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]
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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 (https://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.
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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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the 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]
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14 15
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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.
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
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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
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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
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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
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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
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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.]
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[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
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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
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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
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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.
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.
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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.
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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), https://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.
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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), https://
www.nasdaqtrader.com/Trader/News/2006/
technicalupdates/tu2006–034.stm.
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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
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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 (https://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 (https://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
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]]>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]
-----------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
[[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.
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\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).
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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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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),
https://www.nasdaqtrader.com/Trader/News/2006/technicalupdates/
tu2006-029.stm.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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), https://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.
---------------------------------------------------------------------------
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 (https://
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 (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 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
