting Facility.
NASD Rule 5100 (Short Sale Rule),
which restricts short selling on a
‘‘downbid,’’ will apply to transactions
reported to the NASD/NSX TRF. The
text of that rule currently provides that,
with respect to trades reported to
NASD is proposing a new rule in the
NASD Rule 5000 Series (Trading
Otherwise Than On An Exchange)
relating to the use of multiple Market
Participant Symbols (‘‘MPIDs’’) by
members using a Trade Reporting
Facility established by NASD. Proposed
NASD Rule 5140 (Multiple MPIDs for
Trade Reporting Facility Participants)
would provide that any Trade Reporting
Facility Participant that wishes to use
more than one MPID for purposes of
reporting trades to a Trade Reporting
VerDate Aug<31>2005
16:48 Sep 26, 2006
Jkt 208001
Proposed New Rule Relating to Multiple
Market Participant Symbols
19 ‘‘System’’ is defined in NASD Rule 6110(m) to
mean the NASD/Nasdaq Trade Reporting Facility,
the trade reporting service of the ITS/CAES System,
and the OTC Reporting Facility.
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
Facility must submit a written request
to, and obtain approval from, NASD
Operations for such additional MPID(s).
In addition, NASD is proposing new
NASD Interpretive Material (IM)–5140
stating that NASD considers the
issuance of, and trade reporting with,
multiple MPIDs to be a privilege and not
a right. A Trade Reporting Facility
Participant must identify the purpose(s)
for which the multiple MPIDs will be
used. If NASD determines that the use
of multiple MPIDs is detrimental to the
marketplace, or that a Trade Reporting
Facility Participant is using one or more
additional MPIDs improperly or for
other than the purpose(s) identified by
the Participant, NASD staff retains full
discretion to limit or withdraw its grant
of the additional MPID(s) to such Trade
Reporting Facility Participant for
purposes of reporting trades to a Trade
Reporting Facility. NASD believes that
the proposed new rule and interpretive
material are necessary in order to
consolidate the process of issuing
multiple MPIDs with NASD.20
NASD will announce the effective
date of the proposed rule change no
later than 30 days following
Commission approval.
2. Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,21 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, 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 protect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. NASD believes that
establishment of the NASD/NSX TRF is
in the public interest and appropriate
for the protection of investors and the
maintenance of fair and orderly markets
because it will provide members
another mechanism to report
20 Currently, members that use the NASD/Nasdaq
TRF are able to obtain and use multiple MPIDs
upon request. NASD notes that NASD/Nasdaq TRF
Participants using existing multiple MPIDs will be
grandfathered and will not be required to submit a
new form to NASD Operations in order to continue
using their MPIDs. However, any such Participant
wishing to obtain additional MPIDs after
implementation of proposed NASD Rule 5140
would need the approval of NASD Operations. To
the extent that a Participant is a member of multiple
SROs and intends to use the MPID(s) on multiple
SRO systems, NASD will work with the other
SRO(s) to coordinate the MPID approval process.
21 15 U.S.C. 78o–3(b)(6).
E:\FR\FM\27SEN1.SGM
27SEN1
Federal Register / Vol. 71, No. 187 / Wednesday, September 27, 2006 / Notices
transactions in Nasdaq-listed equity
securities effected otherwise than on an
exchange.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
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 Exchange 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.
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 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–2006–108 and
should be submitted on or before
October 18, 2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.22
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6–15792 Filed 9–26–06; 8:45 am]
BILLING CODE 8010–01–P
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–2006–108 on the
subject line.
rwilkins on PROD1PC63 with NOTICES
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–2006–108. 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
VerDate Aug<31>2005
16:48 Sep 26, 2006
Jkt 208001
UNITED STATES SENTENCING
COMMISSION
Sentencing Guidelines for United
States Courts
United States Sentencing
Commission.
ACTION: Notice of final action regarding
amendments to Federal sentencing
guidelines effective November 1, 2006;
correction.
AGENCY:
SUMMARY: On May 1, 2006, the
Commission submitted to Congress
amendments to the federal sentencing
guidelines and published these
amendments in the Federal Register on
May 15, 2006. See 71 FR 28063. The
Commission has made technical and
conforming amendments to commentary
provisions related to those amendments
and has made a correction to the
amendatory language of one
amendment.
The Commission has specified
an effective date of November 1, 2006,
for the amendments set forth in this
notice.
DATES:
22 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00110
Fmt 4703
Sfmt 4703
56577
FOR FURTHER INFORMATION CONTACT:
Michael Courlander, Public Affairs
Officer, telephone: (202) 502–4590.
SUPPLEMENTARY INFORMATION: The
United States Sentencing Commission,
an independent commission in the
judicial branch of the United States
government, is authorized by 28 U.S.C.
994(a) to promulgate sentencing
guidelines and policy statements for
federal courts. Section 994 also directs
the Commission to review and revise
periodically promulgated guidelines
and authorizes it to submit guideline
amendments to Congress not later than
the first day of May each year. See 28
U.S.C. 994(o), (p). Absent an affirmative
disapproval by the Congress within 180
days after the Commission submits its
amendments, the amendments become
effective on the date specified by the
Commission (typically November 1 of
the same calendar year). 28 U.S.C.
994(p).
Unlike amendments made to
sentencing guidelines, amendments to
commentary may be made at any time
and are not subject to congressional
review. To the extent practicable, the
Commission endeavors to include
amendments to commentary in any
submission of guideline amendments to
Congress. Occasionally, however, the
Commission determines that technical
and conforming changes to commentary
are necessary in order to execute
correctly the amendments submitted to
Congress. This notice sets forth
technical and conforming amendments
to commentary related to the
amendments submitted to Congress on
May 1, 2006, that will become effective
date on November 1, 2006. This notice
also sets forth a correction to
amendatory language.
Authority: USSC Rules of Practice and
Procedure 4.1.
Ricardo H. Hinojosa,
Chair.
1. Amendment
The Commentary to § 2B1.1 captioned
‘‘Application Notes’’ is amended in
Note 7(C) by striking ‘‘§ 2J1.7’’ and
inserting ‘‘§ 3C1.3’’.
The Commentary to § 2K2.1 captioned
‘‘Application Notes’’, as amended by
Amendment 9 submitted to Congress on
May 1, 2006 (71 FR 28069.; USSG App.
C (amendment 691)), is further amended
in Note 3 by inserting ‘‘Definition of
‘Prohibited Person’.—’’ before ‘‘For
purposes’’; and in Note 11, as
redesignated by Amendment 9 (USSG
App. C (amendment 691)), by striking
‘‘Note 8’’ and inserting ‘‘Note 7’’.
The Commentary to § 2K2.4 captioned
‘‘Application Notes’’ is amended in
E:\FR\FM\27SEN1.SGM
27SEN1
]]>Agencies
[Federal Register Volume 71, Number 187 (Wednesday, September 27, 2006)]
[Notices]
[Pages 56573-56577]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-15792]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54479; File No. SR-NASD-2006-108]
Self-Regulatory Organizations: National Association of Securities
Dealers, Inc.; Notice of Filing of a Proposed Rule Change Relating to a
New NASD Trade Reporting Facility Established in Conjunction With the
National Stock Exchange
September 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 September 14, 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 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
NASD is proposing to adopt rules relating to a new Trade Reporting
Facility (the ``NASD/NSX TRF'') to be established by NASD, in
conjunction with the National Stock Exchange (``NSX''), that would
provide members another mechanism for reporting trades in Nasdaq-listed
equity securities effected otherwise than on an exchange. The proposed
NASD/NSX TRF structure and rules are substantially similar to the Trade
Reporting Facility (``TRF'') established by NASD and Nasdaq Stock
Market, Inc. (the ``NASD/Nasdaq TRF'') and rules relating thereto,
which were approved by the Commission pursuant to proposed rule change
SR-NASD-2005-087.\3\ Pursuant to the proposed rule change, NASD is also
proposing: (1) Amendments to certain NASD rules to reflect the
operation of more than one Trade Reporting Facility established by
NASD; and (2) new NASD Rule 5140 relating to the use of multiple Market
Participant Symbols by members reporting trades to a Trade Reporting
Facility established by NASD.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006) (SR-NASD-2005-087) (``Approval
Order''). SR-NASD-2005-087 became effective upon the date on which
The NASDAQ Stock Market LLC (the ``Nasdaq Exchange'') commenced
operation as a national securities exchange for Nasdaq-listed
securities, which was August 1, 2006.
---------------------------------------------------------------------------
The text of the proposed rule change is available on NASD's Web
site at (https://www.nasd.com), at the principal office of the NASD, at
the Commission's Public Reference Room, and the Commission's Web site
at (https://www.sec.gov).
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASD has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On June 30, 2006, the Commission approved SR-NASD-2005-087.\4\
Among other things, the Approval Order proposed: (1) Amendments to the
NASD Delegation Plan, NASD By-Laws and NASD rules to reflect a proposed
phased implementation strategy for the operation of the Nasdaq Exchange
as a national securities exchange with respect to Nasdaq-listed
securities during a transitional period; and (2) rules for reporting
trades effected otherwise than on an exchange to the NASD/Nasdaq TRF.
Pursuant to SR-NASD-2005-087, NASD proposed the NASD Rule 4000 Series
(The Trade Reporting Facility) and the NASD Rule 6100 Series (Clearing
and Comparison Rules), which generally apply to trade reporting and
clearing and comparison services via the NASD/Nasdaq TRF.
---------------------------------------------------------------------------
\4\ Id.
---------------------------------------------------------------------------
NASD/NSX Trade Reporting Facility
The NASD proposes to establish a new NASD/NSX TRF on substantially
the same terms as the NASD/Nasdaq TRF.\5\ The NASD/NSX TRF will provide
members another mechanism, which has been developed by NSX, for
reporting transactions in Nasdaq-listed equity securities executed
otherwise than on an exchange.\6\ Members will match and/or execute
orders internally or through proprietary systems and submit these
trades to the NASD/NSX TRF with the appropriate information and
modifiers. The NASD/NSX TRF will report the trades to the appropriate
exclusive securities information processor (``SIP'').\7\ As with trades
reported to the NASD/Nasdaq TRF, NASD/NSX TRF transactions disseminated
to the media will include a modifier indicating the source of such
transactions that would distinguish them from transactions executed on
or through the NSX. In addition, the NASD/NSX TRF will provide NASD
with a real-time copy of each trade report for regulatory review
purposes. At the option of the participant, the NASD/NSX TRF may also
provide the necessary clearing information regarding transactions to
the National Securities Clearing Corporation (``NSCC'').
---------------------------------------------------------------------------
\5\ In response to comments submitted to the Commission in
connection with the Approval Order, NASD indicated that it was
prepared to implement a TRF with any exchange based on whatever
technology the exchange has available to it. See Letter to Honorable
Christopher Cox, Chairman, Commission, dated May 2, 2006 from Robert
Glauber, Chairman and Chief Executive Officer, NASD.
As the Commission noted in its Approval Order, the Act does not
prohibit NASD from establishing different facilities for purposes of
fulfilling its regulatory obligations. See Approval Order.
\6\ NASD will submit a second proposed rule change relating to
reporting to the NASD/NSX TRF of transactions in all exchange-listed
securities executed otherwise than on an exchange.
\7\ The NASD/NSX TRF will have controls in place to ensure that
transactions that are reported to the NASD/NSX TRF, but are priced
significantly away from the current market, will not be submitted to
the SIP. This is consistent with current practice, which is designed
to preserve the integrity of the tape; today, such trades are not
submitted to the SIP by the ADF or the NASD/Nasdaq TRF.
---------------------------------------------------------------------------
Like the NASD/Nasdaq TRF, the NASD/NSX TRF will be a facility of
NASD, subject to regulation by NASD and NASD's registration as a
national securities association. It will not be a service ``for the
purpose of effecting or reporting a transaction'' on the NSX; rather,
it will be a service for the purpose of reporting over-the-counter
transactions in Nasdaq-listed equity securities to NASD.\8\ Thus,
members that meet all applicable requirements will now have the option
of reporting transactions in Nasdaq-listed equity securities executed
otherwise than on an exchange to the NASD/NSX TRF,
[[Page 56574]]
NASD's Alternative Display Facility (``ADF'') or the NASD/Nasdaq
TRF.\9\
---------------------------------------------------------------------------
\8\ See Approval Order.
\9\ NASD will have an integrated audit trail of NASD/Nasdaq TRF,
NASD/NSX TRF and ADF transactions and will have integrated
surveillance capabilities. NASD expects that comprehensive audit
trail and surveillance integration on an automated basis will be
completed by the end of the fourth quarter of 2006. Prior to that
time, NASD staff will be able to create an integrated audit trail on
a manual basis as needed for regulatory purposes.
---------------------------------------------------------------------------
NSX has developed the system that participants will use to access
the NASD/NSX TRF. Technical Specifications to connect to the NASD/NSX
TRF system are available upon request to NASD and will be accessible
through the NASD's Web site at a later date.
NASD/NSX TRF Limited Liability Company Agreement
NASD and NSX propose to enter into a Limited Liability Company
Agreement of NASD/NSX Trade Reporting Facility LLC (``the NASD/NSX LLC
Agreement''). The terms of the NASD/NSX LLC Agreement are substantially
similar to the terms of the LLC agreement that NASD entered with Nasdaq
Stock Market Inc. (``Nasdaq'').
NASD will have sole regulatory responsibility for the NASD/NSX TRF,
while NSX agrees to pay the cost of regulation and will provide systems
to enable members to report trades to the NASD/NSX TRF. NSX will be
entitled to the profits and losses, if any, derived from the operation
of the NASD/NSX TRF.
NASD, the SRO Member under the NASD/NSX LLC Agreement, will perform
SRO Responsibilities including, but not limited to:
(1) Adoption, amendment and interpretation of policies arising out
of and regarding any aspect of the operation of the facility considered
material by the SRO Member, or regarding the meaning, administration,
or enforcement of an existing rule of the SRO Member, including any
generally applicable exemption from such a rule;
(2) Approval of rule filings of the SRO Member prior to filing with
the Commission;
(3) Regulation of the NASD/NSX TRF's activities of or relating to
SRO Responsibilities, including the right to review and approve, in the
SRO Member's sole reasonable discretion, the regulatory budget for the
NASD/NSX TRF;
(4) Securities regulation and any other matter implicating SRO
Responsibilities; and
(5) Real-time market surveillance.\10\
---------------------------------------------------------------------------
\10\ The SRO Member will perform real-time market surveillance
related to trades reported to the NASD/NSX TRF. However, because the
NASD/NSX TRF via the Business Member will submit transaction
information directly to the SIP, the NASD/NSX TRF via the Business
Member also will establish and implement controls to ensure that
transactions that are reported to the NASD/NSX TRF, but are priced
significantly away from the current market, will not be submitted to
the SIP. See supra note 7.
---------------------------------------------------------------------------
NSX, the ``Business Member'' under the NASD/NSX LLC Agreement, will
be primarily responsible for the management of the facility's business
affairs to the extent those activities are not inconsistent with the
regulatory and oversight functions of NASD. Under Section 9(d) of the
NASD/NSX LLC Agreement, each Member agrees to comply with the Federal
securities laws and the rules and regulations thereunder and to
cooperate with the Commission pursuant to its regulatory authority and
the provisions of the NASD/NSX LLC Agreement.
The NASD/NSX TRF will be managed by or under the direction of a
Board of Directors to be established by the parties. NASD will have the
right to designate at least one Director, the SRO Member Director, who
may be a member of NASD's Board of Governors or an officer or employee
of NASD designated by the NASD Board of Governors. The SRO Member
Director will have veto power over all major actions of the NASD/NSX
LLC Board. Major Actions are defined in Section 10(e) of the NASD/NSX
LLC Agreement to include:
(1) Approving pricing decisions that are subject to the SEC filing
process;
(2) Approving contracts between the NASD/NSX TRF and the Business
Member, any of its affiliates, directors, officers or employees;
(3) Approving Director compensation;
(4) Selling, licensing, leasing or otherwise transferring material
assets used in the operation of the NASD/NSX TRF's business outside of
the ordinary course of business with an aggregate value in excess of $3
million;
(5) Approving or undertaking a merger, consolidation or
reorganization of the NASD/NSX TRF with any other entity;
(6) Entering into any partnership, joint venture or other similar
joint business undertaking;
(7) Making any fundamental change in the market structure of the
NASD/NSX TRF from that contemplated by the Members as of the date of
the NASD/NSX LLC Agreement;
(8) To the fullest extent permitted by law, taking any action to
effect the voluntary, or which would precipitate an involuntary,
dissolution or winding up of the Company, other than as contemplated by
Section 21 of the NASD/NSX LLC Agreement;
(9) Conversion of the NASD/NSX TRF from a Delaware limited
liability company into any other type of entity;
(10) Expansion of or modification to the business which results in
the NASD/NSX TRF engaging in material business unrelated to the
business of Non-System Trading; \11\
---------------------------------------------------------------------------
\11\ Pursuant to the NASD/NSX LLC Agreement, ``Non-System
Trading'' means trading otherwise than on an exchange of securities
for which the SEC has approved a transaction reporting plan pursuant
to Rule 601 of Regulation NMS under the Act.
---------------------------------------------------------------------------
(11) Changing the number of Directors on or composition of the
Board; and
(12) Adopting or amending policies regarding access and credit
matters affecting the NASD/NSX TRF.
In addition, each Director agrees to comply with the Federal
securities laws and the rules and regulations thereunder and to
cooperate with the Commission and the SRO Member pursuant to their
regulatory authority.
The principal difference between the NASD/NSX LLC Agreement and the
LLC Agreement NASD entered with Nasdaq relates to termination. The
initial term of the agreement is three years. During that time, until
the NASD/NSX TRF reaches ``Substantial Trade Volume'' (defined as
250,000 trades or more per day for three consecutive months), NSX may
terminate the arrangement for convenience. After the NASD/NSX TRF
reaches Substantial Trade Volume, either Member may terminate NASD/NSX
Trade Reporting Facility LLC by providing to the other Member prior
written notice of at least one year (as in the case with Nasdaq).
Neither Member may deliver such notice before the second anniversary of
the effective date of the NASD/NSX LLC Agreement. In addition, at any
time, NASD may terminate in the event its status or reputation as a
preeminent SRO is called into jeopardy by the actions of NSX or the
NASD/NSX TRF. In the event of termination of the NASD/NSX TRF
arrangement, NASD will be able to fulfill all of its regulatory
obligations with respect to over-the-counter trade reporting through
its other facilities, including the NASD/Nasdaq TRF and ADF.
NASD/NSX Trade Reporting Facility Rules
Members will report trades in Nasdaq-listed equity securities
effected otherwise than on an exchange to the NASD/NSX TRF pursuant to
NASD rules. As such, NASD is proposing rules relating to the use and
operation of the NASD/NSX TRF that are substantially similar to the
rules approved by the Commission relating to the NASD/
[[Page 56575]]
Nasdaq TRF.\12\ Specifically, NASD is proposing the new NASD Rule 4000C
and NASD Rule 6100C Series, which track the NASD Rule 4000 and NASD
Rule 6100 Series adopted pursuant to the Approval Order.
---------------------------------------------------------------------------
\12\ See Approval Order.
---------------------------------------------------------------------------
Similar to the NASD/Nasdaq TRF rules, to become a participant in
the NASD/NSX TRF, an NASD member must meet minimum requirements as
outlined in NASD Rule 6120C. These include execution of, and continuing
compliance with, a Participant Application Agreement; membership in, or
maintenance of an effective clearing arrangement with a participant of
a clearing agency registered pursuant to the Act; and the acceptance
and settlement of each trade that the NASD/NSX TRF identifies as having
been effected by the participant.
Members that report trades to the NASD/NSX TRF must include the
details of the trade, as required by the proposed rules. Participants
must also include the unique order identifier assigned for purposes of
reporting to the Order Audit Trail System, thus enabling NASD to match
the order against the trade that was reported to the tape by the NASD/
NSX TRF.
As with the NASD/Nasdaq TRF, participants may enter into ``give-
up'' arrangements whereby one member reports to the NASD/NSX TRF on
behalf of another member. Participants must complete and submit to the
NASD/NSX TRF the appropriate documentation reflecting the arrangement.
Proposed NASD Rule 4632C(g) provides that the member with the reporting
obligation remains responsible for the transaction submitted on its
behalf. Further, both the member with the reporting obligation and the
member submitting the trade to the NASD/NSX TRF are responsible for
ensuring that the information submitted is in compliance with all
applicable rules and regulations.\13\
---------------------------------------------------------------------------
\13\ As noted above, NASD/Nasdaq TRF participants may enter into
``give-up'' arrangements; however, the NASD/Nasdaq TRF rules
currently do not contain a provision similar to proposed NASD Rule
4632C(g). NASD has submitted a proposed rule change to amend the
NASD/Nasdaq TRF rules to include a provision that is identical to
proposed NASD Rule 4632C(g). See Securities Exchange Act Release No.
54451 (September 15, 2006) (SR-NASD-2006-104) (Notice).
---------------------------------------------------------------------------
In addition, participants will be able to submit ``riskless
principal'' transactions \14\ to the NASD/NSX TRF. Similar to the NASD/
Nasdaq TRF, the non-media portion of a riskless principal transaction
will not be reported to the tape, but will be submitted real-time to
NASD for regulatory purposes and, at the option of the user, to NSCC.
Proposed NASD Rule 4632C(d)(3)(B) \15\ would clarify that where the
media leg of the riskless principal transaction is reported to the
NASD/NSX TRF, the second, non-media leg must also be reported to the
NASD/NSX TRF. However, where the media leg of the riskless principal
transaction was previously reported by an exchange, the member would be
permitted, but not required, to report the second, non-media leg to the
NASD/NSX TRF. Members that choose to report such transactions to the
NASD/NSX TRF must include all data elements required under the rules.
Members should note, however, that transactions reported by an exchange
should not be reported to NASD/NSX TRF for media purposes, as that
would result in double reporting of the same transaction.\16\
---------------------------------------------------------------------------
\14\ A riskless principal transaction is a transaction in which
a member, after having received a customer order, executes an
offsetting transaction, as principal, with another customer or
broker-dealer to fill that customer order and both transactions are
executed at the same price.
\15\ Proposed NASD Rule 4632C(d)(3)(B) mirrors recently proposed
amendments to NASD Rule 4632(d)(3)(B) of the NASD/Nasdaq TRF rules.
See Securities Exchange Act Release No. 54451 (September 15, 2006)
(SR-NASD-2006-104) (Notice).
\16\ Proposed NASD Rule 4632C(e)(6) provides that transactions
reported on or through an exchange shall not be reported to the
NASD/NSX TRF for purposes of publication. This proposed rule mirrors
NASD Rule 4632(e)(6) of the NASD/Nasdaq TRF rules. See Securities
Exchange Act Release Nos. 54084 (June 30, 2006), 71 FR 38935 (July
10, 2006) (File No. SR-NASD-2005-087); 53977 (June 12, 2006), 71 FR
34976 (June 16, 2006) (File No. SR-NASD-2006-055); and 54318 (August
15, 2006), 71 FR 48959 (August 22, 2006) (File No. SR-NASD-2006-
098).
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Finally, NASD will have the authority to halt trading otherwise
than on an exchange reported to the NASD/NSX TRF. The scope of NASD's
authority under proposed NASD Rule 4633C is identical to its authority
to halt trading reported to the NASD/Nasdaq TRF and the ADF.
As described below, the proposed rules differ from the NASD/Nasdaq
TRF rules in certain respects. Currently, NASD Rules 4100 and
4200(a)(2) of the NASD/Nasdaq TRF rules define ``designated
securities'' as all Nasdaq National Market (now Nasdaq Global Market)
and Nasdaq Capital Market securities and convertible bonds listed on
Nasdaq.\17\ As defined in proposed NASD Rules 4100C and 4200C(a)(2),
``designated securities'' for purposes of reporting trades to the NASD/
NSX TRF means ``all equity securities listed on the Nasdaq Stock Market
LLC.'' The proposed definition is intended to capture the same universe
of Nasdaq-listed securities (except for convertible bonds) in current
NASD Rules 4100 and 4200(a)(2), without specifying the various Nasdaq
tiers.
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\17\ On September 5, 2006, NASD filed a proposed rule change
that proposes, among other things, to amend the definition of
``designated securities'' in NASD Rules 4100 and 4200(a)(2) to apply
to all NMS stocks as defined in NASD Rule 600(b)(47) of Regulation
NMS under the Act. See Securities Exchange Act Release No. 54451
(September 15, 2006) (SR-NASD-2006-104) (Notice). NASD intends to
propose a similar amendment to the definition of ``designated
securities'' in proposed NASD Rules 4100C and 4200C(a)(2) in a
separate rule filing.
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Second, pursuant to proposed NASD Rule 6120C, only members of NASD
may use the NASD/NSX TRF. Non-members will not be permitted to submit
trade reports to the NASD/NSX TRF. Under very limited circumstances,
certain Non-Member Clearing Organizations are granted access to and
participation in the NASD/Nasdaq TRF.
Third, pursuant to proposed NASD Rule 6140C, all trades submitted
to the NASD/NSX TRF must be locked-in prior to entry into the System.
The NASD/NSX TRF will have no trade comparison functionality. Thus,
there are no proposed rules relating to trade matching, trade
acceptance or aggregate volume matching. Similarly, there will be no
``Browse'' function, meaning that participants will not be able to
review or query for trades in the NASD/NSX TRF identifying the
participant as a party to the transaction.
Fourth, on the first day of operation, the NASD/NSX TRF will not be
able to support trade reporting for certain transactions. Specifically,
transactions executed outside of normal market hours cannot be reported
to the NASD/NSX TRF on an ``as/of'' or next day (T+1) basis, pursuant
to NASD Rule 4632C(a)(2). In addition, the NASD/NSX TRF will not
support the .W or .PRP modifiers and therefore proposed NASD Rule
4632C(a)(7) provides that Stop Stock Transactions (as such term is
defined in NASD Rule 4200C), transactions at prices based on average-
weighting or other special pricing formulae, and transactions that
reflect a price different from the current market when the execution
price is based on a prior reference point in time cannot be reported to
the NASD/NSX TRF. Thus, proposed NASD Rules 4632C(a)(2) and (7)
expressly require members to report such trades to NASD via an
alternative electronic mechanism.\18\
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\18\ The NASD/NSX TRF is intended to ultimately have much of the
same functionality that will be provided by the NASD/Nasdaq TRF.
When and if such functionality is developed, NASD will file a
proposed rule change to amend the NASD/NSX TRF trade reporting rules
accordingly.
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Similarly, proposed NASD Rule 4632C(a)(3) provides that
participants
[[Page 56576]]
must use an alternative electronic mechanism, and comply with all rules
applicable to such alternative mechanism, to report transactions to
NASD for which electronic submission to the NASD/NSX TRF is not
possible. Where last sale reports of transactions in designated
securities cannot be submitted to NASD via an alternative electronic
mechanism such as the ADF or another Trade Reporting Facility (for
example, where the ticker symbol for the security is no longer
available or a market participant identifier is no longer active),
members shall report such transactions as soon as practicable to the
NASD Market Regulation Department on Form T. Transactions that can be
reported to NASD electronically, whether on trade date or on a
subsequent date on an ``as of'' basis (T+N), shall not be reported on
Form T.
Fifth, members will not be permitted to aggregate individual
executions of orders in a security at the same price into a single
transaction report submitted to the NASD/NSX TRF. Thus, the proposed
rule change does not contain a counterpart to NASD Rule 4632(f) or NASD
Rule 6100(e) permitting ``bunched'' trades to be reported to the NASD/
Nasdaq TRF.
Finally, cancellation of any trade that has been submitted to the
NASD/NSX TRF must be reported in accordance with proposed NASD Rule
4632C(f). For trades that are cancelled after the day of execution of
the trade or trade cancellations that are not reported on the day of
execution of the trade, members must contact Trade Reporting Facility
Operations to report the trade cancellation.
NASD notes that the proposed rule change does not include any
proposed rules relating to fees, assessments and credits specifically
related to the NASD/NSX TRF. Fees, assessments and credits, if any,
with respect to the NASD/NSX TRF will be the subject of a future rule
filing with the SEC.
Proposed Amendments to Certain Existing NASD Rules
Although not explicitly detailed herein, it is important to note
that all other NASD rules that apply to over-the-counter trading
generally will apply to trades reported to the NASD/NSX TRF. However,
certain NASD rules must be amended in order to reflect the operation of
more than one Trade Reporting Facility.
NASD Rule 5100 (Short Sale Rule), which restricts short selling on
a ``downbid,'' will apply to transactions reported to the NASD/NSX TRF.
The text of that rule currently provides that, with respect to trades
reported to NASD's Alternative Display Facility or the Trade Reporting
Facility, no member shall effect a short sale in a Nasdaq Global Market
Security otherwise than on an exchange at or below the current national
best (inside) bid when the current national best (inside) bid is below
the preceding national best (inside) bid. NASD is proposing a technical
amendment to NASD Rule 5100 to change the reference to ``the Trade
Reporting Facility'' to ``a Trade Reporting Facility'' to clarify that
the rule applies to trades reported to any Trade Reporting Facility
established by NASD. NASD is proposing an identical technical amendment
to NASD Interpretive Material (IM)-5100(b) to change the reference to
``the Trade Reporting Facility'' to ``a Trade Reporting Facility.''
NASD believes that the current language is too narrow and may suggest
that the rule applies only to trades reported to the NASD/Nasdaq TRF.
In addition, NASD Rule 6120 currently provides that participation
in the System \19\ is mandatory for members that are participants of a
clearing agency registered with the Commission pursuant to Section 17A
of the Act, and for members that have a clearing arrangement with such
a participant, unless a member subscribes to TRACS. NASD is proposing
to amend this rule to provide that participation in the System is
mandatory for any member that has an obligation to report an over-the-
counter transaction to NASD, unless the member has an alternative
mechanism pursuant to NASD rules for reporting and clearing such
transaction. Thus, for example, participation in the System under NASD
Rule 6120 for purposes of reporting trades in Nasdaq-listed equity
securities would not be mandatory for a member that is a Participant in
the NASD/NSX TRF.
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\19\ ``System'' is defined in NASD Rule 6110(m) to mean the
NASD/Nasdaq Trade Reporting Facility, the trade reporting service of
the ITS/CAES System, and the OTC Reporting Facility.
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Proposed New Rule Relating to Multiple Market Participant Symbols
NASD is proposing a new rule in the NASD Rule 5000 Series (Trading
Otherwise Than On An Exchange) relating to the use of multiple Market
Participant Symbols (``MPIDs'') by members using a Trade Reporting
Facility established by NASD. Proposed NASD Rule 5140 (Multiple MPIDs
for Trade Reporting Facility Participants) would provide that any Trade
Reporting Facility Participant that wishes to use more than one MPID
for purposes of reporting trades to a Trade Reporting Facility must
submit a written request to, and obtain approval from, NASD Operations
for such additional MPID(s).
In addition, NASD is proposing new NASD Interpretive Material (IM)-
5140 stating that NASD considers the issuance of, and trade reporting
with, multiple MPIDs to be a privilege and not a right. A Trade
Reporting Facility Participant must identify the purpose(s) for which
the multiple MPIDs will be used. If NASD determines that the use of
multiple MPIDs is detrimental to the marketplace, or that a Trade
Reporting Facility Participant is using one or more additional MPIDs
improperly or for other than the purpose(s) identified by the
Participant, NASD staff retains full discretion to limit or withdraw
its grant of the additional MPID(s) to such Trade Reporting Facility
Participant for purposes of reporting trades to a Trade Reporting
Facility. NASD believes that the proposed new rule and interpretive
material are necessary in order to consolidate the process of issuing
multiple MPIDs with NASD.\20\
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\20\ Currently, members that use the NASD/Nasdaq TRF are able to
obtain and use multiple MPIDs upon request. NASD notes that NASD/
Nasdaq TRF Participants using existing multiple MPIDs will be
grandfathered and will not be required to submit a new form to NASD
Operations in order to continue using their MPIDs. However, any such
Participant wishing to obtain additional MPIDs after implementation
of proposed NASD Rule 5140 would need the approval of NASD
Operations. To the extent that a Participant is a member of multiple
SROs and intends to use the MPID(s) on multiple SRO systems, NASD
will work with the other SRO(s) to coordinate the MPID approval
process.
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NASD will announce the effective date of the proposed rule change
no later than 30 days following Commission approval.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\21\ 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, 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 protect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest. NASD believes that
establishment of the NASD/NSX TRF is in the public interest and
appropriate for the protection of investors and the maintenance of fair
and orderly markets because it will provide members another mechanism
to report
[[Page 56577]]
transactions in Nasdaq-listed equity securities effected otherwise than
on an exchange.
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\21\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
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 Exchange 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-2006-108 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-2006-108. 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 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-2006-108
and should be submitted on or before October 18, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-15792 Filed 9-26-06; 8:45 am]
BILLING CODE 8010-01-P
