Self-Regulatory Organizations: National Association of Securities Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change To Exempt All Securities Included in the Nasdaq-100 Index From the Price Test Set Forth in NASD Rule 5100, 59573-59575 [E6-16644]
Download as PDF
Federal Register / Vol. 71, No. 195 / Tuesday, October 10, 2006 / Notices
instructions.170 The revision regarding
new display instructions 171 changes
only the method by which such an
instruction would need to be submitted,
but alters no principle of priority
included in the original proposal.
Amendment No. 2 also improves the
proposal by confirming the
circumstances in which the Matching
System would display quotes that
would lock or cross the protected quotes
of other markets,172 and appropriately
spells out that the Matching System will
trade in increments supported by the
ITS or Regulation NMS linkage plan, as
may be applicable.173 Another provision
adds clarity to how orders should be
identified, according to the proposed
rules, when a trade is executed pursuant
to both the intermarket sweep order
exception of Rule 611(b)(5) or (6) of
Regulation NMS and the self-help
exception of Rule 611(b)(1) of
Regulation NMS.174 Other clarifying
changes similarly enhance the
proposal.175
Amendment No. 2 also incorporates a
number of added restrictions and
requirements for market makers that set
forth in more detail the parameters by
which market making may take place on
the Exchange and should aid in the
prevention of abuses.176 In addition,
Amendment No. 2 sets forth provisions
requiring the Exchange to maintain
internal controls designed to restrict the
flow of confidential and proprietary
information between the Exchange and
the third-party broker-dealer providing
connectivity to other markets. The
provision added by Amendment No. 2
to permit ‘‘qualified contingent trades’’
to be executed on the Exchange 177
merely assures that market participants
would be able to benefit from the
Commission’s order exempting from
Rule 611(a) any trade-throughs caused
by such trades. The revisions to the text
to reflect and conform to recent changes
made as the result of other, recently
approved CHX proposals,178 as well as
the technical changes and corrections
included in Amendment No. 2, raise no
substantive issues. Finally, a number of
the changes mirror rules that already
have been approved for other
exchanges.
For the above reasons, the
Commission believes that the revisions
to the proposed rule change made by
170 See
supra note 84.
supra note 86.
172 See supra note 87.
173 See supra, note 88.
174 See supra note 89.
175 See supra notes 90–95 and accompanying text.
176 See supra notes 96–97 and accompanying text.
177 See supra notes 97–99 and accompanying text.
178 See supra note 101.
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171 See
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Amendment No. 2 pose no significant
regulatory concerns, and should not
delay implementation of the proposal.
The Commission also believes that
accelerated approval is reasonable
because it should help to ensure that the
appropriate rules are in place at the
Exchange at the time that the CHX’s
final technical specifications with
respect to Regulation NMS must be
published.
V. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
2, including whether Amendment No. 2
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–CHX–2006–05 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–CHX–2006–05. 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 the filing also will be
available for inspection and copying at
the principal office of CHX. 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
PO 00000
Frm 00148
Fmt 4703
Sfmt 4703
59573
Number SR–CHX–2006–05 and should
be submitted on or before October 31,
2006.
VI. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,179 that the
proposed rule change (File No. SR–
CHX–2006–05), as amended by
Amendment No. 1, be, and hereby is,
approved, and that Amendment No. 2 to
the proposed rule change be, and hereby
is, approved on an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.180
Nancy M. Morris,
Secretary.
[FR Doc. E6–16626 Filed 10–6–06; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54558; File No. SR–NASD–
2006–076]
Self-Regulatory Organizations:
National Association of Securities
Dealers, Inc.; Notice of Filing and
Order Granting Accelerated Approval
of Proposed Rule Change To Exempt
All Securities Included in the Nasdaq100 Index From the Price Test Set
Forth in NASD Rule 5100
October 2, 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 June 15,
2006, the National Association of
Securities Dealers, Inc. (‘‘NASD’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by NASD. On
August 18, 2006, NASD filed
Amendment No. 1 to the proposed rule
change.3 On September 20, 2006, NASD
filed Amendment No. 2 to the proposed
rule change, as amended.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
179 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, which supplemented the
original filing, NASD modified the scope of the
proposed rule change and made certain technical
and clarifying changes following discussions with
Commission staff.
4 After discussions with Commission staff, NASD
filed Amendment No. 2 to modify its discussion of
the purpose of the proposed rule filing and to make
other technical and clarifying rule changes.
Amendment No. 2 replaced and superseded the
original filing in its entirety.
180 17
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Federal Register / Vol. 71, No. 195 / Tuesday, October 10, 2006 / Notices
change from interested persons. In
addition, the Commission is granting
accelerated approval of the proposed
rule change, as amended.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASD is proposing to exempt all
securities included in the Nasdaq-100
Index from the price test set forth in
NASD Rule 5100.
Below is the text of the proposed rule
change, as amended. Proposed new
language is italicized.
*
*
*
*
*
5100. Short Sale Rule
(a)–(b) No Change.
(c) The provisions of paragraph (a)
shall not apply to:
(1)–(9) No Change.
(10) Sales of securities included in the
Nasdaq-100 Index.
(d)–(l) No Change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASD included statements concerning
the purpose of and basis for the
proposed rule change, as amended, and
discussed any comments it received on
the proposed rule change, as amended.
The text of these statements may be
examined at the places specified in Item
III 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
jlentini on PROD1PC65 with NOTICES
(a) Rule Filing History
On June 15, 2006, NASD, through its
subsidiary, The Nasdaq Stock Market,
Inc. (‘‘Nasdaq’’), filed with the
Commission proposed rule change SR–
NASD–2006–076 which proposed to
exempt all securities included in the
Nasdaq–100 Index from the price test
set forth in NASD Rule 3350(a) (the
‘‘Original Proposal’’).
On June 30, 2006, the Commission
approved SR–NASD–2005–087, which
amended certain NASD rules to reflect
the separation of Nasdaq from NASD
upon the operation of Nasdaq as a
national securities exchange.5 Among
5 See
Securities Exchange Act Release No. 54085
(June 30, 2006), 71 FR 38910 (July 10, 2006).
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16:42 Oct 06, 2006
Jkt 211001
other amendments, SR–NASD–2005–
087 amended Rule 3350 to renumber it
as Rule 5100 and apply it uniformly to
short sales of over-the-counter (‘‘OTC’’)
transactions reported to the Alternative
Display Facility (‘‘ADF’’) or the Trade
Reporting Facility (‘‘TRF’’). SR–NASD–
2005–087 became effective on August 1,
2006, the date upon which Nasdaq
began operation as an exchange for
Nasdaq-listed securities.
Given the Commission’s approval of
SR–NASD–2005–087, NASD assumed
direct responsibility for all rulemaking
functions related to Rule 5100 (formerly
Rule 3350). As such, NASD filed
Amendment No. 1 to SR–NASD–2006–
076, which amended the Original
Proposal to reflect the renumbering of
Rule 3350 as Rule 5100 in the proposed
rule text, among other technical and
clarifying changes.
NASD filed Amendment No. 2 to SR–
NASD–2006–076 to revise the basis
upon which NASD is filing the
proposed rule change herein and to
make additional technical and clarifying
changes.
(b) Rationale
Rule 5100 provides that, with respect
to trades reported to the ADF or the TRF
no member shall effect a short sale in a
National Global Market (‘‘NGM’’)
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.6 NASD states
that the price test contained in Rule
5100 is designed to prevent the market
price of NGM securities from being
manipulated downward by unrestricted
short selling. In addition, NASD notes
that all short sales in NGM securities
effected otherwise than on an exchange
must comply with Rule 5100 or qualify
for an exception to, or exemption from,
the rule.
On August 21, 2006, The NASDAQ
Stock Market LLC (‘‘Nasdaq Exchange’’)
filed proposed rule change SR–
NASDAQ–2006–031 to exempt all
securities included in the Nasdaq–100
Index from Nasdaq Exchange Rule 3350,
which governs short sales in NGM
securities executed on or reported to the
Nasdaq Exchange.7 NASD states that
6 NASD recently amended Rule 5100 to allow
members to use, for a transitional period ending on
November 3, 2006, the Nasdaq Exchange best
(inside) bid rather than the national best (inside)
bid for the purposes of the application of the rule.
See Exchange Act Release No. 54203 (July 25,
2006), 71 FR 43256 (July 31, 2006) (SR–NASD–
2006–089).
7 The SEC approved SR–NASDAQ–2006–031 on
September 13, 2006. See Securities Exchange Act
Release No. 54435 (September 13, 2006), 71 FR
55042 (September 20, 2006).
PO 00000
Frm 00149
Fmt 4703
Sfmt 4703
NASD is filing the proposed rule
change, as amended, to create a similar
exemption from Rule 5100 for securities
included in the Nasdaq–100 Index.
NASD believes that, with respect to
securities included in the Nasdaq–100
Index, short sales in NGM securities
executed otherwise than on an exchange
should be subject to the same exemption
as short sales in NGM securities
executed on or reported to the Nasdaq
Exchange. Accordingly, NASD states
that it is filing the proposed rule change,
as amended, to amend Rule 5100 to
create an exemption for all securities
included in the Nasdaq–100 Index,
consistent with the approved exemption
in SR–NASDAQ–2006–031 for short
sales in NGM securities executed on or
reported to the Nasdaq Exchange.
The effective date of the proposed
rule change, as amended, will be
announced in a Notice to Members.
2. Statutory Basis
NASD believes that the proposed rule
change, as amended, is consistent with
the provisions of Section 15A(b)(6) of
the Act,8 which requires, among other
things, that NASD rules must 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. NASD
believes that the proposed rule change,
as amended, will provide a uniform
exemption for NGM securities included
in the Nasdaq–100 Index, consistent
with the changes in SR–NASDAQ–
2006–031.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASD does not believe that the
proposed rule change, as amended, will
result in any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments on the Original
Proposal were solicited by the
Commission.9 As noted above, the
Original Proposal was a substantially
similar rule filing to the proposed rule
change, as amended, that proposed to
exempt all securities in the Nasdaq–100
Index from the price test in former
NASD Rule 3350. The Original Proposal
was filed by Nasdaq when it was a
subsidiary of NASD and prior to Nasdaq
8 15
U.S.C. 78o–3(b)(6).
Exchange Act Release No. 54010 (June 16,
2006), 71 FR 35964 (June 22, 2006).
9 See
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10OCN1
Federal Register / Vol. 71, No. 195 / Tuesday, October 10, 2006 / Notices
jlentini on PROD1PC65 with NOTICES
commencing operations as a national
securities exchange.10 The Commission
did not receive any comment letters in
response to the Federal Register
publication of the Original Proposal.
IV. Commission’s Findings and Order
Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
III. Solicitation of Comments
with the requirements of the Act and the
Interested persons are invited to
rules and regulations thereunder
submit written data, views and
applicable to a national securities
arguments concerning the foregoing,
association 11 and, in particular, the
including whether the proposed rule
requirements of Section 15A of the
change, as amended, is consistent with
Act 12 and the rules and regulations
the Act. Comments may be submitted by
thereunder. The Commission finds
any of the following methods:
specifically that the proposed rule
change, as amended, is consistent with
Electronic Comments
Sections 15A(b)(6) and 15A(b)(9) of the
• Use the Commission’s Internet
Act 13 in that it is designed to promote
comment form (https://www.sec.gov/
just and equitable principles of trade, to
rules/sro.shtml); or
foster cooperation and coordination
• Send an e-mail to rulewith persons engaged in regulating,
comments@sec.gov. Please include File
clearing, settling, processing
Number SR–NASD–2006–076 on the
information with respect to, and
subject line.
facilitating transactions in securities, to
remove impediments to and perfect the
Paper Comments
mechanism of a free and open market
• Send paper comments in triplicate
and a national market system, and, in
to Nancy M. Morris, Secretary,
general, to protect investors and the
Securities and Exchange Commission,
public interest; and is not designed to
100 F Street, NE., Washington, DC
permit unfair discrimination between
20549–1090.
customers, issuers, brokers, or dealers,
All submissions should refer to File
or to regulate by virtue of any authority
Number SR–NASD–2006–076. This file
conferred by the Act matters not related
number should be included on the
to the purposes of the Act or the
subject line if e-mail is used. To help the administration of the exchange.
Commission process and review your
NASD Rule 5100 provides that, with
comments more efficiently, please use
respect to trades reported to the ADF or
only one method. The Commission will the TRF, no member shall effect a short
post all comments on the Commission’s sale in a NGM security otherwise than
Internet Web site (https://www.sec.gov/
on an exchange at or below the current
rules/sro.shtml). Copies of the
national best (inside) bid when the
submission, all subsequent
current national best (inside) bid is
amendments, all written statements
below the preceding national best
with respect to the proposed rule
(inside) bid. NASD Rule 5100 is
change, as amended, that are filed with
inapplicable to National Capital Market
the Commission, and all written
securities. The proposed rule change, as
communications relating to the
amended, amends NASD Rule 5100 to
proposed rule change, as amended,
exempt from its price test securities
between the Commission and any
included in the Nasdaq-100 Index.
person, other than those that may be
The Commission is currently
withheld from the public in accordance conducting the Pilot to study and
with the provisions of 5 U.S.C. 552, will evaluate the overall effectiveness and
be available for inspection and copying
necessity of short sale prices tests.14 On
in the Commission’s Public Reference
Room. Copies of such filing also will be
11 In approving this proposed rule change, as
available for inspection and copying at
amended, the Commission notes that it has
considered the proposed rule’s impact on
the principal office of NASD.
All comments received will be posted efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
without change; the Commission does
12 15 U.S.C. 78o–3.
not edit personal identifying
13 15 U.S.C. 78o–3(b)(6) and (9).
14 See Securities Exchange Act Release No. 50104
information from submissions. You
(July 28, 2004), 69 FR 48032 (August 6, 2004)
should submit only information that
you wish to make available publicly. All (‘‘First Pilot Order’’). The Pilot suspended price
tests for the following: (1) Short sales in the
submissions should refer to File
securities identified in Appendix A to the First
Number SR–NASD–2006–076 and
Pilot Order; (2) short sales in the securities included
in the Russell 1000 index effected between 4:15
should be submitted on or before
p.m. EST and the open of the effective transaction
October 31, 2006.
10 See
reporting plan of the Consolidated Tape Association
(‘‘consolidated tape’’) on the following day; and (3)
short sales in any security not included in
supra note 5.
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16:42 Oct 06, 2006
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PO 00000
Frm 00150
Fmt 4703
Sfmt 4703
59575
April 20, 2006, we extended the Pilot in
order to maintain the status quo for
price tests of Pilot securities while we
complete our analysis of the results of
the Pilot and conduct any additional
rulemaking that we determine may be
warranted.15 We have not reached any
conclusions regarding price tests.
However, we believe that this proposed
rule change is consistent with the
statute.
Currently, securities in the Nasdaq100 Index are subject to a price test only
if they are traded OTC and reported to
a NASD facility. NASD’s proposed rule
change, as amended, would provide a
uniform exemption for securities
included in the Nasdaq-100 Index so
that such securities would not be
subject to a price test in any market.
NASD has requested that the
Commission find good cause for
approving the proposed rule change
prior to the 30th day after publication of
notice thereof in the Federal Register.
The Commission notes that it previously
solicited comments on the Original
Proposal, a substantially similar
proposal to the proposed rule change.
The Original Proposal would have
exempted all securities included in the
Nasdaq-100 Index from the price test in
former NASD Rule 3350. The Original
Proposal was published for comment in
the Federal Register on June 22, 2006.
The Commission received no comments
on the Original Proposal. Accordingly,
the Commission finds good cause exists,
consistent with Sections 15(A)(b)(6) and
19(b)(2) of the Act,16 to approve the
proposed rule change, as amended, on
an accelerated basis, prior to the 30th
day after the date of publication of the
notice of filing thereof in the Federal
Register
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act that the
proposed rule change (SR–NASDAQ–
2006–076), as amended, is approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.17
Nancy M. Morris,
Secretary.
[FR Doc. E6–16644 Filed 10–6–06; 8:45 am]
BILLING CODE 8011–01–P
paragraphs (1) and (2) effected in the period
between the close of the consolidated tape and the
open of the consolidated tape on the following day.
15 See Order Extending Term of Short Sale Pilot,
Release No. 34–53684 (April 20, 2006), 71 FR 24765
(April 26, 2006).
16 15 U.S.C. 78o–3(b)(6); 15 U.S.C. 78s(b)(2).
17 17 CFR 200.30–3(a)(12).
E:\FR\FM\10OCN1.SGM
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Agencies
[Federal Register Volume 71, Number 195 (Tuesday, October 10, 2006)]
[Notices]
[Pages 59573-59575]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-16644]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54558; File No. SR-NASD-2006-076]
Self-Regulatory Organizations: National Association of Securities
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval
of Proposed Rule Change To Exempt All Securities Included in the
Nasdaq-100 Index From the Price Test Set Forth in NASD Rule 5100
October 2, 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 June 15, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by NASD. On August
18, 2006, NASD filed Amendment No. 1 to the proposed rule change.\3\ On
September 20, 2006, NASD filed Amendment No. 2 to the proposed rule
change, as amended.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule
[[Page 59574]]
change from interested persons. In addition, the Commission is granting
accelerated approval of the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, which supplemented the original filing,
NASD modified the scope of the proposed rule change and made certain
technical and clarifying changes following discussions with
Commission staff.
\4\ After discussions with Commission staff, NASD filed
Amendment No. 2 to modify its discussion of the purpose of the
proposed rule filing and to make other technical and clarifying rule
changes. Amendment No. 2 replaced and superseded the original filing
in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to exempt all securities included in the Nasdaq-
100 Index from the price test set forth in NASD Rule 5100.
Below is the text of the proposed rule change, as amended. Proposed
new language is italicized.
* * * * *
5100. Short Sale Rule
(a)-(b) No Change.
(c) The provisions of paragraph (a) shall not apply to:
(1)-(9) No Change.
(10) Sales of securities included in the Nasdaq-100 Index.
(d)-(l) No Change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change, as
amended, and discussed any comments it received on the proposed rule
change, as amended. The text of these statements may be examined at the
places specified in Item III 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
(a) Rule Filing History
On June 15, 2006, NASD, through its subsidiary, The Nasdaq Stock
Market, Inc. (``Nasdaq''), filed with the Commission proposed rule
change SR-NASD-2006-076 which proposed to exempt all securities
included in the Nasdaq-100 Index from the price test set forth in NASD
Rule 3350(a) (the ``Original Proposal'').
On June 30, 2006, the Commission approved SR-NASD-2005-087, which
amended certain NASD rules to reflect the separation of Nasdaq from
NASD upon the operation of Nasdaq as a national securities exchange.\5\
Among other amendments, SR-NASD-2005-087 amended Rule 3350 to renumber
it as Rule 5100 and apply it uniformly to short sales of over-the-
counter (``OTC'') transactions reported to the Alternative Display
Facility (``ADF'') or the Trade Reporting Facility (``TRF''). SR-NASD-
2005-087 became effective on August 1, 2006, the date upon which Nasdaq
began operation as an exchange for Nasdaq-listed securities.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 54085 (June 30,
2006), 71 FR 38910 (July 10, 2006).
---------------------------------------------------------------------------
Given the Commission's approval of SR-NASD-2005-087, NASD assumed
direct responsibility for all rulemaking functions related to Rule 5100
(formerly Rule 3350). As such, NASD filed Amendment No. 1 to SR-NASD-
2006-076, which amended the Original Proposal to reflect the
renumbering of Rule 3350 as Rule 5100 in the proposed rule text, among
other technical and clarifying changes.
NASD filed Amendment No. 2 to SR-NASD-2006-076 to revise the basis
upon which NASD is filing the proposed rule change herein and to make
additional technical and clarifying changes.
(b) Rationale
Rule 5100 provides that, with respect to trades reported to the ADF
or the TRF no member shall effect a short sale in a National Global
Market (``NGM'') 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.\6\ NASD
states that the price test contained in Rule 5100 is designed to
prevent the market price of NGM securities from being manipulated
downward by unrestricted short selling. In addition, NASD notes that
all short sales in NGM securities effected otherwise than on an
exchange must comply with Rule 5100 or qualify for an exception to, or
exemption from, the rule.
---------------------------------------------------------------------------
\6\ NASD recently amended Rule 5100 to allow members to use, for
a transitional period ending on November 3, 2006, the Nasdaq
Exchange best (inside) bid rather than the national best (inside)
bid for the purposes of the application of the rule. See Exchange
Act Release No. 54203 (July 25, 2006), 71 FR 43256 (July 31, 2006)
(SR-NASD-2006-089).
---------------------------------------------------------------------------
On August 21, 2006, The NASDAQ Stock Market LLC (``Nasdaq
Exchange'') filed proposed rule change SR-NASDAQ-2006-031 to exempt all
securities included in the Nasdaq-100 Index from Nasdaq Exchange Rule
3350, which governs short sales in NGM securities executed on or
reported to the Nasdaq Exchange.\7 \NASD states that NASD is filing the
proposed rule change, as amended, to create a similar exemption from
Rule 5100 for securities included in the Nasdaq-100 Index. NASD
believes that, with respect to securities included in the Nasdaq-100
Index, short sales in NGM securities executed otherwise than on an
exchange should be subject to the same exemption as short sales in NGM
securities executed on or reported to the Nasdaq Exchange. Accordingly,
NASD states that it is filing the proposed rule change, as amended, to
amend Rule 5100 to create an exemption for all securities included in
the Nasdaq-100 Index, consistent with the approved exemption in SR-
NASDAQ-2006-031 for short sales in NGM securities executed on or
reported to the Nasdaq Exchange.
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\7\ The SEC approved SR-NASDAQ-2006-031 on September 13, 2006.
See Securities Exchange Act Release No. 54435 (September 13, 2006),
71 FR 55042 (September 20, 2006).
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The effective date of the proposed rule change, as amended, will be
announced in a Notice to Members.
2. Statutory Basis
NASD believes that the proposed rule change, as amended, is
consistent with the provisions of Section 15A(b)(6) of the Act,\8\
which requires, among other things, that NASD rules must 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. NASD believes that the proposed rule
change, as amended, will provide a uniform exemption for NGM securities
included in the Nasdaq-100 Index, consistent with the changes in SR-
NASDAQ-2006-031.
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\8\ 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, as amended,
will result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments on the Original Proposal were solicited by the
Commission.\9\ As noted above, the Original Proposal was a
substantially similar rule filing to the proposed rule change, as
amended, that proposed to exempt all securities in the Nasdaq-100 Index
from the price test in former NASD Rule 3350. The Original Proposal was
filed by Nasdaq when it was a subsidiary of NASD and prior to Nasdaq
[[Page 59575]]
commencing operations as a national securities exchange.\10\ The
Commission did not receive any comment letters in response to the
Federal Register publication of the Original Proposal.
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\9\ See Exchange Act Release No. 54010 (June 16, 2006), 71 FR
35964 (June 22, 2006).
\10\ See supra note 5.
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III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2006-076 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-2006-076. 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, as
amended, that are filed with the Commission, and all written
communications relating to the proposed rule change, as amended,
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for inspection and copying in the Commission's
Public Reference 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-2006-076
and should be submitted on or before October 31, 2006.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities association \11\ and, in particular, the requirements of
Section 15A of the Act \12\ and the rules and regulations thereunder.
The Commission finds specifically that the proposed rule change, as
amended, is consistent with Sections 15A(b)(6) and 15A(b)(9) of the Act
\13\ in that it is designed to promote just and equitable principles of
trade, to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest; and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers, or to regulate by virtue of
any authority conferred by the Act matters not related to the purposes
of the Act or the administration of the exchange.
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\11\ In approving this proposed rule change, as amended, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
\12\ 15 U.S.C. 78o-3.
\13\ 15 U.S.C. 78o-3(b)(6) and (9).
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NASD Rule 5100 provides that, with respect to trades reported to
the ADF or the TRF, no member shall effect a short sale in a NGM
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 Rule 5100 is
inapplicable to National Capital Market securities. The proposed rule
change, as amended, amends NASD Rule 5100 to exempt from its price test
securities included in the Nasdaq-100 Index.
The Commission is currently conducting the Pilot to study and
evaluate the overall effectiveness and necessity of short sale prices
tests.\14\ On April 20, 2006, we extended the Pilot in order to
maintain the status quo for price tests of Pilot securities while we
complete our analysis of the results of the Pilot and conduct any
additional rulemaking that we determine may be warranted.\15\ We have
not reached any conclusions regarding price tests. However, we believe
that this proposed rule change is consistent with the statute.
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\14\ See Securities Exchange Act Release No. 50104 (July 28,
2004), 69 FR 48032 (August 6, 2004) (``First Pilot Order''). The
Pilot suspended price tests for the following: (1) Short sales in
the securities identified in Appendix A to the First Pilot Order;
(2) short sales in the securities included in the Russell 1000 index
effected between 4:15 p.m. EST and the open of the effective
transaction reporting plan of the Consolidated Tape Association
(``consolidated tape'') on the following day; and (3) short sales in
any security not included in paragraphs (1) and (2) effected in the
period between the close of the consolidated tape and the open of
the consolidated tape on the following day.
\15\ See Order Extending Term of Short Sale Pilot, Release No.
34-53684 (April 20, 2006), 71 FR 24765 (April 26, 2006).
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Currently, securities in the Nasdaq-100 Index are subject to a
price test only if they are traded OTC and reported to a NASD facility.
NASD's proposed rule change, as amended, would provide a uniform
exemption for securities included in the Nasdaq-100 Index so that such
securities would not be subject to a price test in any market.
NASD has requested that the Commission find good cause for
approving the proposed rule change prior to the 30th day after
publication of notice thereof in the Federal Register. The Commission
notes that it previously solicited comments on the Original Proposal, a
substantially similar proposal to the proposed rule change. The
Original Proposal would have exempted all securities included in the
Nasdaq-100 Index from the price test in former NASD Rule 3350. The
Original Proposal was published for comment in the Federal Register on
June 22, 2006. The Commission received no comments on the Original
Proposal. Accordingly, the Commission finds good cause exists,
consistent with Sections 15(A)(b)(6) and 19(b)(2) of the Act,\16\ to
approve the proposed rule change, as amended, on an accelerated basis,
prior to the 30th day after the date of publication of the notice of
filing thereof in the Federal Register
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\16\ 15 U.S.C. 78o-3(b)(6); 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
that the proposed rule change (SR-NASDAQ-2006-076), as amended, is
approved on an accelerated basis.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-16644 Filed 10-6-06; 8:45 am]
BILLING CODE 8011-01-P