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, 2573-2577 [E7-689]

Download as PDF 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 2574 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 4000A. NASD ALTERNATIVE DISPLAY FACILITY 4100A. General * * * * * sroberts on PROD1PC70 with NOTICES 4130A. Prohibition From Locking or Crossing Quotations in NMS Stocks (a) Definitions. For purposes of these Rules, the following definitions shall apply: (1) The terms ‘‘automated quotation,’’ ‘‘National Market System Plan’’ (NMS Plan), ‘‘intermarket sweep order,’’ ‘‘manual quotation,’’ ‘‘NMS stock,’’ ‘‘protected quotation,’’ [‘‘regular trading hours,’’] and ‘‘trading center’’ shall have the meanings set forth in Rule 600(b) of Regulation NMS under the Securities Exchange Act of 1934. (2) The term crossing quotation shall mean the display of a bid for an NMS stock [during regular trading hours] at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is higher than the price of an offer for such NMS stock previously disseminated pursuant to an effective NMS Plan, or the display of an offer for an NMS stock [during regular trading hours] at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that is lower than the price of a bid for such NMS stock previously disseminated pursuant to an effective NMS Plan. (3) The term locking quotation shall mean the display of a bid for an NMS stock [during regular trading hours] at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that equals the price of an offer for such NMS stock previously disseminated pursuant to an effective NMS Plan, or the display of an offer for an NMS stock [during regular trading hours] at any time between 8:00 a.m. and 6:30 p.m. Eastern Time at a price that equals the price of a bid for such NMS stock previously disseminated pursuant to an effective NMS Plan. (b) through (d) No Change. * * * * * 4300A. Quote and Order Access Requirements (a) No Change. (b) Subject to the terms and conditions contained herein, all ADF Trading Centers that display quotations in NASD’s ADF must record each item of information described in paragraphs (b)(1) and (2) of this Rule for all orders they receive from another broker-dealer via direct or indirect electronic access, and report this information to NASD as specified below. (1) ADF Trading Centers must record the following information for every order they receive from another broker- VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 dealer via direct or indirect electronic access [during the trading day]: (A) through (N) No Change. The information described in paragraphs (A) through (N) must be reported to NASD within 10 seconds of receipt of the order. (2) through (7) No Change. (c) through (g) No Change. * * * * * 4600A. TRADING IN NASDAQ SECURITIES * * * * * 4613A. Character of Quotations (a) through (d) No Change. [(e) Obligations Regarding Locked/ Crossed Quotation Conditions in the ADF Prior to Opening] [(1) Locked/Crossed ADF Quotations Prior to 9:20 a.m.—For locks/crosses that occur in the ADF prior to 9:20 a.m. Eastern Time, a ADF Trading Center that is a party to a lock/cross because the ADF Trading Center either has entered a bid (ask) quotation that locks/ crosses another ADF Trading Center’s quotation(s) or has had its quotation(s) locked/crossed by another ADF Trading Center (‘‘party to a lock/cross’’) may, beginning at 9:20 a.m. Eastern Time, send an order, making use of direct electronic access in accordance with Rule 4300, of any size, that is at the receiving ADF Trading Center’s quoted price (‘‘Trade-or-Move Message’’). Any ADF Trading Center that receives a Trade-or-Move Message at or after 9:20 a.m. Eastern Time, and that is a party to a lock/cross, must within 10 seconds of receiving such message either: Fill the incoming order for the full size of the message; or move its bid down (offer up) by a quotation increment that unlocks/ uncrosses the ADF.] [(2) Locked/Crossed ADF Quotations Between 9:20 and 9:29:59 a.m.] [(A) Before a Registered Reporting ADF ECN enters a quote that would lock or cross the ADF between 9:20 and 9:29:29 a.m. Eastern Time, the ECN must first send, making use of direct electronic access in accordance with Rule 4300, to the market maker or ECN whose quote it would lock or cross a Trade-or-Move Message that is at or superior to the receiving market maker’s or ECN’s quoted price. An ECN that sends a Trade-or-Move Message during these periods must then wait at least 10 seconds before entering a quote that would lock or cross the ADF.] [(B) If a Registered Reporting ADF Market Maker locks or crosses the ADF between 9:20 and 9:29:29 a.m. Eastern Time, the Registered Reporting ADF Market Maker must then immediately send, making use of direct electronic PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 access in accordance with Rule 4300, to the market maker whose quotes it is locking or crossing a Trade-or-Move message that is at the receiving market maker’s or ECNs quoted price.] [(C) An ADF Trading Center shall be prohibited from entering a quote that would lock or cross the ADF between 9:29:30 and 9:29:59 a.m.] [(3)(A) In the case of securities included in the Nasdaq 100 Index or the S&P 400 Index, a Trade-or-Move Message must be for at least 10,000 shares (in instances where there are multiple market makers to a lock/cross, the locking/crossing ADF Trading Center must send a message to each party to the lock/cross and the aggregate size of all such messages must be at least 10,000 shares); provided, however, that if an ADF Trading Center is representing an agency order, the ADF Trading Center shall be required to send a Trade-or-Move Message(s) in an amount equal to the agency order, even if that order is less than 10,000 shares.] [(B) In the case of all other securities, a Trade-or-Move Message must be for at least 5,000 shares (if multiple market makers would be locked/crossed, each one must receive a Trade-or-Move Message and the aggregate size of all such messages must be at least 5,000 shares); provided, however, that if an ADF Trading Center is representing an agency order, the ADF Trading Center shall be required to send a Trade-orMove Message(s) in an amount equal to the agency order, even if that order is less than 5,000 shares.] [(4) An ADF Trading Center that receives a Trade-or-Move Message must, within 10 seconds of receiving such message, either fill the incoming Tradeor-Move Message for the full size of the message, or move its bid down (offer up) by a quotation increment that restores or maintains an unlocked/uncrossed ADF.] [(5) An ADF Trading Center that sends a Trade-or-Move Message pursuant to this rule must append to the message a symbol indicating that it is a Trade-or-Move Message.] [(6) For the purposes of this rule ‘‘agency order’’ shall mean an order(s) that is for the benefit of the account of a natural person executing securities transactions with or through or receiving investment banking services from a broker/dealer, or for the benefit of an ‘‘institutional account’’ as defined in Rule 3110. An agency order shall not include an order(s) that is for the benefit of an ADF Trading Center in the security at issue, but shall include an order(s) that is for the benefit of a broker/dealer that is not an ADF Trading Center in the security at issue.] * * * * * E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 4617A. Normal Business Hours An ADF Trading Center shall be open for business as of 9:30 a.m. Eastern Time and shall close no earlier than 4:00 p.m. Eastern Time. An ADF Trading Center may [remain] be open for business on a voluntary basis for any period of time between 8:00 a.m. Eastern Time and 9:30 a.m. Eastern Time or between 4:00 p.m. Eastern Time and 6:30 p.m. Eastern Time. An ADF Trading Center whose quotes are open before 9:30 a.m. Eastern Time or after 4:00 p.m. Eastern Time shall be obligated to comply, while its quotes are open, with all NASD Rules that are not by their express terms, or by an official interpretation of NASD, inapplicable to any part of the 8:00 a.m. to 9:30 a.m. Eastern Time or the 4:00 p.m. to 6:30 p.m. Eastern Time periods. * * * * * sroberts on PROD1PC70 with NOTICES 4632A. Transactions Reported by Members to TRACS (a) When and How Transactions are Reported to TRACS: (1) through (3) No Change. (4) Other Modifiers Required to be Reported to TRACS. Reporting Members also shall append the [following] applicable trade report modifiers as specified by NASD to all last sale reports, including reports of ‘‘as/of’’ trades[, if applicable]: (A) [.SLD,] if the trade is executed during normal market hours and it is reported later than 90 seconds after execution; (B) [.SNN,] if the trade is a Seller’s Option Trade, [.NN] denot[es]ing the number of days for delivery; (C) [.C,] if the trade is a Cash Trade; (D) [.ND,] if the trade is a Next Day Trade; (E) [.W,] if the trade occurs at a price based on an average weighting or another special pricing formula; (F) [.1,] if the trade is a Stop Stock Transaction (as defined in Rule 4200A) ([n]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 [.1] 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) [.PRP,] if the transaction report[s] reflects a price different from the current market when the execution price is based on a prior reference point in time ([n]Note: the transaction report shall include the prior reference time in lieu of the actual time the trade was executed[. The .PRP] and the designated VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 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[ or when the transaction is a single-priced opening, re-opening or closing transaction]); [(H) .4, if the transaction was based upon a single-priced opening, reopening, or closing transaction by a trading center;] [(I) .ST,] (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 6:30 p.m. Eastern Time) reported more than 90 seconds after execution; [(J) .X,] (I) if the trade would be a trade-through of a protected quotation, but for the trade being qualified for an exception or exemption from SEC Rule 611[. ] ([In order]Note: to ensure consistency in the usage of SEC 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 SEC Rule 611[.]); [(K)] (J) [I]If the trade would be a trade-through of a protected quotation, but for the trade being qualified for an exception or exemption from SEC Rule 611, members must, in addition to the modifier required in paragraph (I) above[ .X], append an appropriate unique modifier, specified by NASD, that identifies the specific applicable exception or exemption from SEC Rule 611 that a member is relying upon[. ] (In order]Note: to ensure consistency in the usage of SEC Rule 611 related modifiers by registered broker-dealers, these modifiers will be used in conformity with the specification approved by the Operating Committee of the relevant National Market System Plans to identify trades executed pursuant to an exception or exemption from SEC Rule 611[.]); and [(L)] (K) [A]any other modifier as specified by NASD or the Securities and Exchange Commission. (5) No Change. (b) through (j) 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 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 2575 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 The ADF is a quotation collection, trade comparison, and trade reporting facility developed by NASD in accordance with the Commission’s SuperMontage Approval Order5 and in conjunction with Nasdaq’s registration as a national securities exchange. As of the Regulation NMS Trading Phase Date, the ADF will provide market participants (market makers and Electronic Communication Networks (or ECNs)) 6 with the ability to post quotations in NMS stocks, as defined in Rule 600(b)(47) of Regulation NMS, and the ability to view quotations and report transactions in these securities for consolidation and dissemination of data to vendors and ADF market participants. The facility provides for trade comparison through the Trade Reporting and Comparison Service (‘‘TRACS’’) and further provides for real-time data delivery to NASD for regulatory purposes, including enforcement of the firm quote and related rules. On June 29, 2005, the Commission published its release adopting Regulation NMS.7 Regulation NMS established new substantive rules designed to modernize and strengthen the regulatory structure of the U.S. equity markets. As part of the rules, Regulation NMS adopted Rule 610, which, among other things, requires NASD and the exchanges to adopt, maintain, and enforce written rules that prohibit their members from engaging in a pattern or practice of displaying any quotations that lock or cross protected quotations and manual quotations that lock or cross quotations disseminated pursuant to an effective National Market System Plan. On September 28, 2006, the Commission approved SR–NASD–2006– 091, which, among other things, amended NASD rules (primarily, ADF 5 See Securities Exchange Act Release No. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001) (SR–NASD–99–53). 6 ECNs are defined in Rule 600(b)(23) of Regulation NMS. 7 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). E:\FR\FM\19JAN1.SGM 19JAN1 sroberts on PROD1PC70 with NOTICES 2576 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices rules) to align them with Regulation NMS and to enhance the clarity of the ADF rules. The purpose of the instant proposed rule change is to further those two goals by amending certain of the ADF rule changes approved in SR– NASD–2006–091 to: (1) Expand the prohibition on locking or crossing quotations in NMS stocks to include the time periods of 8 a.m. to 9:30 a.m. and 4 p.m. to 6:30 p.m.; (2) extend the obligation in Rule 4617A to comply with NASD rules to pre-opening quotes; and (3) replace the specific modifiers identified in Rule 4632A(a)(4) with a more general reference to modifiers as specified by NASD. The purpose behind each of these changes is discussed below. (A) Locking or Crossing Quotations. As approved by the Commission in SR– NASD–2006–091, Rule 4613A generally prohibits a member from displaying a quotation on the ADF that locks or crosses a protected quotation during regular trading hours (i.e., between 9:30 a.m. and 4 p.m. Eastern Time).8 ADF Trading Centers, however, are permitted to post quotations on the ADF on a voluntary basis each trading day from 8 a.m. Eastern Time until 6:30 p.m. Eastern Time. The proposed rule change would extend the prohibition on locking and crossing quotations to members who voluntarily post quotes on the ADF between 8:00 a.m. and 9:30 a.m. Eastern Time or between 4:00 p.m. and 6:30 p.m. Eastern Time. In addition, the proposed rule change would delete Rule 4613A(e), which addresses locked and crossed quotation conditions in the ADF prior to opening, because the extension of the locking and crossing prohibition in Rule 4130A to that time period would render Rule 4613A(e) obsolete. (B) Extension of ADF Rules to PreOpening Quotations. Although ADF Trading Centers are required to be open for business between 9:30 a.m. Eastern Time and 4 p.m. Eastern Time on business days, as noted above, they are permitted, on a voluntary basis, to post quotations on the ADF between the hours of 8 a.m. and 9:30 a.m. Eastern Time or between 4 p.m. and 6:30 p.m. Eastern Time. As approved by the Commission in SR–NASD–2006–091, Rule 4617A requires an ADF Trading Center whose quotes are open after 4 p.m. Eastern Time to comply, while its quotes are open, with all NASD rules that are not by their express terms, or by an official interpretation of NASD, inapplicable to any part of the 4 p.m. to 6:30 p.m. Eastern Time period. The 8 Rule 610(d) of Regulation NMS requires NASD to establish, maintain, and enforce written rules concerning locking and crossing quotations. VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 proposed rule change would extend this requirement to ADF Trading Centers whose quotes are open between 8 a.m. and 9:30 a.m. Eastern Time. Thus, in general, the ADF rules would apply during the entire timeframe during which an ADF Trading Center is permitted to enter quotations on the ADF: 8 a.m. through 6:30 p.m. Eastern Time. Of particular note, this proposed change would, among other things, extend the order reporting requirements found in Rule 4300A(b)(1) and (2) and the firm quote requirement in Rule 4613A(c) to any quotations posted voluntarily before 9:30 a.m. Eastern Time or after 4 p.m. Eastern Time. Among the changes approved by the Commission in SR–NASD–2006–091 were amendments to Rule 4300A(e) requiring that ADF Trading Centers submit automated quotations, as defined in Rule 600(b)(3) of Regulation NMS, to the ADF. Automated quotations are, by their nature, firm; thus, the proposed rule change clarifies that the firm quote rule applies to all quotations submitted to the ADF, including quotations submitted before 9:30 a.m. or after 4 p.m. Eastern Time. Further, if a firm voluntarily quotes before 9:30 a.m. Eastern Time or after 4 p.m. Eastern Time, the member must submit order reports during that time period as required during the normal trading day.9 (C) Replacement of Specific Modifiers with General Language. Finally, the proposed rule change would replace the specific modifiers set forth in Rule 4632A(a)(4) with a more general reference to modifiers specified by NASD. As approved by the Commission in SR–NASD–2006–091, Rule 4632A includes specific trade report modifiers for Reporting Members to use when reporting transactions through TRACS if the trade has certain attributes. For example, if the trade is a Cash Trade, Rule 4632A, in the form currently approved by the Commission, would 9 A member is generally required to submit order reports when the member displays a quote. If a member chooses not to quote before 9:30 a.m. or after 4 p.m., the member is not required to submit order reports during those time periods. If a member displays a quote on the ADF at any time during regular trading hours (i.e., 9:30 a.m. to 4 p.m. Eastern Time), the member must submit order reports continuously to NASD from the time an initial quote is displayed on the ADF in a security, irrespective of whether the member has a quote displayed on the ADF at the specific time that an order is received. If a member does not display a quote on the ADF in a specific security for the entire time period of 9:30 a.m. to 4 p.m. Eastern Time on a given trading day, the member would not be required to submit order reports on the subsequent trade date after the full day of nonquoting on the ADF unless the member displays a quote in that security on the ADF. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 require the Reporting Member to include a ‘‘.C’’ modifier when reporting the trade to TRACS. The proposed rule change would amend Rule 4632A(a)(4) and delete the references to specific modifiers. Instead, the rule would require Reporting Members to append ‘‘applicable trade report modifiers as specified by NASD.’’10 Additionally, the proposed rule change deletes the trade report modifier for transactions based upon a single-priced opening, reopening, or closing transaction because this is an exchange function. NASD will provide members with at least 30 days notice of any new modifiers or any change in existing modifiers. NASD has filed the proposed rule change for immediate effectiveness. NASD proposes that the proposed rule change be implemented on the Regulation NMS Trading Phase Date. Currently, that date is projected to be February 5, 2007. 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,11 which requires, among other things, that NASD rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes the proposed rule change facilitates the goals articulated in Regulation NMS, including providing an effective mechanism and regulatory framework for the over-the-counter market. 10 Rule 4632A(a)(4), as amended by SR–NASD– 2006–091, also requires members reporting transactions to the ADF to append ‘‘[a]ny other modifier as specified by NASD or the Securities and Exchange Commission.’’ Pursuant to this provision, NASD believes it has the authority to prescribe additional modifiers be reported solely to NASD. For example, such authority has been used in the context of an update to ADF specifications to require additional modifiers to designate trades that qualify under two existing exemptions from Rule 611 of Regulation NMS (qualified contingent trades and certain sub-penny trade-throughs). 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 Plan specifications). The National Market System specifications identify both types of ISOs 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 will provide members with at least 30 days advance written notice and sufficient time to make the necessary systems changes relating to any additional new modifiers. 11 15 U.S.C. 78o–3(b)(6). E:\FR\FM\19JAN1.SGM 19JAN1 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 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 12 and Rule 19b–4(f)(6) thereunder 13 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.14 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 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: Number SR–NASD–2007–001 on the subject line. SECURITIES AND EXCHANGE COMMISSION Paper Comments [Release No. 34–55069; File No. SR–NYSE– 2006–117] • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectivenes of Proposed Rule Change to Eliminate the Exemption from Equity Trading All submissions should refer to File Fees for Principal Transactions by a Number SR–NASD–2007–001. This file Member Organization ‘‘Facilitating’’ a number should be included on the Customer Order of at Least 10,000 subject line if e-mail is used. To help the Shares Commission process and review your January 9, 2007. comments more efficiently, please use Pursuant to Section 19(b)(1) of the only one method. The Commission will Securities Exchange Act of 1934 post all comments on the Commission’s (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Internet Web site (http://www.sec.gov/ notice is hereby given that on December rules/sro.shtml). Copies of the 22, 2006, the New York Stock Exchange submission, all subsequent LLC (‘‘Exchange’’ or ‘‘NYSE’’) filed with amendments, all written statements the Securities and Exchange with respect to the proposed rule Commission (‘‘Commission’’) the change that are filed with the proposed rule change as described in Commission, and all written Items I, II, and III below, which Items communications relating to the have been substantially prepared by the proposed rule change between the Exchange. NYSE has designated this Commission and any person, other than proposal as one establishing or changing those that may be withheld from the a due, fee, or other charge imposed by public in accordance with the NYSE under Section 19(b)(3)(A)(ii) of provisions of 5 U.S.C. 552, will be the Act 3 and Rule 19b–4(f)(2) available for inspection and copying in thereunder,4 which renders the proposed rule change effective upon the Commission’s Public Reference filing with the Commission. The Room. Copies of the filing also will be Commission is publishing this notice to available for inspection and copying at solicit comments on the proposed rule the principal office of NASD. All change from interested persons. comments received will be posted without change; the Commission does I. Self-Regulatory Organization’s not edit personal identifying Statement of the Terms of Substance of information from submissions. You the Proposed Rule Change should submit only information that The Exchange proposes to eliminate, you wish to make available publicly. All effective January 1, 2007, the exemption submissions should refer to File from equity trading fees applicable to Number SR–NASD–2007–001 and principal transactions by a member should be submitted on or before organization in conjunction with February 9, 2007. ‘‘facilitating’’ a customer order of at least 10,000 shares. For the Commission, by the Division of The text of the proposed rule change Market Regulation, pursuant to delegated is available at NYSE, the Commission’s authority.15 Public Reference Room, and http:// Florence E. Harmon, www.nyse.com. Deputy Secretary. [FR Doc. E7–689 Filed 1–18–07; 8:45 am] BILLING CODE 8011–01–P 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 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange 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 12 15 1 15 13 17 2 17 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). 14 NASD has satisfied the five-day pre-filing requirement. VerDate Aug<31>2005 18:10 Jan 18, 2007 Jkt 211001 2577 15 17 PO 00000 CFR 200.30–3(a)(12). Frm 00088 Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). E:\FR\FM\19JAN1.SGM 19JAN1

Agencies

[Federal Register Volume 72, Number 12 (Friday, January 19, 2007)]
[Notices]
[Pages 2573-2577]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-689]


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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 with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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 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 pre-opening 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].

[[Page 2574]]

4000A. NASD ALTERNATIVE DISPLAY FACILITY
4100A. General
* * * * *
4130A. Prohibition From Locking or Crossing Quotations in NMS Stocks
    (a) Definitions. For purposes of these Rules, the following 
definitions shall apply:
    (1) The terms ``automated quotation,'' ``National Market System 
Plan'' (NMS Plan), ``intermarket sweep order,'' ``manual quotation,'' 
``NMS stock,'' ``protected quotation,'' [``regular trading hours,''] 
and ``trading center'' shall have the meanings set forth in Rule 600(b) 
of Regulation NMS under the Securities Exchange Act of 1934.
    (2) The term crossing quotation shall mean the display of a bid for 
an NMS stock [during regular trading hours] at any time between 8:00 
a.m. and 6:30 p.m. Eastern Time at a price that is higher than the 
price of an offer for such NMS stock previously disseminated pursuant 
to an effective NMS Plan, or the display of an offer for an NMS stock 
[during regular trading hours] at any time between 8:00 a.m. and 6:30 
p.m. Eastern Time at a price that is lower than the price of a bid for 
such NMS stock previously disseminated pursuant to an effective NMS 
Plan.
    (3) The term locking quotation shall mean the display of a bid for 
an NMS stock [during regular trading hours] at any time between 8:00 
a.m. and 6:30 p.m. Eastern Time at a price that equals the price of an 
offer for such NMS stock previously disseminated pursuant to an 
effective NMS Plan, or the display of an offer for an NMS stock [during 
regular trading hours] at any time between 8:00 a.m. and 6:30 p.m. 
Eastern Time at a price that equals the price of a bid for such NMS 
stock previously disseminated pursuant to an effective NMS Plan.
    (b) through (d) No Change.
* * * * *
4300A. Quote and Order Access Requirements
    (a) No Change.
    (b) Subject to the terms and conditions contained herein, all ADF 
Trading Centers that display quotations in NASD's ADF must record each 
item of information described in paragraphs (b)(1) and (2) of this Rule 
for all orders they receive from another broker-dealer via direct or 
indirect electronic access, and report this information to NASD as 
specified below.
    (1) ADF Trading Centers must record the following information for 
every order they receive from another broker-dealer via direct or 
indirect electronic access [during the trading day]:
    (A) through (N) No Change.
    The information described in paragraphs (A) through (N) must be 
reported to NASD within 10 seconds of receipt of the order.
    (2) through (7) No Change.
    (c) through (g) No Change.
* * * * *
4600A. TRADING IN NASDAQ SECURITIES
* * * * *
4613A. Character of Quotations
    (a) through (d) No Change.
    [(e) Obligations Regarding Locked/Crossed Quotation Conditions in 
the ADF Prior to Opening]
    [(1) Locked/Crossed ADF Quotations Prior to 9:20 a.m.--For locks/
crosses that occur in the ADF prior to 9:20 a.m. Eastern Time, a ADF 
Trading Center that is a party to a lock/cross because the ADF Trading 
Center either has entered a bid (ask) quotation that locks/crosses 
another ADF Trading Center's quotation(s) or has had its quotation(s) 
locked/crossed by another ADF Trading Center (``party to a lock/
cross'') may, beginning at 9:20 a.m. Eastern Time, send an order, 
making use of direct electronic access in accordance with Rule 4300, of 
any size, that is at the receiving ADF Trading Center's quoted price 
(``Trade-or-Move Message''). Any ADF Trading Center that receives a 
Trade-or-Move Message at or after 9:20 a.m. Eastern Time, and that is a 
party to a lock/cross, must within 10 seconds of receiving such message 
either: Fill the incoming order for the full size of the message; or 
move its bid down (offer up) by a quotation increment that unlocks/
uncrosses the ADF.]
    [(2) Locked/Crossed ADF Quotations Between 9:20 and 9:29:59 a.m.]
    [(A) Before a Registered Reporting ADF ECN enters a quote that 
would lock or cross the ADF between 9:20 and 9:29:29 a.m. Eastern Time, 
the ECN must first send, making use of direct electronic access in 
accordance with Rule 4300, to the market maker or ECN whose quote it 
would lock or cross a Trade-or-Move Message that is at or superior to 
the receiving market maker's or ECN's quoted price. An ECN that sends a 
Trade-or-Move Message during these periods must then wait at least 10 
seconds before entering a quote that would lock or cross the ADF.]
    [(B) If a Registered Reporting ADF Market Maker locks or crosses 
the ADF between 9:20 and 9:29:29 a.m. Eastern Time, the Registered 
Reporting ADF Market Maker must then immediately send, making use of 
direct electronic access in accordance with Rule 4300, to the market 
maker whose quotes it is locking or crossing a Trade-or-Move message 
that is at the receiving market maker's or ECNs quoted price.]
    [(C) An ADF Trading Center shall be prohibited from entering a 
quote that would lock or cross the ADF between 9:29:30 and 9:29:59 
a.m.]
    [(3)(A) In the case of securities included in the Nasdaq 100 Index 
or the S&P 400 Index, a Trade-or-Move Message must be for at least 
10,000 shares (in instances where there are multiple market makers to a 
lock/cross, the locking/crossing ADF Trading Center must send a message 
to each party to the lock/cross and the aggregate size of all such 
messages must be at least 10,000 shares); provided, however, that if an 
ADF Trading Center is representing an agency order, the ADF Trading 
Center shall be required to send a Trade-or-Move Message(s) in an 
amount equal to the agency order, even if that order is less than 
10,000 shares.]
    [(B) In the case of all other securities, a Trade-or-Move Message 
must be for at least 5,000 shares (if multiple market makers would be 
locked/crossed, each one must receive a Trade-or-Move Message and the 
aggregate size of all such messages must be at least 5,000 shares); 
provided, however, that if an ADF Trading Center is representing an 
agency order, the ADF Trading Center shall be required to send a Trade-
or-Move Message(s) in an amount equal to the agency order, even if that 
order is less than 5,000 shares.]
    [(4) An ADF Trading Center that receives a Trade-or-Move Message 
must, within 10 seconds of receiving such message, either fill the 
incoming Trade-or-Move Message for the full size of the message, or 
move its bid down (offer up) by a quotation increment that restores or 
maintains an unlocked/uncrossed ADF.]
    [(5) An ADF Trading Center that sends a Trade-or-Move Message 
pursuant to this rule must append to the message a symbol indicating 
that it is a Trade-or-Move Message.]
    [(6) For the purposes of this rule ``agency order'' shall mean an 
order(s) that is for the benefit of the account of a natural person 
executing securities transactions with or through or receiving 
investment banking services from a broker/dealer, or for the benefit of 
an ``institutional account'' as defined in Rule 3110. An agency order 
shall not include an order(s) that is for the benefit of an ADF Trading 
Center in the security at issue, but shall include an order(s) that is 
for the benefit of a broker/dealer that is not an ADF Trading Center in 
the security at issue.]
* * * * *

[[Page 2575]]

4617A. Normal Business Hours
    An ADF Trading Center shall be open for business as of 9:30 a.m. 
Eastern Time and shall close no earlier than 4:00 p.m. Eastern Time. An 
ADF Trading Center may [remain] be open for business on a voluntary 
basis for any period of time between 8:00 a.m. Eastern Time and 9:30 
a.m. Eastern Time or between 4:00 p.m. Eastern Time and 6:30 p.m. 
Eastern Time. An ADF Trading Center whose quotes are open before 9:30 
a.m. Eastern Time or after 4:00 p.m. Eastern Time shall be obligated to 
comply, while its quotes are open, with all NASD Rules that are not by 
their express terms, or by an official interpretation of NASD, 
inapplicable to any part of the 8:00 a.m. to 9:30 a.m. Eastern Time or 
the 4:00 p.m. to 6:30 p.m. Eastern Time periods.
* * * * *
4632A. Transactions Reported by Members to TRACS
    (a) When and How Transactions are Reported to TRACS:
    (1) through (3) No Change.
    (4) Other Modifiers Required to be Reported to TRACS.
    Reporting Members also shall append the [following] applicable 
trade report modifiers as specified by NASD to all last sale reports, 
including reports of ``as/of'' trades[, if applicable]:
    (A) [.SLD,] if the trade is executed during normal market hours and 
it is reported later than 90 seconds after execution;
    (B) [.SNN,] if the trade is a Seller's Option Trade, [.NN] 
denot[es]ing the number of days for delivery;
    (C) [.C,] if the trade is a Cash Trade;
    (D) [.ND,] if the trade is a Next Day Trade;
    (E) [.W,] if the trade occurs at a price based on an average 
weighting or another special pricing formula;
    (F) [.1,] if the trade is a Stop Stock Transaction (as defined in 
Rule 4200A) ([n]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 [.1] 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) [.PRP,] if the transaction report[s] reflects a price different 
from the current market when the execution price is based on a prior 
reference point in time ([n]Note: the transaction report shall include 
the prior reference time in lieu of the actual time the trade was 
executed[. The .PRP] 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[ or when the transaction is a 
single-priced opening, re-opening or closing transaction]);
    [(H) .4, if the transaction was based upon a single-priced opening, 
re-opening, or closing transaction by a trading center;]
    [(I) .ST,] (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 6:30 p.m. Eastern Time) reported more than 90 seconds after 
execution;
    [(J) .X,] (I) if the trade would be a trade-through of a protected 
quotation, but for the trade being qualified for an exception or 
exemption from SEC Rule 611[. ] ([In order]Note: to ensure consistency 
in the usage of SEC 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 SEC Rule 611[.]);
    [(K)] (J) [I]If the trade would be a trade-through of a protected 
quotation, but for the trade being qualified for an exception or 
exemption from SEC Rule 611, members must, in addition to the modifier 
required in paragraph (I) above[ .X], append an appropriate unique 
modifier, specified by NASD, that identifies the specific applicable 
exception or exemption from SEC Rule 611 that a member is relying 
upon[. ] (In order]Note: to ensure consistency in the usage of SEC Rule 
611 related modifiers by registered broker-dealers, these modifiers 
will be used in conformity with the specification approved by the 
Operating Committee of the relevant National Market System Plans to 
identify trades executed pursuant to an exception or exemption from SEC 
Rule 611[.]); and
    [(L)] (K) [A]any other modifier as specified by NASD or the 
Securities and Exchange Commission.
    (5) No Change.
    (b) through (j) 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
    The ADF is a quotation collection, trade comparison, and trade 
reporting facility developed by NASD in accordance with the 
Commission's SuperMontage Approval Order\5\ and in conjunction with 
Nasdaq's registration as a national securities exchange. As of the 
Regulation NMS Trading Phase Date, the ADF will provide market 
participants (market makers and Electronic Communication Networks (or 
ECNs)) \6\ with the ability to post quotations in NMS stocks, as 
defined in Rule 600(b)(47) of Regulation NMS, and the ability to view 
quotations and report transactions in these securities for 
consolidation and dissemination of data to vendors and ADF market 
participants. The facility provides for trade comparison through the 
Trade Reporting and Comparison Service (``TRACS'') and further provides 
for real-time data delivery to NASD for regulatory purposes, including 
enforcement of the firm quote and related rules.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (SR-NASD-99-53).
    \6\ ECNs are defined in Rule 600(b)(23) of Regulation NMS.
---------------------------------------------------------------------------

    On June 29, 2005, the Commission published its release adopting 
Regulation NMS.\7\ Regulation NMS established new substantive rules 
designed to modernize and strengthen the regulatory structure of the 
U.S. equity markets. As part of the rules, Regulation NMS adopted Rule 
610, which, among other things, requires NASD and the exchanges to 
adopt, maintain, and enforce written rules that prohibit their members 
from engaging in a pattern or practice of displaying any quotations 
that lock or cross protected quotations and manual quotations that lock 
or cross quotations disseminated pursuant to an effective National 
Market System Plan.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).
---------------------------------------------------------------------------

    On September 28, 2006, the Commission approved SR-NASD-2006-091, 
which, among other things, amended NASD rules (primarily, ADF

[[Page 2576]]

rules) to align them with Regulation NMS and to enhance the clarity of 
the ADF rules. The purpose of the instant proposed rule change is to 
further those two goals by amending certain of the ADF rule changes 
approved in SR-NASD-2006-091 to: (1) Expand the prohibition on locking 
or crossing quotations in NMS stocks to include the time periods of 8 
a.m. to 9:30 a.m. and 4 p.m. to 6:30 p.m.; (2) extend the obligation in 
Rule 4617A to comply with NASD rules to pre-opening quotes; and (3) 
replace the specific modifiers identified in Rule 4632A(a)(4) with a 
more general reference to modifiers as specified by NASD. The purpose 
behind each of these changes is discussed below.
    (A) Locking or Crossing Quotations. As approved by the Commission 
in SR-NASD-2006-091, Rule 4613A generally prohibits a member from 
displaying a quotation on the ADF that locks or crosses a protected 
quotation during regular trading hours (i.e., between 9:30 a.m. and 4 
p.m. Eastern Time).\8\ ADF Trading Centers, however, are permitted to 
post quotations on the ADF on a voluntary basis each trading day from 8 
a.m. Eastern Time until 6:30 p.m. Eastern Time. The proposed rule 
change would extend the prohibition on locking and crossing quotations 
to members who voluntarily post quotes on the ADF between 8:00 a.m. and 
9:30 a.m. Eastern Time or between 4:00 p.m. and 6:30 p.m. Eastern Time. 
In addition, the proposed rule change would delete Rule 4613A(e), which 
addresses locked and crossed quotation conditions in the ADF prior to 
opening, because the extension of the locking and crossing prohibition 
in Rule 4130A to that time period would render Rule 4613A(e) obsolete.
---------------------------------------------------------------------------

    \8\ Rule 610(d) of Regulation NMS requires NASD to establish, 
maintain, and enforce written rules concerning locking and crossing 
quotations.
---------------------------------------------------------------------------

    (B) Extension of ADF Rules to Pre-Opening Quotations. Although ADF 
Trading Centers are required to be open for business between 9:30 a.m. 
Eastern Time and 4 p.m. Eastern Time on business days, as noted above, 
they are permitted, on a voluntary basis, to post quotations on the ADF 
between the hours of 8 a.m. and 9:30 a.m. Eastern Time or between 4 
p.m. and 6:30 p.m. Eastern Time. As approved by the Commission in SR-
NASD-2006-091, Rule 4617A requires an ADF Trading Center whose quotes 
are open after 4 p.m. Eastern Time to comply, while its quotes are 
open, with all NASD rules that are not by their express terms, or by an 
official interpretation of NASD, inapplicable to any part of the 4 p.m. 
to 6:30 p.m. Eastern Time period. The proposed rule change would extend 
this requirement to ADF Trading Centers whose quotes are open between 8 
a.m. and 9:30 a.m. Eastern Time. Thus, in general, the ADF rules would 
apply during the entire timeframe during which an ADF Trading Center is 
permitted to enter quotations on the ADF: 8 a.m. through 6:30 p.m. 
Eastern Time.
    Of particular note, this proposed change would, among other things, 
extend the order reporting requirements found in Rule 4300A(b)(1) and 
(2) and the firm quote requirement in Rule 4613A(c) to any quotations 
posted voluntarily before 9:30 a.m. Eastern Time or after 4 p.m. 
Eastern Time. Among the changes approved by the Commission in SR-NASD-
2006-091 were amendments to Rule 4300A(e) requiring that ADF Trading 
Centers submit automated quotations, as defined in Rule 600(b)(3) of 
Regulation NMS, to the ADF. Automated quotations are, by their nature, 
firm; thus, the proposed rule change clarifies that the firm quote rule 
applies to all quotations submitted to the ADF, including quotations 
submitted before 9:30 a.m. or after 4 p.m. Eastern Time. Further, if a 
firm voluntarily quotes before 9:30 a.m. Eastern Time or after 4 p.m. 
Eastern Time, the member must submit order reports during that time 
period as required during the normal trading day.\9\
---------------------------------------------------------------------------

    \9\ A member is generally required to submit order reports when 
the member displays a quote. If a member chooses not to quote before 
9:30 a.m. or after 4 p.m., the member is not required to submit 
order reports during those time periods. If a member displays a 
quote on the ADF at any time during regular trading hours (i.e., 
9:30 a.m. to 4 p.m. Eastern Time), the member must submit order 
reports continuously to NASD from the time an initial quote is 
displayed on the ADF in a security, irrespective of whether the 
member has a quote displayed on the ADF at the specific time that an 
order is received. If a member does not display a quote on the ADF 
in a specific security for the entire time period of 9:30 a.m. to 4 
p.m. Eastern Time on a given trading day, the member would not be 
required to submit order reports on the subsequent trade date after 
the full day of non-quoting on the ADF unless the member displays a 
quote in that security on the ADF.
---------------------------------------------------------------------------

    (C) Replacement of Specific Modifiers with General Language. 
Finally, the proposed rule change would replace the specific modifiers 
set forth in Rule 4632A(a)(4) with a more general reference to 
modifiers specified by NASD. As approved by the Commission in SR-NASD-
2006-091, Rule 4632A includes specific trade report modifiers for 
Reporting Members to use when reporting transactions through TRACS if 
the trade has certain attributes. For example, if the trade is a Cash 
Trade, Rule 4632A, in the form currently approved by the Commission, 
would require the Reporting Member to include a ``.C'' modifier when 
reporting the trade to TRACS. The proposed rule change would amend Rule 
4632A(a)(4) and delete the references to specific modifiers. Instead, 
the rule would require Reporting Members to append ``applicable trade 
report modifiers as specified by NASD.''\10\ Additionally, the proposed 
rule change deletes the trade report modifier for transactions based 
upon a single-priced opening, re-opening, or closing transaction 
because this is an exchange function. NASD will provide members with at 
least 30 days notice of any new modifiers or any change in existing 
modifiers.
---------------------------------------------------------------------------

    \10\ Rule 4632A(a)(4), as amended by SR-NASD-2006-091, also 
requires members reporting transactions to the ADF to append ``[a]ny 
other modifier as specified by NASD or the Securities and Exchange 
Commission.'' Pursuant to this provision, NASD believes it has the 
authority to prescribe additional modifiers be reported solely to 
NASD. For example, such authority has been used in the context of an 
update to ADF specifications to require additional modifiers to 
designate trades that qualify under two existing exemptions from 
Rule 611 of Regulation NMS (qualified contingent trades and certain 
sub-penny trade-throughs). 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 Plan specifications). The National Market 
System specifications identify both types of ISOs 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 will provide members with at least 30 days 
advance written notice and sufficient time to make the necessary 
systems changes relating to any additional new modifiers.
---------------------------------------------------------------------------

    NASD has filed the proposed rule change for immediate 
effectiveness. NASD proposes that the proposed rule change be 
implemented on the Regulation NMS Trading Phase Date. Currently, that 
date is projected to be February 5, 2007.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ which requires, among 
other things, that NASD rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. NASD believes the proposed rule change facilitates the 
goals articulated in Regulation NMS, including providing an effective 
mechanism and regulatory framework for the over-the-counter market.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78o-3(b)(6).

---------------------------------------------------------------------------

[[Page 2577]]

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 \12\ and Rule 19b-4(f)(6) thereunder \13\ 
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.\14\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 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 (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2007-001 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-2007-001. 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-2007-001 and should be submitted on or before February 9, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-689 Filed 1-18-07; 8:45 am]
BILLING CODE 8011-01-P