Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Make Conforming Changes to the NASD/Nasdaq Trade Reporting Facility Rules Consistent With the New Requirements of Regulation NMS, 2568-2573 [E7-688]

Download as PDF 2568 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices Electronic Comments $0.03 per contract, respectively. All of the applicable fees covered by this filing are identical to fees charged by the Exchange for all other Premium Products. The Exchange believes the proposed rule change will further the Exchange’s goal of introducing new products to the marketplace that are competitively priced. • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–ISE–2006–80 on the subject line. 2. Statutory Basis Paper Comments The basis under the Act for this proposed rule change is the requirement under Section 6(b)(4) 13 that an exchange have an equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities. • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule change does not impose 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 The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change establishes or changes a due, fee, or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 14 and Rule 19b–4(f)(2) 15 thereunder. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. sroberts on PROD1PC70 with NOTICES VI. 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: U.S.C. 78f(b)(4). U.S.C. 78s(b)(3)(A)(ii). 15 17 CFR 19b–4(f)(2). All submissions should refer to File Number SR–ISE–2006–80. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the ISE. 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–ISE–2006–80 and should be submitted on or before February 9, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–691 Filed 1–18–07; 8:45 am] BILLING CODE 8011–01–P 13 15 14 15 VerDate Aug<31>2005 18:10 Jan 18, 2007 16 17 Jkt 211001 PO 00000 CFR 200.30–3(a)(12). Frm 00079 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55101; File No. SR–NASD– 2007–002] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Make Conforming Changes to the NASD/Nasdaq Trade Reporting Facility Rules Consistent With the New Requirements of Regulation NMS January 12, 2007. 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 January 8, 2007, 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 substantially prepared by NASD. NASD has filed the proposal pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) thereunder,4 which renders the proposal effective upon filing with the Commission. 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 proposes to make conforming changes to the transaction reporting rules relating to the NASD/Nasdaq Trade Reporting Facility (‘‘NASD/ Nasdaq TRF’’) consistent with the new requirements of Regulation NMS under the Act.5 Below is the text of the proposed rule change. Proposed new language is italicized and proposed deletions are in [brackets]. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 5 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). The Commission has approved proposed rule changes to establish Trade Reporting Facilities in conjunction with the National Stock Exchange, Inc. and the Boston Stock Exchange, Inc. See Securities Exchange Act Release Nos. 54715 (November 6, 2006), 71 FR 66354 (November 14, 2006) (SR– NASD–2006–108) (‘‘NASD/NSX TRF’’) and 54931 (December 13, 2006), 71 FR 76409 (December 20, 2006) (SR–NASD–2006–115) (‘‘NASD/BSE TRF’’). NASD intends to file a separate proposed rule change to align the transaction reporting rules for the NASD/NSX TRF and the NASD/BSE TRF, and any additional Trade Reporting Facilities approved by the Commission, with Regulation NMS. 2 17 E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices sroberts on PROD1PC70 with NOTICES 4632. Transaction Reporting (a) When and How Transactions are Reported (1) Trade Reporting Facility Participants shall, within 90 seconds after execution, transmit to the NASD/ Nasdaq Trade Reporting Facility or if the NASD/Nasdaq Trade Reporting Facility is unavailable due to system or transmission failure, by telephone to the Operations Department, last sale reports of transactions in designated securities executed during normal market hours. Transactions not reported within 90 seconds after execution shall be designated as late. (2) Transaction Reporting to the NASD/Nasdaq Trade Reporting Facility Outside Normal Market Hours (A) Last sale reports of transactions in designated securities executed between 8:00 a.m. and 9:30 a.m. Eastern Time shall be reported within 90 seconds after execution and shall be designated [as ‘‘.T’’ trades] with the unique trade report modifier, as specified by NASD, to denote their execution outside normal market hours. [Transactions not reported within 90 seconds also shall be designated as .T trades.] Such [T]transactions not reported before 9:30 a.m. shall be reported after 4:00 p.m. and before 8:00 p.m. [as .T trades] with the appropriate trade report modifier as specified by NASD. (B) Last sale reports of transactions in designated securities executed between the hours of 4:00 p.m. and 8:00 p.m. Eastern Time shall be reported within 90 seconds after execution and be designated [as ‘‘.T’’ trades] with the unique trade report modifier, as specified by NASD, to denote their execution outside normal market hours. [Transactions not reported within 90 seconds also shall be designated as .T trades.] Such [T]transactions not reported before 8:00 p.m. shall be reported on an ‘‘as/of’’ basis the following day between 8:00 a.m. and 8:00 p.m. (C) Last sale reports of transactions executed between midnight and 8:00 a.m. Eastern Time shall be reported between 8:00 a.m. and 9:30 a.m. Eastern Time on trade date [as ‘‘.T’’ trades] with the unique trade report modifier, as specified by NASD, to denote their execution outside normal market hours. Such [T]transactions not reported before 9:30 a.m. shall be reported after 4:00 p.m. and before 8:00 p.m. [as .T trades] with the appropriate trade report modifier as specified by NASD. (D) Last sale reports of transactions executed between 8:00 p.m. and midnight Eastern Time shall be reported on the next business day (T+1) between VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 8:00 a.m. and 8:00 p.m. Eastern Time and be designated ‘‘as/of’’ trades. [(3) All members shall report as soon as practicable to the Market Regulation Department on Form T, last sale reports of transactions in designated securities for which electronic submission to the Trade Reporting Facility is not possible (e.g., the ticker symbol for the security is no longer available or a market participant identifier is no longer active). Transactions that can be reported to the Trade Reporting Facility, whether on trade date or on a subsequent date on an ‘‘as of’’ basis (T+N), shall not be reported on Form T.] [(4) All members shall append the ‘‘.W’’ trade report modifier to transaction reports occurring at prices based on average-weighting, or other special pricing formulae.] [(5) All trade tickets for transactions in designated securities shall be timestamped at the time of execution.] (3) Members shall time-stamp all trade tickets at the time of execution for transactions in designated securities. Execution time shall be reported to NASD on all last sale reports and shall be expressed in hours, minutes and seconds based on Eastern Time in military format, unless another provision of NASD rules requires that a different time be included on the report. [(6)] (4) Transactions not reported within 90 seconds after execution shall be designated as late. A pattern or practice of late reporting without exceptional circumstances may be considered conduct inconsistent with high standards of commercial honor and just and equitable principles of trade in violation of Rule 2110. [(7) All members shall append the .PRP trade report modifier to transaction reports that reflect a price different from the current market when the execution price is based on a prior reference point in time. The transaction report shall include the prior reference time in lieu of the actual time the trade was executed. The .PRP modifier shall not be appended to a report of a transaction whose price is based on a prior reference point in time if the trade is executed and reported within 90 seconds from the prior reference point in time.] [(8) The Trade Reporting Facility will append the .T modifier or the .SLD modifier, as appropriate, to those reports submitted to the Trade Reporting Facility that contain the time of execution, but that do not contain the appropriate modifier.] [(9) Members shall append the .W trade report modifier to reports of Stop Stock Transactions (as such term is defined in Rule 4200) and include the PO 00000 Frm 00080 Fmt 4703 Sfmt 4703 2569 time at which the member and the other party agreed to the Stop Stock Price in lieu of including the time of execution on the trade report. The .W modifier shall not be appended to a report of a Stop Stock Transaction if the Stop Stock Transaction is executed and reported within 90 seconds of the time the member and the other party agree to the Stop Price.] [(10) To identify pre-opening and after-hours trades reported late, the Trade Reporting Facility will convert the .T modifier to .ST for any report submitted to the Trade Reporting Facility more than 90 seconds after execution.] (5) Members also shall append the applicable trade report modifiers as specified by NASD to all last sale reports, including reports of ‘‘as/of’’ trades: (A) if the trade is executed during normal market hours and it is reported later than 90 seconds after execution; (B) if the trade is a Seller’s Option Trade, denoting the number of days for delivery; (C) if the trade is a Cash Trade; (D) if the trade is a Next Day Trade; (E) if the trade occurs at a price based on an average weighting or another special pricing formula; (F) if the trade is a Stop Stock Transaction (as defined in Rule 4200) (Note: the time at which the member and the other party agreed to the Stop Stock Price must be given in lieu of including the time of execution on the trade report and the designated modifier shall not be appended to a report of a Stop Stock Transaction if the Stop Stock Transaction is executed and reported within 90 seconds of the time the member and the other party agree to the Stop Stock Price); (G) if the transaction report reflects a price different from the current market when the execution price is based on a prior reference point in time (Note: the transaction report shall include the prior reference time in lieu of the actual time the trade was executed and the designated modifier shall not be appended to a report of a transaction whose price is based on a prior reference point in time if the trade is executed and reported within 90 seconds from the prior reference point in time); (H) to identify pre-opening and afterhours trades (executed between 8:00 a.m. and 9:30 a.m. Eastern time or between 4:00 p.m. and 8:00 p.m. Eastern time) reported more than 90 seconds after execution; (I) if the trade would be a tradethrough of a protected quotation, but for the trade being qualified for an E:\FR\FM\19JAN1.SGM 19JAN1 sroberts on PROD1PC70 with NOTICES 2570 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices exception or exemption from Rule 611 of Regulation NMS under the Act (Note: to ensure consistency in the usage of Rule 611 related modifiers by registered broker-dealers, this modifier will be used in conformity with the specifications approved by the Operating Committee of the relevant National Market System Plans to identify trades executed pursuant to an exception or exemption from Rule 611); (J) if the trade would be a tradethrough of a protected quotation, but for the trade being qualified for an exception or exemption from Rule 611 of Regulation NMS under the Act, members must, in addition to the modifier required in paragraph (I) above, append an appropriate unique modifier, specified by NASD, that identifies the specific applicable exception or exemption from Rule 611 that a member is relying upon (Note: to ensure consistency in the usage of Rule 611 related modifiers by registered broker-dealers, these modifiers will be used in conformity with the specifications approved by the Operating Committee of the relevant National Market System Plans to identify trades executed pursuant to an exception or exemption from Rule 611); and (K) any other modifier as specified by NASD or the Securities and Exchange Commission. To the extent that any of the modifiers required by this rule conflict, NASD shall provide guidance regarding the priorities among modifiers and members shall report in accordance with such guidance, as applicable. (6) The NASD/Nasdaq Trade Reporting Facility will append the appropriate modifier to indicate that a trade was executed outside normal market hours or that a report was submitted late to the NASD/Nasdaq Trade Reporting Facility, where such report contains the time of execution, but does not contain the appropriate modifier. (7) To identify pre-opening and afterhours trades reported late, the NASD/ Nasdaq Trade Reporting Facility will convert the late modifier, as applicable, on any pre-opening or after-hours report submitted to the NASD/Nasdaq Trade Reporting Facility more than 90 seconds after execution. (8) All members shall report as soon as practicable to the Market Regulation Department on Form T, last sale reports of transactions in designated securities for which electronic submission to the NASD/Nasdaq Trade Reporting Facility is not possible (e.g., the ticker symbol for the security is no longer available or a market participant identifier is no VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 longer active). Transactions that can be reported to the NASD/Nasdaq Trade Reporting Facility, whether on trade date or on a subsequent date on an ‘‘as of’’ basis (T+N), shall not be reported on Form T. (b) through (e) No Change. (f) Prohibition on Aggregation of Transaction Reports Individual executions of orders in a security at the same price may not be aggregated, for purposes of transaction reporting to the NASD/Nasdaq Trade Reporting Facility, into a single transaction report. [(1) Under the following conditions, individual executions of orders in a security at the same price may be aggregated, for transaction reporting purposes, into a single transaction report. Individual transactions in convertible debt securities cannot be aggregated pursuant to this paragraph.] [(A) Orders received prior to the opening of the reporting member’s market in the security and simultaneously executed at the opening. Also, orders received during a trading or quotation halt in the security and executed simultaneously when trading or quotations resume. In no event shall a member delay its opening or resumption of quotations for the purpose of aggregating transactions.] [Example:] [A firm receives, prior to its market opening, several market orders to sell which total 10,000 shares. All such orders are simultaneously executed at the opening at a reported price of 40.] [REPORT 10,000 shares at 40.] [(B) Simultaneous executions by the member of customer transactions at the same price, e.g., a number of limit orders being executed at the same time when a limit price has been reached.] [Example:] [A firm has several customer limit orders to sell that total 10,000 shares at a limit price of 40. That price is reached and all such orders are executed simultaneously.] [REPORT 10,000 shares at 40.] [(C) Orders relayed to the trading department of the reporting member for simultaneous execution at the same price.] [Example:] [A firm purchases a block of 50,000 shares from an institution at a reported price of 40.] [REPORT 50,000 at 40.] [Subsequently, one of the firm’s branch offices transmits to the firm’s trading department for execution customer buy orders in the security totaling 12,500 shares at a reported price of 40.] [REPORT 12,500 at 40.] PO 00000 Frm 00081 Fmt 4703 Sfmt 4703 [Subsequently, another branch office transmits to the firm’s trading department for execution customer buy orders totaling 15,000 shares in the security at a reported price of 40.] [REPORT 15,000 at 40.] [Example:] [Due to a major change in market conditions, a firm’s trading department receives from a branch office for execution customer market orders to sell totaling 10,000 shares. All are executed at a reported price of 40.] [REPORT 10,000 at 40.] [(D) Orders received or initiated by the reporting member that are impractical to report individually and are executed at the same price within 60 seconds of execution of the initial transaction; provided however, that no individual order of 10,000 shares or more may be aggregated in a transaction report and that the aggregated transaction report shall be made within 90 seconds of the initial execution reported therein. Furthermore, it is not permissible for a member to withhold reporting a trade in anticipation of aggregating the transaction with other transactions. The limitation on aggregating individual orders of 10,000 shares or more for a particular security shall not apply on the first day of secondary market trading of an IPO for that security.] [Examples:] [A reporting member receives and executes the following orders at the following times and desires to aggregate reports to the maximum extent permitted under this Rule.] [First Example] [11:00 500 shares at 40] [11:01:05 500 shares at 40] [11:01:10 9,000 shares at 40] [11:01:15 500 shares at 40] [REPORT 10,500 shares at 40 within ninety seconds of 11:01.] [Second Example] [11:01:00 100 shares at 40] [11:01:10 11,000 shares at 40] [11:01:30 300 shares at 40] [REPORT 400 shares within ninety seconds of 11:01 and 11,000 shares within ninety seconds of 11:01:10 (individual transactions of 10,000 shares or more must be reported separately).] [Third Example] [11:01:00 100 shares at 40] [11:01:15 500 shares at 40] [11:01:30 200 shares at 40] [11:02:30 400 shares at 40] [REPORT 800 shares at 40 within ninety seconds of 11:01 and 400 shares at 40 within ninety seconds of 11:02:30 (the last trade is not within sixty seconds of the first and E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices must, therefore, be reported separately).] [(2) The reporting member shall identify aggregated transaction reports and order tickets of aggregated trades in a manner directed by NASD.] (g) No Change. * * * * * 6130. Trade Report Input (a) through (d) No Change. (e) Aggregation of Transaction Reports for Clearing Purposes Only. Individual executions of orders in a security at the same price may and with the identical contra party be aggregated[, for System reporting purposes,] into a single report and submitted to the System for purposes of clearing only [if the transactions are with the identical contra party]; provided, however, that a Reporting Party may not withhold reporting a trade in anticipation of aggregating the transaction with other transactions. (f) through (g) 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 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 sroberts on PROD1PC70 with NOTICES Background. On June 29, 2005, the Commission published its release adopting Regulation NMS,6 which established new substantive rules designed to modernize and strengthen the regulatory structure of the U.S. equities markets. Pursuant to Regulation NMS, the Commission, among other things, adopted Rule 611 (‘‘Order Protection Rule’’) to establish protection against trade-throughs for NMS stocks.7 6 See Regulation NMS Adopting Release, supra note 5. 7 NMS stock is defined in Rule 600(b)(47) of Regulation NMS as ‘‘any NMS security other than an option.’’ Rule 600(b)(46) of Regulation NMS defines NMS security as ‘‘any security or class of securities for which transaction reports are collected, processed, and made available pursuant VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 In general, the Order Protection Rule requires a trading center (which includes national securities exchanges, self-regulatory organization (‘‘SRO’’) trading facilities, alternative trading systems, OTC market makers, and block positioners) to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center of protected quotations and, if relying on an exception, that are reasonably designed to assure compliance with the terms of the exception.8 There currently are nine exceptions and two exemptions to the Order Protection Rule.9 In addition, the Order Protection Rule requires trading centers to surveil regularly to ascertain the effectiveness of the policies and procedures adopted pursuant to Rule 611 of Regulation NMS and take prompt action to remedy deficiencies in such policies and procedures. On June 30, 2006, the Commission approved SR–NASD–2005–087 which, among other things, proposed rules for reporting trades in Nasdaq-listed securities effected otherwise than on an exchange to the NASD/Nasdaq TRF.10 On November 21, 2006, the Commission approved SR–NASD–2006–104 which, among other things, proposed to expand the scope of the NASD/Nasdaq TRF rules to include reporting trades in nonNasdaq exchange-listed securities effected otherwise than on exchange.11 Neither NASD, generally, nor any of the NASD Trade Reporting Facilities, specifically, qualifies as a trading center within the meaning of Regulation NMS. Thus, the provisions of the Order Protection Rule requiring trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center of protected quotations in NMS stocks are not applicable to NASD. However, NASD has a responsibility to enforce to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.’’ 8 See Regulation NMS Adopting Release, supra note 5. 9 See 17 CFR 242.611; Securities Exchange Act Release Nos. 54389 (August 31, 2006), 71 FR 52829 (September 7, 2006) (Order Granting an Exemption for Qualified Contingent Trades from Rule 611(a) of Regulation NMS) and 54678 (October 31, 2006), 71 FR 65018 (November 6, 2006) (Order Exempting Certain Sub-Penny Trade-Throughs from Rule 611 of Regulation NMS). 10 See Securities Exchange Act Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006) (SR– NASD–2005–087). 11 See Securities Exchange Act Release No. 54798 (November 21, 2006), 71 FR 69156 (November 29, 2006) (SR–NASD–2006–104). SR–NASD–2006–104 will be effective on the date that the Nasdaq Exchange operates as a national securities exchange for non-Nasdaq exchange-listed securities. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 2571 requirements under the Act that apply to activity within its regulatory authority. Thus, unlike exchanges that have direct Regulation NMS obligations with respect to the SRO trading facilities, NASD has indirect Regulation NMS obligations with respect to all over-the-counter market activity, including post-trade regulation for compliance with the Order Protection Rule with respect to trading centers that trade report through the NASD/Nasdaq TRF (or any NASD Trade Reporting Facility). Such regulation includes monitoring for whether trading centers are reporting trades to the NASD/ Nasdaq TRF (or any NASD Trade Reporting Facility) that are tradethroughs of protected quotes and whether such trade-throughs are permissible under one of the specific exceptions and exemptions under the Order Protection Rule. Proposed Amendments to Align NASD/Nasdaq TRF Rules with Regulation NMS. NASD proposes to amend the NASD/Nasdaq TRF transaction reporting requirements to require reporting members to append applicable modifiers to last sale transaction reports with respect to trades that fall within the exceptions and exemptions from Rule 611 of Regulation NMS. The proposed amendments are substantially similar to amendments to the Alternative Display Facility (‘‘ADF’’) transaction reporting requirements, which were approved by the Commission on September 28, 2006.12 Specifically, NASD proposes new Rule 4632(a)(5)(I) to require members to append a unique modifier, specified by NASD, to indicate whether the trade would be a trade-through of a protected quotation but for the trade being qualified for an exception or exemption from Rule 611 of Regulation NMS. Further, NASD proposes new Rule 4632(a)(5)(J) to require that, for any trade that would be a trade-through of a protected quotation but for the trade being qualified for an exception or exemption from Rule 611 of Regulation NMS, a member must append to the transaction report, in addition to the modifier required under new Rule 4632(a)(5)(I), a unique modifier, specified by NASD, that identifies the specific applicable exception or exemption from Rule 611 of Regulation NMS upon which the member is 12 See Securities Exchange Act Release No. 54537 (September 28, 2006), 71 FR 59173 (October 6, 2006) (SR–NASD–2006–091). Unlike the ADF, the NASD/Nasdaq TRF is a trade reporting mechanism only; it does not permit quoting. As such, not all of the amendments to the ADF rules are applicable to the NASD/Nasdaq TRF rules. E:\FR\FM\19JAN1.SGM 19JAN1 2572 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices sroberts on PROD1PC70 with NOTICES relying.13 As stated in the proposed rules, these modifiers will be used in conformity with the specifications approved by the Operating Committee of the relevant National Market System Plans to identify trades executed pursuant to an exception or exemption from Rule 611 of Regulation NMS. NASD provided details of the specific modifiers required under the proposed new rules in updated Trade Reporting Programming Specifications, which were published on October 16, 2006,14 and also will publish guidance in a Notice to Members. Additionally, NASD proposes to amend Rule 4632 to require members reporting transactions to the NASD/ Nasdaq TRF to append ‘‘[a]ny other modifier as specified by NASD or the Securities and Exchange Commission.’’ An identical provision in the ADF rules was subject to notice and comment and approved by the Commission pursuant to SR–NASD–2006–091. Pursuant to this proposed provision, NASD will have the authority to prescribe additional trade report modifiers by updating the Technical Specifications for the NASD/Nasdaq TRF without submitting a further proposed rule change for approval by the Commission. For example, such authority will be used to require additional modifiers to designate trades that qualify under two existing exemptions from the Order Protection Rule (qualified contingent trades and certain sub-penny tradethroughs) 15 as well as any other exemption that the Commission may grant in the future. This authority may also be used to capture additional regulatory information that NASD deems necessary (e.g., NASD will require more specific delineation of the Intermarket Sweep Order (‘‘ISO’’) exception than is required by the National Market System specifications).16 To enable members to make the necessary systems changes, NASD would provide at least 30 days advance written notice relating to any new modifiers. 13 A Member using the trade report modifiers under the proposed new rules is responsible for ensuring that the transaction meets the criteria of the specific exemption or exception set forth in Rule 611 of Regulation NMS. 14 See Nasdaq Technical Update No. 2006–29 (October 16, 2006), http://www.nasdaqtrader.com /Trader/News/2006/technicalupdates/tu2006– 029.stm. 15 See supra note 9. 16 The National Market System specifications identify both types of ISO orders with a single modifier. NASD, however, intends to distinguish between the ISO exceptions by requiring firms to use a separate modifier, as defined by NASD, in instances where the executing firm is responsible for sweeping the market. VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 NASD also proposes to amend Rule 4632 to expressly provide that, in the event that the rules require multiple modifiers on any given trade report, members are to report in accordance with guidance provided by NASD regarding priorities among modifiers. A Member that reports in accordance with such guidance would not be in violation of the trade reporting rules for failing to use a particular modifier. NASD believes that the proposed rule change is necessary to ensure that there is transparency relating to trades that are exempt from the trade-through rule and to enhance NASD’s ability to examine for compliance with the Order Protection Rule. Proposed Amendments to Conform NASD/Nasdaq TRF Rules to ADF Rules. As part of SR–NASD–2006–091, NASD reorganized the ADF reporting rules to enhance their clarity. As part of this proposed rule change, NASD proposes similar changes to conform the NASD/ Nasdaq TRF reporting rules to the ADF reporting rules to the extent practicable. Specifically, NASD proposes to reorganize the NASD/Nasdaq TRF trade reporting rules and renumber paragraphs (a)(3) and (a)(6) of Rule 4632 without amending the text of those provisions. NASD also is proposing to renumber paragraph (a)(5) of Rule 4632 and amend the text of that provision to conform to the text of the equivalent provision in the ADF reporting rules. Additionally, NASD proposes to adopt new Rule 4632(a)(5) to require members to use trade report modifiers designated by NASD for certain enumerated transactions. Consistent with the ADF reporting requirements, proposed new Rule 4632(a)(5) would clarify that members are required to append applicable trade report modifiers to reports of all trades, including ‘‘as/of’’ trades.17 The proposed amendments to the NASD/ Nasdaq TRF rules do not label the modifiers members are required to use when reporting the enumerated transactions. Some of the modifiers that members are required to append to trade reports may differ depending on the system used to connect to the NASD/ Nasdaq TRF. Thus, NASD proposes amendments in Rule 4632(a) to identify the types of transactions that must have a unique identifier associated with them; the modifiers will be labeled in the system technical specifications rather than in the rules.18 17 NASD reminds members that they should mark any ‘‘as/of’’ trade report for publication if that trade would have been for publication had it been reported on trade date. 18 Consistent with this proposed rule change, pursuant to SR–NASD–2007–001, NASD has PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 In addition, consistent with changes to the ADF rules pursuant to SR–NASD– 2006–091, NASD is proposing to amend Rule 4632(f) to expressly prohibit a member from aggregating individual executions of orders in a security at the same price into a single transaction report for tape purposes. NASD has determined that prohibiting the bunching of transactions when reporting to an NASD facility helps ensure greater transparency of individual transactions. However, for purposes of trades that are not printed to the tape, NASD is proposing to amend Rule 6130(e) to continue to permit members—for clearing purposes only—to aggregate individual executions of orders in a security at the same price with the identical contra party and submit a single report to the System.19 NASD has filed the proposed rule change for immediate effectiveness. In accordance with the Regulation NMS compliance dates established by the Commission,20 NASD proposes to make the proposed rule change operative on the Pilot Stocks Phase Date, which is currently anticipated to be May 21, 2007. However, the NASD/Nasdaq TRF will begin accepting trade reports submitted in compliance with the proposed rule change starting on the Trading Phase Date, which is currently anticipated to be February 5, 2007. This does not, however, change in any way a member’s responsibilities under the Regulation NMS compliance dates.21 proposed to delete the modifier labels from the ADF trade reporting rules. Additionally, NASD notes that the proposed rule change does not contemplate a trade report modifier for transactions based upon a single-priced opening, re-opening, or closing transaction because this is an exchange function. Pursuant to SR–NASD–2007–001, NASD has proposed to delete Rule 4632A(a)(4)(H) from the ADF rules. 19 ‘‘System’’ is defined in Rule 6110 to mean the NASD/Nasdaq TRF, the OTC Reporting Facility, and the ITS/CAES System. NASD replaced the paragraph that appeared in the original filing with the instant paragraph. See e-mail from Lisa C. Horrigan, Assistant General Counsel, NASD, to Theodore S. Venuti, Attorney, Division of Market Regulation, Commission, dated January 12, 2007. 20 See Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006). 21 NASD notes that, although the proposed rule change will not be operative until the Pilot Stocks Date, anticipated to be May 21, 2007, members may be required to meet the Regulation NMS message format requirements for reporting to the NASD/ Nasdaq TRF prior to that date. Mandatory compliance with Regulation NMS message formatting requirements is currently scheduled for the NASD/Nasdaq TRF on April 2, 2007, and on that date, members would be required to report in accordance with the new systems requirements, although the specific new modifiers proposed herein would continue to be voluntary until May 21, 2007. See Nasdaq Technical Update 2006–034 (December 19, 2006), http:// www.nasdaqtrader.com/Trader/News/2006/ technicalupdates/tu2006–034.stm. E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,22 which requires, among other things, that NASD rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that the proposed rule change facilitates the goals articulated in Regulation NMS, including providing an effective mechanism and regulatory framework for reporting over-thecounter transactions to NASD. 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. sroberts on PROD1PC70 with NOTICES 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 The foregoing proposed rule change is subject to Section 19(b)(3)(A)(iii) of the Act 23 and Rule 19b–4(f)(6) thereunder 24 because the proposal: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative prior to 30 days after the date of filing or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest; provided that NASD has given the Commission notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission.25 At any time within 60 days of the filing of such proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors 22 15 U.S.C. 78o–3(b)(6). U.S.C. 78s(b)(3)(A)(iii). 24 17 CFR 240.19b–4(f)(6). 25 NASD has satisfied the five-day pre-filing requirement. 23 15 VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 or otherwise in furtherance of the purposes of the Act. 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASD–2007–002 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. 2573 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.26 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–688 Filed 1–18–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55088; File No. SR–NASD– 2007–001] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to the Alternative Display Facility Rules January 11, 2007. 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 January 5, 2007, the National Association of Securities Dealers, Inc. (‘‘NASD’’) filed All submissions should refer to File with the Securities and Exchange Number SR–NASD–2007–002. This file Commission (‘‘Commission’’) the number should be included on the subject line if e-mail is used. To help the proposed rule change as described in Items I and II below, which Items have Commission process and review your been substantially prepared by NASD. comments more efficiently, please use only one method. The Commission will NASD has filed the proposal pursuant to 3 post all comments on the Commission’s Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6) thereunder,4 which renders Internet Web site (http://www.sec.gov/ the proposal effective upon filing with rules/sro.shtml). Copies of the the Commission. The Commission is submission, all subsequent publishing this notice to solicit amendments, all written statements comments on the proposed rule change with respect to the proposed rule from interested persons. 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 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–2007–002 and should be submitted on or before February 9, 2007. 26 17 PO 00000 CFR 200.30–3(a)(12). Frm 00084 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASD proposes to amend NASD Rules 4130A, 4300A, 4613A, 4617A, and 4632A regarding the Alternative Display Facility (‘‘ADF’’) to expand the prohibition on locking or crossing quotations in NMS stocks to include pre-opening and post-closing quotations, extend the obligation to comply with the ADF rules to preopening quotes, and replace the specific modifiers identified in Rule 4632A(a)(4) with a more general reference to modifiers as specified by NASD. Below is the text of the proposed rule change. Proposed new language is italicized and proposed deletions are in [brackets]. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6). 2 17 E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

[Federal Register Volume 72, Number 12 (Friday, January 19, 2007)]
[Notices]
[Pages 2568-2573]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-688]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55101; File No. SR-NASD-2007-002]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Make Conforming Changes to the NASD/Nasdaq Trade 
Reporting Facility Rules Consistent With the New Requirements of 
Regulation NMS

January 12, 2007.
    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 January 8, 2007, 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 substantially prepared by NASD. 
NASD has filed the proposal pursuant to Section 19(b)(3)(A) of the Act 
\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to make conforming changes to the transaction 
reporting rules relating to the NASD/Nasdaq Trade Reporting Facility 
(``NASD/Nasdaq TRF'') consistent with the new requirements of 
Regulation NMS under the Act.\5\ Below is the text of the proposed rule 
change. Proposed new language is italicized and proposed deletions are 
in [brackets].
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release''). The Commission has approved proposed rule changes to 
establish Trade Reporting Facilities in conjunction with the 
National Stock Exchange, Inc. and the Boston Stock Exchange, Inc. 
See Securities Exchange Act Release Nos. 54715 (November 6, 2006), 
71 FR 66354 (November 14, 2006) (SR-NASD-2006-108) (``NASD/NSX 
TRF'') and 54931 (December 13, 2006), 71 FR 76409 (December 20, 
2006) (SR-NASD-2006-115) (``NASD/BSE TRF''). NASD intends to file a 
separate proposed rule change to align the transaction reporting 
rules for the NASD/NSX TRF and the NASD/BSE TRF, and any additional 
Trade Reporting Facilities approved by the Commission, with 
Regulation NMS.

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[[Page 2569]]

4632. Transaction Reporting

(a) When and How Transactions are Reported

    (1) Trade Reporting Facility Participants shall, within 90 seconds 
after execution, transmit to the NASD/Nasdaq Trade Reporting Facility 
or if the NASD/Nasdaq Trade Reporting Facility is unavailable due to 
system or transmission failure, by telephone to the Operations 
Department, last sale reports of transactions in designated securities 
executed during normal market hours. Transactions not reported within 
90 seconds after execution shall be designated as late.
    (2) Transaction Reporting to the NASD/Nasdaq Trade Reporting 
Facility Outside Normal Market Hours
    (A) Last sale reports of transactions in designated securities 
executed between 8:00 a.m. and 9:30 a.m. Eastern Time shall be reported 
within 90 seconds after execution and shall be designated [as ``.T'' 
trades] with the unique trade report modifier, as specified by NASD, to 
denote their execution outside normal market hours. [Transactions not 
reported within 90 seconds also shall be designated as .T trades.] Such 
[T]transactions not reported before 9:30 a.m. shall be reported after 
4:00 p.m. and before 8:00 p.m. [as .T trades] with the appropriate 
trade report modifier as specified by NASD.
    (B) Last sale reports of transactions in designated securities 
executed between the hours of 4:00 p.m. and 8:00 p.m. Eastern Time 
shall be reported within 90 seconds after execution and be designated 
[as ``.T'' trades] with the unique trade report modifier, as specified 
by NASD, to denote their execution outside normal market hours. 
[Transactions not reported within 90 seconds also shall be designated 
as .T trades.] Such [T]transactions not reported before 8:00 p.m. shall 
be reported on an ``as/of'' basis the following day between 8:00 a.m. 
and 8:00 p.m.
    (C) Last sale reports of transactions executed between midnight and 
8:00 a.m. Eastern Time shall be reported between 8:00 a.m. and 9:30 
a.m. Eastern Time on trade date [as ``.T'' trades] with the unique 
trade report modifier, as specified by NASD, to denote their execution 
outside normal market hours. Such [T]transactions not reported before 
9:30 a.m. shall be reported after 4:00 p.m. and before 8:00 p.m. [as .T 
trades] with the appropriate trade report modifier as specified by 
NASD.
    (D) Last sale reports of transactions executed between 8:00 p.m. 
and midnight Eastern Time shall be reported on the next business day 
(T+1) between 8:00 a.m. and 8:00 p.m. Eastern Time and be designated 
``as/of'' trades.
    [(3) All members shall report as soon as practicable to the Market 
Regulation Department on Form T, last sale reports of transactions in 
designated securities for which electronic submission to the Trade 
Reporting Facility is not possible (e.g., the ticker symbol for the 
security is no longer available or a market participant identifier is 
no longer active). Transactions that can be reported to the Trade 
Reporting Facility, whether on trade date or on a subsequent date on an 
``as of'' basis (T+N), shall not be reported on Form T.]
    [(4) All members shall append the ``.W'' trade report modifier to 
transaction reports occurring at prices based on average-weighting, or 
other special pricing formulae.]
    [(5) All trade tickets for transactions in designated securities 
shall be time-stamped at the time of execution.]
    (3) Members shall time-stamp all trade tickets at the time of 
execution for transactions in designated securities. Execution time 
shall be reported to NASD on all last sale reports and shall be 
expressed in hours, minutes and seconds based on Eastern Time in 
military format, unless another provision of NASD rules requires that a 
different time be included on the report.
    [(6)] (4) Transactions not reported within 90 seconds after 
execution shall be designated as late. A pattern or practice of late 
reporting without exceptional circumstances may be considered conduct 
inconsistent with high standards of commercial honor and just and 
equitable principles of trade in violation of Rule 2110.
    [(7) All members shall append the .PRP trade report modifier to 
transaction reports that reflect a price different from the current 
market when the execution price is based on a prior reference point in 
time. The transaction report shall include the prior reference time in 
lieu of the actual time the trade was executed. The .PRP modifier shall 
not be appended to a report of a transaction whose price is based on a 
prior reference point in time if the trade is executed and reported 
within 90 seconds from the prior reference point in time.]
    [(8) The Trade Reporting Facility will append the .T modifier or 
the .SLD modifier, as appropriate, to those reports submitted to the 
Trade Reporting Facility that contain the time of execution, but that 
do not contain the appropriate modifier.]
    [(9) Members shall append the .W trade report modifier to reports 
of Stop Stock Transactions (as such term is defined in Rule 4200) and 
include the time at which the member and the other party agreed to the 
Stop Stock Price in lieu of including the time of execution on the 
trade report. The .W modifier shall not be appended to a report of a 
Stop Stock Transaction if the Stop Stock Transaction is executed and 
reported within 90 seconds of the time the member and the other party 
agree to the Stop Price.]
    [(10) To identify pre-opening and after-hours trades reported late, 
the Trade Reporting Facility will convert the .T modifier to .ST for 
any report submitted to the Trade Reporting Facility more than 90 
seconds after execution.]
    (5) Members also shall append the applicable trade report modifiers 
as specified by NASD to all last sale reports, including reports of 
``as/of'' trades:
    (A) if the trade is executed during normal market hours and it is 
reported later than 90 seconds after execution;
    (B) if the trade is a Seller's Option Trade, denoting the number of 
days for delivery;
    (C) if the trade is a Cash Trade;
    (D) if the trade is a Next Day Trade;
    (E) if the trade occurs at a price based on an average weighting or 
another special pricing formula;
    (F) if the trade is a Stop Stock Transaction (as defined in Rule 
4200) (Note: the time at which the member and the other party agreed to 
the Stop Stock Price must be given in lieu of including the time of 
execution on the trade report and the designated modifier shall not be 
appended to a report of a Stop Stock Transaction if the Stop Stock 
Transaction is executed and reported within 90 seconds of the time the 
member and the other party agree to the Stop Stock Price);
    (G) if the transaction report reflects a price different from the 
current market when the execution price is based on a prior reference 
point in time (Note: the transaction report shall include the prior 
reference time in lieu of the actual time the trade was executed and 
the designated modifier shall not be appended to a report of a 
transaction whose price is based on a prior reference point in time if 
the trade is executed and reported within 90 seconds from the prior 
reference point in time);
    (H) to identify pre-opening and after-hours trades (executed 
between 8:00 a.m. and 9:30 a.m. Eastern time or between 4:00 p.m. and 
8:00 p.m. Eastern time) reported more than 90 seconds after execution;
    (I) if the trade would be a trade-through of a protected quotation, 
but for the trade being qualified for an

[[Page 2570]]

exception or exemption from Rule 611 of Regulation NMS under the Act 
(Note: to ensure consistency in the usage of Rule 611 related modifiers 
by registered broker-dealers, this modifier will be used in conformity 
with the specifications approved by the Operating Committee of the 
relevant National Market System Plans to identify trades executed 
pursuant to an exception or exemption from Rule 611);
    (J) if the trade would be a trade-through of a protected quotation, 
but for the trade being qualified for an exception or exemption from 
Rule 611 of Regulation NMS under the Act, members must, in addition to 
the modifier required in paragraph (I) above, append an appropriate 
unique modifier, specified by NASD, that identifies the specific 
applicable exception or exemption from Rule 611 that a member is 
relying upon (Note: to ensure consistency in the usage of Rule 611 
related modifiers by registered broker-dealers, these modifiers will be 
used in conformity with the specifications approved by the Operating 
Committee of the relevant National Market System Plans to identify 
trades executed pursuant to an exception or exemption from Rule 611); 
and
    (K) any other modifier as specified by NASD or the Securities and 
Exchange Commission.
    To the extent that any of the modifiers required by this rule 
conflict, NASD shall provide guidance regarding the priorities among 
modifiers and members shall report in accordance with such guidance, as 
applicable.
    (6) The NASD/Nasdaq Trade Reporting Facility will append the 
appropriate modifier to indicate that a trade was executed outside 
normal market hours or that a report was submitted late to the NASD/
Nasdaq Trade Reporting Facility, where such report contains the time of 
execution, but does not contain the appropriate modifier.
    (7) To identify pre-opening and after-hours trades reported late, 
the NASD/Nasdaq Trade Reporting Facility will convert the late 
modifier, as applicable, on any pre-opening or after-hours report 
submitted to the NASD/Nasdaq Trade Reporting Facility more than 90 
seconds after execution.
    (8) All members shall report as soon as practicable to the Market 
Regulation Department on Form T, last sale reports of transactions in 
designated securities for which electronic submission to the NASD/
Nasdaq Trade Reporting Facility is not possible (e.g., the ticker 
symbol for the security is no longer available or a market participant 
identifier is no longer active). Transactions that can be reported to 
the NASD/Nasdaq Trade Reporting Facility, whether on trade date or on a 
subsequent date on an ``as of'' basis (T+N), shall not be reported on 
Form T.
    (b) through (e) No Change.
    (f) Prohibition on Aggregation of Transaction Reports
    Individual executions of orders in a security at the same price may 
not be aggregated, for purposes of transaction reporting to the NASD/
Nasdaq Trade Reporting Facility, into a single transaction report.
    [(1) Under the following conditions, individual executions of 
orders in a security at the same price may be aggregated, for 
transaction reporting purposes, into a single transaction report. 
Individual transactions in convertible debt securities cannot be 
aggregated pursuant to this paragraph.]
    [(A) Orders received prior to the opening of the reporting member's 
market in the security and simultaneously executed at the opening. 
Also, orders received during a trading or quotation halt in the 
security and executed simultaneously when trading or quotations resume. 
In no event shall a member delay its opening or resumption of 
quotations for the purpose of aggregating transactions.]
    [Example:]
    [A firm receives, prior to its market opening, several market 
orders to sell which total 10,000 shares. All such orders are 
simultaneously executed at the opening at a reported price of 40.]
    [REPORT 10,000 shares at 40.]
    [(B) Simultaneous executions by the member of customer transactions 
at the same price, e.g., a number of limit orders being executed at the 
same time when a limit price has been reached.]
    [Example:]
    [A firm has several customer limit orders to sell that total 10,000 
shares at a limit price of 40. That price is reached and all such 
orders are executed simultaneously.]
    [REPORT 10,000 shares at 40.]
    [(C) Orders relayed to the trading department of the reporting 
member for simultaneous execution at the same price.]
    [Example:]
    [A firm purchases a block of 50,000 shares from an institution at a 
reported price of 40.]
    [REPORT 50,000 at 40.]
    [Subsequently, one of the firm's branch offices transmits to the 
firm's trading department for execution customer buy orders in the 
security totaling 12,500 shares at a reported price of 40.]
    [REPORT 12,500 at 40.]
    [Subsequently, another branch office transmits to the firm's 
trading department for execution customer buy orders totaling 15,000 
shares in the security at a reported price of 40.]
    [REPORT 15,000 at 40.]
    [Example:]
    [Due to a major change in market conditions, a firm's trading 
department receives from a branch office for execution customer market 
orders to sell totaling 10,000 shares. All are executed at a reported 
price of 40.]
    [REPORT 10,000 at 40.]
    [(D) Orders received or initiated by the reporting member that are 
impractical to report individually and are executed at the same price 
within 60 seconds of execution of the initial transaction; provided 
however, that no individual order of 10,000 shares or more may be 
aggregated in a transaction report and that the aggregated transaction 
report shall be made within 90 seconds of the initial execution 
reported therein. Furthermore, it is not permissible for a member to 
withhold reporting a trade in anticipation of aggregating the 
transaction with other transactions. The limitation on aggregating 
individual orders of 10,000 shares or more for a particular security 
shall not apply on the first day of secondary market trading of an IPO 
for that security.]
    [Examples:]
    [A reporting member receives and executes the following orders at 
the following times and desires to aggregate reports to the maximum 
extent permitted under this Rule.]

    [First Example]
    [11:00 500 shares at 40]
    [11:01:05 500 shares at 40]
    [11:01:10 9,000 shares at 40]
    [11:01:15 500 shares at 40]
    [REPORT 10,500 shares at 40 within ninety seconds of 11:01.]

[Second Example]
    [11:01:00 100 shares at 40]
    [11:01:10 11,000 shares at 40]
    [11:01:30 300 shares at 40]
    [REPORT 400 shares within ninety seconds of 11:01 and 11,000 shares 
within ninety seconds of 11:01:10 (individual transactions of 10,000 
shares or more must be reported separately).]

[Third Example]
    [11:01:00 100 shares at 40]
    [11:01:15 500 shares at 40]
    [11:01:30 200 shares at 40]
    [11:02:30 400 shares at 40]
    [REPORT 800 shares at 40 within ninety seconds of 11:01 and 400 
shares at 40 within ninety seconds of 11:02:30 (the last trade is not 
within sixty seconds of the first and

[[Page 2571]]

must, therefore, be reported separately).]
    [(2) The reporting member shall identify aggregated transaction 
reports and order tickets of aggregated trades in a manner directed by 
NASD.]

    (g) No Change.
* * * * *
    6130. Trade Report Input
    (a) through (d) No Change.
    (e) Aggregation of Transaction Reports for Clearing Purposes Only.
    Individual executions of orders in a security at the same price may 
and with the identical contra party be aggregated[, for System 
reporting purposes,] into a single report and submitted to the System 
for purposes of clearing only [if the transactions are with the 
identical contra party]; provided, however, that a Reporting Party may 
not withhold reporting a trade in anticipation of aggregating the 
transaction with other transactions.
    (f) through (g) 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 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
    Background. On June 29, 2005, the Commission published its release 
adopting Regulation NMS,\6\ which established new substantive rules 
designed to modernize and strengthen the regulatory structure of the 
U.S. equities markets. Pursuant to Regulation NMS, the Commission, 
among other things, adopted Rule 611 (``Order Protection Rule'') to 
establish protection against trade-throughs for NMS stocks.\7\
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    \6\ See Regulation NMS Adopting Release, supra note 5.
    \7\ NMS stock is defined in Rule 600(b)(47) of Regulation NMS as 
``any NMS security other than an option.'' Rule 600(b)(46) of 
Regulation NMS defines NMS security as ``any security or class of 
securities for which transaction reports are collected, processed, 
and made available pursuant to an effective transaction reporting 
plan, or an effective national market system plan for reporting 
transactions in listed options.''
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    In general, the Order Protection Rule requires a trading center 
(which includes national securities exchanges, self-regulatory 
organization (``SRO'') trading facilities, alternative trading systems, 
OTC market makers, and block positioners) to establish, maintain, and 
enforce written policies and procedures that are reasonably designed to 
prevent trade-throughs on that trading center of protected quotations 
and, if relying on an exception, that are reasonably designed to assure 
compliance with the terms of the exception.\8\ There currently are nine 
exceptions and two exemptions to the Order Protection Rule.\9\ In 
addition, the Order Protection Rule requires trading centers to surveil 
regularly to ascertain the effectiveness of the policies and procedures 
adopted pursuant to Rule 611 of Regulation NMS and take prompt action 
to remedy deficiencies in such policies and procedures.
---------------------------------------------------------------------------

    \8\ See Regulation NMS Adopting Release, supra note 5.
    \9\ See 17 CFR 242.611; Securities Exchange Act Release Nos. 
54389 (August 31, 2006), 71 FR 52829 (September 7, 2006) (Order 
Granting an Exemption for Qualified Contingent Trades from Rule 
611(a) of Regulation NMS) and 54678 (October 31, 2006), 71 FR 65018 
(November 6, 2006) (Order Exempting Certain Sub-Penny Trade-Throughs 
from Rule 611 of Regulation NMS).
---------------------------------------------------------------------------

    On June 30, 2006, the Commission approved SR-NASD-2005-087 which, 
among other things, proposed rules for reporting trades in Nasdaq-
listed securities effected otherwise than on an exchange to the NASD/
Nasdaq TRF.\10\ On November 21, 2006, the Commission approved SR-NASD-
2006-104 which, among other things, proposed to expand the scope of the 
NASD/Nasdaq TRF rules to include reporting trades in non-Nasdaq 
exchange-listed securities effected otherwise than on exchange.\11\
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    \10\ See Securities Exchange Act Release No. 54084 (June 30, 
2006), 71 FR 38935 (July 10, 2006) (SR-NASD-2005-087).
    \11\ See Securities Exchange Act Release No. 54798 (November 21, 
2006), 71 FR 69156 (November 29, 2006) (SR-NASD-2006-104). SR-NASD-
2006-104 will be effective on the date that the Nasdaq Exchange 
operates as a national securities exchange for non-Nasdaq exchange-
listed securities.
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    Neither NASD, generally, nor any of the NASD Trade Reporting 
Facilities, specifically, qualifies as a trading center within the 
meaning of Regulation NMS. Thus, the provisions of the Order Protection 
Rule requiring trading centers to establish, maintain, and enforce 
written policies and procedures that are reasonably designed to prevent 
trade-throughs on that trading center of protected quotations in NMS 
stocks are not applicable to NASD. However, NASD has a responsibility 
to enforce requirements under the Act that apply to activity within its 
regulatory authority. Thus, unlike exchanges that have direct 
Regulation NMS obligations with respect to the SRO trading facilities, 
NASD has indirect Regulation NMS obligations with respect to all over-
the-counter market activity, including post-trade regulation for 
compliance with the Order Protection Rule with respect to trading 
centers that trade report through the NASD/Nasdaq TRF (or any NASD 
Trade Reporting Facility). Such regulation includes monitoring for 
whether trading centers are reporting trades to the NASD/Nasdaq TRF (or 
any NASD Trade Reporting Facility) that are trade-throughs of protected 
quotes and whether such trade-throughs are permissible under one of the 
specific exceptions and exemptions under the Order Protection Rule.
    Proposed Amendments to Align NASD/Nasdaq TRF Rules with Regulation 
NMS. NASD proposes to amend the NASD/Nasdaq TRF transaction reporting 
requirements to require reporting members to append applicable 
modifiers to last sale transaction reports with respect to trades that 
fall within the exceptions and exemptions from Rule 611 of Regulation 
NMS. The proposed amendments are substantially similar to amendments to 
the Alternative Display Facility (``ADF'') transaction reporting 
requirements, which were approved by the Commission on September 28, 
2006.\12\
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    \12\ See Securities Exchange Act Release No. 54537 (September 
28, 2006), 71 FR 59173 (October 6, 2006) (SR-NASD-2006-091). Unlike 
the ADF, the NASD/Nasdaq TRF is a trade reporting mechanism only; it 
does not permit quoting. As such, not all of the amendments to the 
ADF rules are applicable to the NASD/Nasdaq TRF rules.
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    Specifically, NASD proposes new Rule 4632(a)(5)(I) to require 
members to append a unique modifier, specified by NASD, to indicate 
whether the trade would be a trade-through of a protected quotation but 
for the trade being qualified for an exception or exemption from Rule 
611 of Regulation NMS. Further, NASD proposes new Rule 4632(a)(5)(J) to 
require that, for any trade that would be a trade-through of a 
protected quotation but for the trade being qualified for an exception 
or exemption from Rule 611 of Regulation NMS, a member must append to 
the transaction report, in addition to the modifier required under new 
Rule 4632(a)(5)(I), a unique modifier, specified by NASD, that 
identifies the specific applicable exception or exemption from Rule 611 
of Regulation NMS upon which the member is

[[Page 2572]]

relying.\13\ As stated in the proposed rules, these modifiers will be 
used in conformity with the specifications approved by the Operating 
Committee of the relevant National Market System Plans to identify 
trades executed pursuant to an exception or exemption from Rule 611 of 
Regulation NMS. NASD provided details of the specific modifiers 
required under the proposed new rules in updated Trade Reporting 
Programming Specifications, which were published on October 16, 
2006,\14\ and also will publish guidance in a Notice to Members.
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    \13\ A Member using the trade report modifiers under the 
proposed new rules is responsible for ensuring that the transaction 
meets the criteria of the specific exemption or exception set forth 
in Rule 611 of Regulation NMS.
    \14\ See Nasdaq Technical Update No. 2006-29 (October 16, 2006), 
http://www.nasdaqtrader.com/Trader/News/2006/technicalupdates/
tu2006-029.stm.
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    Additionally, NASD proposes to amend Rule 4632 to require members 
reporting transactions to the NASD/Nasdaq TRF to append ``[a]ny other 
modifier as specified by NASD or the Securities and Exchange 
Commission.'' An identical provision in the ADF rules was subject to 
notice and comment and approved by the Commission pursuant to SR-NASD-
2006-091. Pursuant to this proposed provision, NASD will have the 
authority to prescribe additional trade report modifiers by updating 
the Technical Specifications for the NASD/Nasdaq TRF without submitting 
a further proposed rule change for approval by the Commission. For 
example, such authority will be used to require additional modifiers to 
designate trades that qualify under two existing exemptions from the 
Order Protection Rule (qualified contingent trades and certain sub-
penny trade-throughs) \15\ as well as any other exemption that the 
Commission may grant in the future. This authority may also be used to 
capture additional regulatory information that NASD deems necessary 
(e.g., NASD will require more specific delineation of the Intermarket 
Sweep Order (``ISO'') exception than is required by the National Market 
System specifications).\16\ To enable members to make the necessary 
systems changes, NASD would provide at least 30 days advance written 
notice relating to any new modifiers.
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    \15\ See supra note 9.
    \16\ The National Market System specifications identify both 
types of ISO orders with a single modifier. NASD, however, intends 
to distinguish between the ISO exceptions by requiring firms to use 
a separate modifier, as defined by NASD, in instances where the 
executing firm is responsible for sweeping the market.
---------------------------------------------------------------------------

    NASD also proposes to amend Rule 4632 to expressly provide that, in 
the event that the rules require multiple modifiers on any given trade 
report, members are to report in accordance with guidance provided by 
NASD regarding priorities among modifiers. A Member that reports in 
accordance with such guidance would not be in violation of the trade 
reporting rules for failing to use a particular modifier.
    NASD believes that the proposed rule change is necessary to ensure 
that there is transparency relating to trades that are exempt from the 
trade-through rule and to enhance NASD's ability to examine for 
compliance with the Order Protection Rule.
    Proposed Amendments to Conform NASD/Nasdaq TRF Rules to ADF Rules. 
As part of SR-NASD-2006-091, NASD reorganized the ADF reporting rules 
to enhance their clarity. As part of this proposed rule change, NASD 
proposes similar changes to conform the NASD/Nasdaq TRF reporting rules 
to the ADF reporting rules to the extent practicable. Specifically, 
NASD proposes to reorganize the NASD/Nasdaq TRF trade reporting rules 
and renumber paragraphs (a)(3) and (a)(6) of Rule 4632 without amending 
the text of those provisions. NASD also is proposing to renumber 
paragraph (a)(5) of Rule 4632 and amend the text of that provision to 
conform to the text of the equivalent provision in the ADF reporting 
rules.
    Additionally, NASD proposes to adopt new Rule 4632(a)(5) to require 
members to use trade report modifiers designated by NASD for certain 
enumerated transactions. Consistent with the ADF reporting 
requirements, proposed new Rule 4632(a)(5) would clarify that members 
are required to append applicable trade report modifiers to reports of 
all trades, including ``as/of'' trades.\17\ The proposed amendments to 
the NASD/Nasdaq TRF rules do not label the modifiers members are 
required to use when reporting the enumerated transactions. Some of the 
modifiers that members are required to append to trade reports may 
differ depending on the system used to connect to the NASD/Nasdaq TRF. 
Thus, NASD proposes amendments in Rule 4632(a) to identify the types of 
transactions that must have a unique identifier associated with them; 
the modifiers will be labeled in the system technical specifications 
rather than in the rules.\18\
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    \17\ NASD reminds members that they should mark any ``as/of'' 
trade report for publication if that trade would have been for 
publication had it been reported on trade date.
    \18\ Consistent with this proposed rule change, pursuant to SR-
NASD-2007-001, NASD has proposed to delete the modifier labels from 
the ADF trade reporting rules. Additionally, NASD notes that the 
proposed rule change does not contemplate a trade report modifier 
for transactions based upon a single-priced opening, re-opening, or 
closing transaction because this is an exchange function. Pursuant 
to SR-NASD-2007-001, NASD has proposed to delete Rule 4632A(a)(4)(H) 
from the ADF rules.
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    In addition, consistent with changes to the ADF rules pursuant to 
SR-NASD-2006-091, NASD is proposing to amend Rule 4632(f) to expressly 
prohibit a member from aggregating individual executions of orders in a 
security at the same price into a single transaction report for tape 
purposes. NASD has determined that prohibiting the bunching of 
transactions when reporting to an NASD facility helps ensure greater 
transparency of individual transactions. However, for purposes of 
trades that are not printed to the tape, NASD is proposing to amend 
Rule 6130(e) to continue to permit members--for clearing purposes 
only--to aggregate individual executions of orders in a security at the 
same price with the identical contra party and submit a single report 
to the System.\19\
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    \19\ ``System'' is defined in Rule 6110 to mean the NASD/Nasdaq 
TRF, the OTC Reporting Facility, and the ITS/CAES System. NASD 
replaced the paragraph that appeared in the original filing with the 
instant paragraph. See e-mail from Lisa C. Horrigan, Assistant 
General Counsel, NASD, to Theodore S. Venuti, Attorney, Division of 
Market Regulation, Commission, dated January 12, 2007.
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    NASD has filed the proposed rule change for immediate 
effectiveness. In accordance with the Regulation NMS compliance dates 
established by the Commission,\20\ NASD proposes to make the proposed 
rule change operative on the Pilot Stocks Phase Date, which is 
currently anticipated to be May 21, 2007. However, the NASD/Nasdaq TRF 
will begin accepting trade reports submitted in compliance with the 
proposed rule change starting on the Trading Phase Date, which is 
currently anticipated to be February 5, 2007. This does not, however, 
change in any way a member's responsibilities under the Regulation NMS 
compliance dates.\21\
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    \20\ See Securities Exchange Act Release No. 53829 (May 18, 
2006), 71 FR 30038 (May 24, 2006).
    \21\ NASD notes that, although the proposed rule change will not 
be operative until the Pilot Stocks Date, anticipated to be May 21, 
2007, members may be required to meet the Regulation NMS message 
format requirements for reporting to the NASD/Nasdaq TRF prior to 
that date. Mandatory compliance with Regulation NMS message 
formatting requirements is currently scheduled for the NASD/Nasdaq 
TRF on April 2, 2007, and on that date, members would be required to 
report in accordance with the new systems requirements, although the 
specific new modifiers proposed herein would continue to be 
voluntary until May 21, 2007. See Nasdaq Technical Update 2006-034 
(December 19, 2006), http://www.nasdaqtrader.com/Trader/News/2006/
technicalupdates/tu2006-034.stm.

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[[Page 2573]]

2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\22\ which requires, among 
other things, that NASD rules be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. NASD believes that the proposed rule change 
facilitates the goals articulated in Regulation NMS, including 
providing an effective mechanism and regulatory framework for reporting 
over-the-counter transactions to NASD.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    The foregoing proposed rule change is subject to Section 
19(b)(3)(A)(iii) of the Act \23\ and Rule 19b-4(f)(6) thereunder \24\ 
because the proposal: (i) Does not significantly affect the protection 
of investors or the public interest; (ii) does not impose any 
significant burden on competition; and (iii) does not become operative 
prior to 30 days after the date of filing or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that NASD has given the Commission 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change, 
or such shorter time as designated by the Commission.\25\
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    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 17 CFR 240.19b-4(f)(6).
    \25\ NASD has satisfied the five-day pre-filing requirement.
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    At any time within 60 days of the filing of such proposed rule 
change the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors or otherwise in 
furtherance of the purposes of the Act.

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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2007-002 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-2007-002. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change 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 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-2007-002 and should be submitted on or before February 9, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-688 Filed 1-18-07; 8:45 am]
BILLING CODE 8011-01-P