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]
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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.
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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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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
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CFR 200.30–3(a)(12).
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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 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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Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices
4000A. NASD ALTERNATIVE DISPLAY
FACILITY
4100A. General
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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.
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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-
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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.
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4600A. TRADING IN NASDAQ
SECURITIES
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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
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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.]
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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.
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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
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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.
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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
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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).
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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.
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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 (https://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 https://
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 (https://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]
-----------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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\
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\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.
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(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.
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\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.
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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.
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\11\ 15 U.S.C. 78o-3(b)(6).
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[[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\
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\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.
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At any time within 60 days of the filing of such proposed rule
change the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors or otherwise in
furtherance of the purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
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 (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-2007-001 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
