2568 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 

13 15 U.S.C. 78f(b)(4). 

14 15 U.S.C. 78s(b)(3)(A)(ii). 

15 17 CFR 19b–4(f)(2). 16 17 CFR 200.30–3(a)(12). 

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). 

5See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). The 

Commission has approved proposed rule changes to 

establish Trade Reporting Facilities in conjunction 

with the National Stock Exchange, Inc. and the 

Boston Stock Exchange, Inc. See Securities 

Exchange Act Release Nos. 54715 (November 6, 

2006), 71 FR 66354 (November 14, 2006) (SR–

NASD–2006–108) (‘‘NASD/NSX TRF’’) and 54931 

(December 13, 2006), 71 FR 76409 (December 20, 

2006) (SR–NASD–2006–115) (‘‘NASD/BSE TRF’’). 

NASD intends to file a separate proposed rule 

change to align the transaction reporting rules for 

the NASD/NSX TRF and the NASD/BSE TRF, and 

any additional Trade Reporting Facilities approved 

by the Commission, with Regulation NMS. 

$0.03 per contract, respectively. All of 

the applicable fees covered by this filing 

are identical to fees charged by the 

Exchange for all other Premium 

Products. The Exchange believes the 

proposed rule change will further the 

Exchange’s goal of introducing new 

products to the marketplace that are 

competitively priced. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(4) 13 that an 

exchange have an equitable allocation of 

reasonable dues, fees and other charges 

among its members and other persons 

using its facilities. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The proposed rule change does not 

impose any burden on competition that 

is not necessary or appropriate in 

furtherance of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments on 

this proposed rule change. The 

Exchange has not received any 

unsolicited written comments from 

members or other interested parties. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing rule change 

establishes or changes a due, fee, or 

other charge imposed by the Exchange, 

it has become effective pursuant to 

Section 19(b)(3)(A)(ii) of the Act 14 and 

Rule 19b–4(f)(2) 15 thereunder. At any 

time within 60 days of the filing of such 

proposed rule change, the Commission 

may summarily abrogate such rule 

change if it appears to the Commission 

that such action is necessary or 

appropriate in the public interest, for 

the protection of investors, or otherwise 

in furtherance of the purposes of the 

Act. 

VI. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

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 

No. SR–ISE–2006–80 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

Station Place, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–ISE–2006–80. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of such filing also will be 

available for inspection and copying at 

the principal office of the ISE. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2006–80 and should be 

submitted on or before February 9, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.16

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–691 Filed 1–18–07; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55101; File No. SR–NASD–

2007–002] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change to Make Conforming 

Changes to the NASD/Nasdaq Trade 

Reporting Facility Rules Consistent 

With the New Requirements of 

Regulation NMS 

January 12, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 8, 

2007, the National Association of 

Securities Dealers, Inc. (‘‘NASD’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by 

NASD. NASD has filed the proposal 

pursuant to Section 19(b)(3)(A) of the 

Act 3 and Rule 19b–4(f)(6) thereunder,4

which renders the proposal effective 

upon filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASD proposes to make conforming 

changes to the transaction reporting 

rules relating to the NASD/Nasdaq 

Trade Reporting Facility (‘‘NASD/ 

Nasdaq TRF’’) consistent with the new 

requirements of Regulation NMS under 

the Act.5 Below is the text of the 

proposed rule change. Proposed new 

language is italicized and proposed 

deletions are in [brackets]. 


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4632. Transaction Reporting 

(a) When and How Transactions are 

Reported 

(1) Trade Reporting Facility 

Participants shall, within 90 seconds 

after execution, transmit to the NASD/ 

Nasdaq Trade Reporting Facility or if 

the NASD/Nasdaq Trade Reporting 

Facility is unavailable due to system or 

transmission failure, by telephone to the 

Operations Department, last sale reports 

of transactions in designated securities 

executed during normal market hours. 

Transactions not reported within 90 

seconds after execution shall be 

designated as late. 

(2) Transaction Reporting to the 

NASD/Nasdaq Trade Reporting Facility 

Outside Normal Market Hours 

(A) Last sale reports of transactions in 

designated securities executed between 

8:00 a.m. and 9:30 a.m. Eastern Time 

shall be reported within 90 seconds 

after execution and shall be designated 

[as ‘‘.T’’ trades] with the unique trade 

report modifier, as specified by NASD, 

to denote their execution outside 

normal market hours. [Transactions not 

reported within 90 seconds also shall be 

designated as .T trades.] Such 

[T]transactions not reported before 9:30 

a.m. shall be reported after 4:00 p.m. 

and before 8:00 p.m. [as .T trades] with 

the appropriate trade report modifier as 

specified by NASD. 

(B) Last sale reports of transactions in 

designated securities executed between 

the hours of 4:00 p.m. and 8:00 p.m. 

Eastern Time shall be reported within 

90 seconds after execution and be 

designated [as ‘‘.T’’ trades] with the 

unique trade report modifier, as 

specified by NASD, to denote their 

execution outside normal market hours. 

[Transactions not reported within 90 

seconds also shall be designated as .T 

trades.] Such [T]transactions not 

reported before 8:00 p.m. shall be 

reported on an ‘‘as/of’’ basis the 

following day between 8:00 a.m. and 

8:00 p.m. 

(C) Last sale reports of transactions 

executed between midnight and 8:00 

a.m. Eastern Time shall be reported 

between 8:00 a.m. and 9:30 a.m. Eastern 

Time on trade date [as ‘‘.T’’ trades] with 

the unique trade report modifier, as 

specified by NASD, to denote their 

execution outside normal market hours. 

Such [T]transactions not reported before 

9:30 a.m. shall be reported after 4:00 

p.m. and before 8:00 p.m. [as .T trades] 

with the appropriate trade report 

modifier as specified by NASD. 

(D) Last sale reports of transactions 

executed between 8:00 p.m. and 

midnight Eastern Time shall be reported 

on the next business day (T+1) between 

8:00 a.m. and 8:00 p.m. Eastern Time 

and be designated ‘‘as/of’’ trades. 

[(3) All members shall report as soon 

as practicable to the Market Regulation 

Department on Form T, last sale reports 

of transactions in designated securities 

for which electronic submission to the 

Trade Reporting Facility is not possible 

(e.g., the ticker symbol for the security 

is no longer available or a market 

participant identifier is no longer 

active). Transactions that can be 

reported to the Trade Reporting Facility, 

whether on trade date or on a 

subsequent date on an ‘‘as of’’ basis 

(T+N), shall not be reported on Form T.] 

[(4) All members shall append the 

‘‘.W’’ trade report modifier to 

transaction reports occurring at prices 

based on average-weighting, or other 

special pricing formulae.] 

[(5) All trade tickets for transactions 

in designated securities shall be timestamped at the time of execution.] 

(3) Members shall time-stamp all 

trade tickets at the time of execution for 

transactions in designated securities. 

Execution time shall be reported to 

NASD on all last sale reports and shall 

be expressed in hours, minutes and 

seconds based on Eastern Time in 

military format, unless another 

provision of NASD rules requires that a 

different time be included on the report. 

[(6)] (4) Transactions not reported 

within 90 seconds after execution shall 

be designated as late. A pattern or 

practice of late reporting without 

exceptional circumstances may be 

considered conduct inconsistent with 

high standards of commercial honor and 

just and equitable principles of trade in 

violation of Rule 2110. 

[(7) All members shall append the 

.PRP trade report modifier to transaction 

reports that reflect a price different from 

the current market when the execution 

price is based on a prior reference point 

in time. The transaction report shall 

include the prior reference time in lieu 

of the actual time the trade was 

executed. The .PRP modifier shall not 

be appended to a report of a transaction 

whose price is based on a prior 

reference point in time if the trade is 

executed and reported within 90 

seconds from the prior reference point 

in time.] 

[(8) The Trade Reporting Facility will 

append the .T modifier or the .SLD 

modifier, as appropriate, to those 

reports submitted to the Trade 

Reporting Facility that contain the time 

of execution, but that do not contain the 

appropriate modifier.] 

[(9) Members shall append the .W 

trade report modifier to reports of Stop 

Stock Transactions (as such term is 

defined in Rule 4200) and include the 

time at which the member and the other 

party agreed to the Stop Stock Price in 

lieu of including the time of execution 

on the trade report. The .W modifier 

shall not be appended to a report of a 

Stop Stock Transaction if the Stop Stock 

Transaction is executed and reported 

within 90 seconds of the time the 

member and the other party agree to the 

Stop Price.] 

[(10) To identify pre-opening and 

after-hours trades reported late, the 

Trade Reporting Facility will convert 

the .T modifier to .ST for any report 

submitted to the Trade Reporting 

Facility more than 90 seconds after 

execution.] 

(5) Members also shall append the 

applicable trade report modifiers as 

specified by NASD to all last sale 

reports, including reports of ‘‘as/of’’

trades: 

(A) if the trade is executed during 

normal market hours and it is reported 

later than 90 seconds after execution; 

(B) if the trade is a Seller’s Option 

Trade, denoting the number of days for 

delivery; 

(C) if the trade is a Cash Trade; 

(D) if the trade is a Next Day Trade; 

(E) if the trade occurs at a price based 

on an average weighting or another 

special pricing formula; 

(F) if the trade is a Stop Stock 

Transaction (as defined in Rule 4200) 

(Note: the time at which the member 

and the other party agreed to the Stop 

Stock Price must be given in lieu of 

including the time of execution on the 

trade report and the designated modifier 

shall not be appended to a report of a 

Stop Stock Transaction if the Stop Stock 

Transaction is executed and reported 

within 90 seconds of the time the 

member and the other party agree to the 

Stop Stock Price); 

(G) if the transaction report reflects a 

price different from the current market 

when the execution price is based on a 

prior reference point in time (Note: the 

transaction report shall include the 

prior reference time in lieu of the actual 

time the trade was executed and the 

designated modifier shall not be 

appended to a report of a transaction 

whose price is based on a prior 

reference point in time if the trade is 

executed and reported within 90 

seconds from the prior reference point 

in time); 

(H) to identify pre-opening and afterhours trades (executed between 8:00 

a.m. and 9:30 a.m. Eastern time or 

between 4:00 p.m. and 8:00 p.m. Eastern 

time) reported more than 90 seconds 

after execution; 

(I) if the trade would be a tradethrough of a protected quotation, but for 

the trade being qualified for an 


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exception or exemption from Rule 611 

of Regulation NMS under the Act (Note: 

to ensure consistency in the usage of 

Rule 611 related modifiers by registered 

broker-dealers, this modifier will be 

used in conformity with the 

specifications approved by the 

Operating Committee of the relevant 

National Market System Plans to 

identify trades executed pursuant to an 

exception or exemption from Rule 611); 

(J) if the trade would be a tradethrough of a protected quotation, but for 

the trade being qualified for an 

exception or exemption from Rule 611 

of Regulation NMS under the Act, 

members must, in addition to the 

modifier required in paragraph (I) 

above, append an appropriate unique 

modifier, specified by NASD, that 

identifies the specific applicable 

exception or exemption from Rule 611 

that a member is relying upon (Note: to 

ensure consistency in the usage of Rule 

611 related modifiers by registered 

broker-dealers, these modifiers will be 

used in conformity with the 

specifications approved by the 

Operating Committee of the relevant 

National Market System Plans to 

identify trades executed pursuant to an 

exception or exemption from Rule 611); 

and 

(K) any other modifier as specified by 

NASD or the Securities and Exchange 

Commission. 

To the extent that any of the modifiers 

required by this rule conflict, NASD 

shall provide guidance regarding the 

priorities among modifiers and members 

shall report in accordance with such 

guidance, as applicable. 

(6) The NASD/Nasdaq Trade 

Reporting Facility will append the 

appropriate modifier to indicate that a 

trade was executed outside normal 

market hours or that a report was 

submitted late to the NASD/Nasdaq 

Trade Reporting Facility, where such 

report contains the time of execution, 

but does not contain the appropriate 

modifier. 

(7) To identify pre-opening and afterhours trades reported late, the NASD/ 

Nasdaq Trade Reporting Facility will 

convert the late modifier, as applicable, 

on any pre-opening or after-hours report 

submitted to the NASD/Nasdaq Trade 

Reporting Facility more than 90 seconds 

after execution. 

(8) All members shall report as soon 

as practicable to the Market Regulation 

Department on Form T, last sale reports 

of transactions in designated securities 

for which electronic submission to the 

NASD/Nasdaq Trade Reporting Facility 

is not possible (e.g., the ticker symbol for 

the security is no longer available or a 

market participant identifier is no 

longer active). Transactions that can be 

reported to the NASD/Nasdaq Trade 

Reporting Facility, whether on trade 

date or on a subsequent date on an ‘‘as 

of’’ basis (T+N), shall not be reported on 

Form T. 

(b) through (e) No Change. 

(f) Prohibition on Aggregation of 

Transaction Reports 

Individual executions of orders in a 

security at the same price may not be 

aggregated, for purposes of transaction 

reporting to the NASD/Nasdaq Trade 

Reporting Facility, into a single 

transaction report. 

[(1) Under the following conditions, 

individual executions of orders in a 

security at the same price may be 

aggregated, for transaction reporting 

purposes, into a single transaction 

report. Individual transactions in 

convertible debt securities cannot be 

aggregated pursuant to this paragraph.] 

[(A) Orders received prior to the 

opening of the reporting member’s 

market in the security and 

simultaneously executed at the opening. 

Also, orders received during a trading or 

quotation halt in the security and 

executed simultaneously when trading 

or quotations resume. In no event shall 

a member delay its opening or 

resumption of quotations for the 

purpose of aggregating transactions.] 

[Example:] 

[A firm receives, prior to its market 

opening, several market orders to sell 

which total 10,000 shares. All such 

orders are simultaneously executed at 

the opening at a reported price of 40.] 

[REPORT 10,000 shares at 40.] 

[(B) Simultaneous executions by the 

member of customer transactions at the 

same price, e.g., a number of limit 

orders being executed at the same time 

when a limit price has been reached.] 

[Example:] 

[A firm has several customer limit 

orders to sell that total 10,000 shares at 

a limit price of 40. That price is reached 

and all such orders are executed 

simultaneously.] 

[REPORT 10,000 shares at 40.] 

[(C) Orders relayed to the trading 

department of the reporting member for 

simultaneous execution at the same 

price.] 

[Example:] 

[A firm purchases a block of 50,000 

shares from an institution at a reported 

price of 40.] 

[REPORT 50,000 at 40.] 

[Subsequently, one of the firm’s 

branch offices transmits to the firm’s 

trading department for execution 

customer buy orders in the security 

totaling 12,500 shares at a reported price 

of 40.] 

[REPORT 12,500 at 40.] 

[Subsequently, another branch office 

transmits to the firm’s trading 

department for execution customer buy 

orders totaling 15,000 shares in the 

security at a reported price of 40.] 

[REPORT 15,000 at 40.] 

[Example:] 

[Due to a major change in market 

conditions, a firm’s trading department 

receives from a branch office for 

execution customer market orders to sell 

totaling 10,000 shares. All are executed 

at a reported price of 40.] 

[REPORT 10,000 at 40.] 

[(D) Orders received or initiated by 

the reporting member that are 

impractical to report individually and 

are executed at the same price within 60 

seconds of execution of the initial 

transaction; provided however, that no 

individual order of 10,000 shares or 

more may be aggregated in a transaction 

report and that the aggregated 

transaction report shall be made within 

90 seconds of the initial execution 

reported therein. Furthermore, it is not 

permissible for a member to withhold 

reporting a trade in anticipation of 

aggregating the transaction with other 

transactions. The limitation on 

aggregating individual orders of 10,000 

shares or more for a particular security 

shall not apply on the first day of 

secondary market trading of an IPO for 

that security.] 

[Examples:] 

[A reporting member receives and 

executes the following orders at the 

following times and desires to aggregate 

reports to the maximum extent 

permitted under this Rule.] 

[First Example] 

[11:00 500 shares at 40] 

[11:01:05 500 shares at 40] 

[11:01:10 9,000 shares at 40] 

[11:01:15 500 shares at 40] 

[REPORT 10,500 shares at 40 within 

ninety seconds of 11:01.] 

[Second Example] 

[11:01:00 100 shares at 40] 

[11:01:10 11,000 shares at 40] 

[11:01:30 300 shares at 40] 

[REPORT 400 shares within ninety 

seconds of 11:01 and 11,000 shares 

within ninety seconds of 11:01:10 

(individual transactions of 10,000 

shares or more must be reported 

separately).] 

[Third Example] 

[11:01:00 100 shares at 40] 

[11:01:15 500 shares at 40] 

[11:01:30 200 shares at 40] 

[11:02:30 400 shares at 40] 

[REPORT 800 shares at 40 within 

ninety seconds of 11:01 and 400 

shares at 40 within ninety seconds 

of 11:02:30 (the last trade is not 

within sixty seconds of the first and 


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Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 2571 

6See Regulation NMS Adopting Release, supra 

note 5. 

7NMS stock is defined in Rule 600(b)(47) of 

Regulation NMS as ‘‘any NMS security other than 

an option.’’ Rule 600(b)(46) of Regulation NMS 

defines NMS security as ‘‘any security or class of 

securities for which transaction reports are 

collected, processed, and made available pursuant 

to an effective transaction reporting plan, or an 

effective national market system plan for reporting 

transactions in listed options.’’ 8See Regulation NMS Adopting Release, supra 

note 5. 9See 17 CFR 242.611; Securities Exchange Act 

Release Nos. 54389 (August 31, 2006), 71 FR 52829 

(September 7, 2006) (Order Granting an Exemption 

for Qualified Contingent Trades from Rule 611(a) of 

Regulation NMS) and 54678 (October 31, 2006), 71 

FR 65018 (November 6, 2006) (Order Exempting 

Certain Sub-Penny Trade-Throughs from Rule 611 

of Regulation NMS). 

10See Securities Exchange Act Release No. 54084 

(June 30, 2006), 71 FR 38935 (July 10, 2006) (SR–

NASD–2005–087). 

11See Securities Exchange Act Release No. 54798 

(November 21, 2006), 71 FR 69156 (November 29, 

2006) (SR–NASD–2006–104). SR–NASD–2006–104 

will be effective on the date that the Nasdaq 

Exchange operates as a national securities exchange 

for non-Nasdaq exchange-listed securities. 

12See Securities Exchange Act Release No. 54537 

(September 28, 2006), 71 FR 59173 (October 6, 

2006) (SR–NASD–2006–091). Unlike the ADF, the 

NASD/Nasdaq TRF is a trade reporting mechanism 

only; it does not permit quoting. As such, not all 

of the amendments to the ADF rules are applicable 

to the NASD/Nasdaq TRF rules. 

must, therefore, be reported 

separately).] 

[(2) The reporting member shall 

identify aggregated transaction 

reports and order tickets of 

aggregated trades in a manner 

directed by NASD.] 

(g) No Change. 

* * * * * 

6130. Trade Report Input 

(a) through (d) No Change. 

(e) Aggregation of Transaction Reports 

for Clearing Purposes Only. 

Individual executions of orders in a 

security at the same price may and with 

the identical contra party be 

aggregated[, for System reporting 

purposes,] into a single report and 

submitted to the System for purposes of 

clearing only [if the transactions are 

with the identical contra party]; 

provided, however, that a Reporting 

Party may not withhold reporting a 

trade in anticipation of aggregating the 

transaction with other transactions. 

(f) through (g) No Change. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NASD included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. NASD has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background. On June 29, 2005, the 

Commission published its release 

adopting Regulation NMS,6 which 

established new substantive rules 

designed to modernize and strengthen 

the regulatory structure of the U.S. 

equities markets. Pursuant to Regulation 

NMS, the Commission, among other 

things, adopted Rule 611 (‘‘Order 

Protection Rule’’) to establish protection 

against trade-throughs for NMS stocks.7

In general, the Order Protection Rule 

requires a trading center (which 

includes national securities exchanges, 

self-regulatory organization (‘‘SRO’’) 

trading facilities, alternative trading 

systems, OTC market makers, and block 

positioners) to establish, maintain, and 

enforce written policies and procedures 

that are reasonably designed to prevent 

trade-throughs on that trading center of 

protected quotations and, if relying on 

an exception, that are reasonably 

designed to assure compliance with the 

terms of the exception.8 There currently 

are nine exceptions and two exemptions 

to the Order Protection Rule.9 In 

addition, the Order Protection Rule 

requires trading centers to surveil 

regularly to ascertain the effectiveness 

of the policies and procedures adopted 

pursuant to Rule 611 of Regulation NMS 

and take prompt action to remedy 

deficiencies in such policies and 

procedures. 

On June 30, 2006, the Commission 

approved SR–NASD–2005–087 which, 

among other things, proposed rules for 

reporting trades in Nasdaq-listed 

securities effected otherwise than on an 

exchange to the NASD/Nasdaq TRF.10

On November 21, 2006, the Commission 

approved SR–NASD–2006–104 which, 

among other things, proposed to expand 

the scope of the NASD/Nasdaq TRF 

rules to include reporting trades in nonNasdaq exchange-listed securities 

effected otherwise than on exchange.11

Neither NASD, generally, nor any of 

the NASD Trade Reporting Facilities, 

specifically, qualifies as a trading center 

within the meaning of Regulation NMS. 

Thus, the provisions of the Order 

Protection Rule requiring trading 

centers to establish, maintain, and 

enforce written policies and procedures 

that are reasonably designed to prevent 

trade-throughs on that trading center of 

protected quotations in NMS stocks are 

not applicable to NASD. However, 

NASD has a responsibility to enforce 

requirements under the Act that apply 

to activity within its regulatory 

authority. Thus, unlike exchanges that 

have direct Regulation NMS obligations 

with respect to the SRO trading 

facilities, NASD has indirect Regulation 

NMS obligations with respect to all 

over-the-counter market activity, 

including post-trade regulation for 

compliance with the Order Protection 

Rule with respect to trading centers that 

trade report through the NASD/Nasdaq 

TRF (or any NASD Trade Reporting 

Facility). Such regulation includes 

monitoring for whether trading centers 

are reporting trades to the NASD/ 

Nasdaq TRF (or any NASD Trade 

Reporting Facility) that are tradethroughs of protected quotes and 

whether such trade-throughs are 

permissible under one of the specific 

exceptions and exemptions under the 

Order Protection Rule. 

Proposed Amendments to Align 

NASD/Nasdaq TRF Rules with 

Regulation NMS. NASD proposes to 

amend the NASD/Nasdaq TRF 

transaction reporting requirements to 

require reporting members to append 

applicable modifiers to last sale 

transaction reports with respect to 

trades that fall within the exceptions 

and exemptions from Rule 611 of 

Regulation NMS. The proposed 

amendments are substantially similar to 

amendments to the Alternative Display 

Facility (‘‘ADF’’) transaction reporting 

requirements, which were approved by 

the Commission on September 28, 

2006.12

Specifically, NASD proposes new 

Rule 4632(a)(5)(I) to require members to 

append a unique modifier, specified by 

NASD, to indicate whether the trade 

would be a trade-through of a protected 

quotation but for the trade being 

qualified for an exception or exemption 

from Rule 611 of Regulation NMS. 

Further, NASD proposes new Rule 

4632(a)(5)(J) to require that, for any 

trade that would be a trade-through of 

a protected quotation but for the trade 

being qualified for an exception or 

exemption from Rule 611 of Regulation 

NMS, a member must append to the 

transaction report, in addition to the 

modifier required under new Rule 

4632(a)(5)(I), a unique modifier, 

specified by NASD, that identifies the 

specific applicable exception or 

exemption from Rule 611 of Regulation 

NMS upon which the member is 


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2572 Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 

13A Member using the trade report modifiers 

under the proposed new rules is responsible for 

ensuring that the transaction meets the criteria of 

the specific exemption or exception set forth in 

Rule 611 of Regulation NMS. 

14See Nasdaq Technical Update No. 2006–29 

(October 16, 2006), http://www.nasdaqtrader.com 

/Trader/News/2006/technicalupdates/tu2006–

029.stm. 

15See supra note 9. 

16The National Market System specifications 

identify both types of ISO orders with a single 

modifier. NASD, however, intends to distinguish 

between the ISO exceptions by requiring firms to 

use a separate modifier, as defined by NASD, in 

instances where the executing firm is responsible 

for sweeping the market. 

17NASD reminds members that they should mark 

any ‘‘as/of’’ trade report for publication if that trade 

would have been for publication had it been 

reported on trade date. 

18Consistent with this proposed rule change, 

pursuant to SR–NASD–2007–001, NASD has 

proposed to delete the modifier labels from the ADF 

trade reporting rules. Additionally, NASD notes 

that the proposed rule change does not contemplate 

a trade report modifier for transactions based upon 

a single-priced opening, re-opening, or closing 

transaction because this is an exchange function. 

Pursuant to SR–NASD–2007–001, NASD has 

proposed to delete Rule 4632A(a)(4)(H) from the 

ADF rules. 

19 ‘‘System’’ is defined in Rule 6110 to mean the 

NASD/Nasdaq TRF, the OTC Reporting Facility, 

and the ITS/CAES System. NASD replaced the 

paragraph that appeared in the original filing with 

the instant paragraph. See e-mail from Lisa C. 

Horrigan, Assistant General Counsel, NASD, to 

Theodore S. Venuti, Attorney, Division of Market 

Regulation, Commission, dated January 12, 2007. 

20See Securities Exchange Act Release No. 53829 

(May 18, 2006), 71 FR 30038 (May 24, 2006). 

21NASD notes that, although the proposed rule 

change will not be operative until the Pilot Stocks 

Date, anticipated to be May 21, 2007, members may 

be required to meet the Regulation NMS message 

format requirements for reporting to the NASD/ 

Nasdaq TRF prior to that date. Mandatory 

compliance with Regulation NMS message 

formatting requirements is currently scheduled for 

the NASD/Nasdaq TRF on April 2, 2007, and on 

that date, members would be required to report in 

accordance with the new systems requirements, 

although the specific new modifiers proposed 

herein would continue to be voluntary until May 

21, 2007. See Nasdaq Technical Update 2006–034 

(December 19, 2006), http:// 

www.nasdaqtrader.com/Trader/News/2006/ 

technicalupdates/tu2006–034.stm. 

relying.13 As stated in the proposed 

rules, these modifiers will be used in 

conformity with the specifications 

approved by the Operating Committee 

of the relevant National Market System 

Plans to identify trades executed 

pursuant to an exception or exemption 

from Rule 611 of Regulation NMS. 

NASD provided details of the specific 

modifiers required under the proposed 

new rules in updated Trade Reporting 

Programming Specifications, which 

were published on October 16, 2006,14

and also will publish guidance in a 

Notice to Members. 

Additionally, NASD proposes to 

amend Rule 4632 to require members 

reporting transactions to the NASD/ 

Nasdaq TRF to append ‘‘[a]ny other 

modifier as specified by NASD or the 

Securities and Exchange Commission.’’

An identical provision in the ADF rules 

was subject to notice and comment and 

approved by the Commission pursuant 

to SR–NASD–2006–091. Pursuant to 

this proposed provision, NASD will 

have the authority to prescribe 

additional trade report modifiers by 

updating the Technical Specifications 

for the NASD/Nasdaq TRF without 

submitting a further proposed rule 

change for approval by the Commission. 

For example, such authority will be 

used to require additional modifiers to 

designate trades that qualify under two 

existing exemptions from the Order 

Protection Rule (qualified contingent 

trades and certain sub-penny tradethroughs) 15 as well as any other 

exemption that the Commission may 

grant in the future. This authority may 

also be used to capture additional 

regulatory information that NASD 

deems necessary (e.g., NASD will 

require more specific delineation of the 

Intermarket Sweep Order (‘‘ISO’’) 

exception than is required by the 

National Market System 

specifications).16 To enable members to 

make the necessary systems changes, 

NASD would provide at least 30 days 

advance written notice relating to any 

new modifiers. 

NASD also proposes to amend Rule 

4632 to expressly provide that, in the 

event that the rules require multiple 

modifiers on any given trade report, 

members are to report in accordance 

with guidance provided by NASD 

regarding priorities among modifiers. A 

Member that reports in accordance with 

such guidance would not be in violation 

of the trade reporting rules for failing to 

use a particular modifier. 

NASD believes that the proposed rule 

change is necessary to ensure that there 

is transparency relating to trades that 

are exempt from the trade-through rule 

and to enhance NASD’s ability to 

examine for compliance with the Order 

Protection Rule. 

Proposed Amendments to Conform 

NASD/Nasdaq TRF Rules to ADF Rules. 

As part of SR–NASD–2006–091, NASD 

reorganized the ADF reporting rules to 

enhance their clarity. As part of this 

proposed rule change, NASD proposes 

similar changes to conform the NASD/ 

Nasdaq TRF reporting rules to the ADF 

reporting rules to the extent practicable. 

Specifically, NASD proposes to 

reorganize the NASD/Nasdaq TRF trade 

reporting rules and renumber 

paragraphs (a)(3) and (a)(6) of Rule 4632 

without amending the text of those 

provisions. NASD also is proposing to 

renumber paragraph (a)(5) of Rule 4632 

and amend the text of that provision to 

conform to the text of the equivalent 

provision in the ADF reporting rules. 

Additionally, NASD proposes to 

adopt new Rule 4632(a)(5) to require 

members to use trade report modifiers 

designated by NASD for certain 

enumerated transactions. Consistent 

with the ADF reporting requirements, 

proposed new Rule 4632(a)(5) would 

clarify that members are required to 

append applicable trade report 

modifiers to reports of all trades, 

including ‘‘as/of’’ trades.17 The 

proposed amendments to the NASD/ 

Nasdaq TRF rules do not label the 

modifiers members are required to use 

when reporting the enumerated 

transactions. Some of the modifiers that 

members are required to append to trade 

reports may differ depending on the 

system used to connect to the NASD/ 

Nasdaq TRF. Thus, NASD proposes 

amendments in Rule 4632(a) to identify 

the types of transactions that must have 

a unique identifier associated with 

them; the modifiers will be labeled in 

the system technical specifications 

rather than in the rules.18

In addition, consistent with changes 

to the ADF rules pursuant to SR–NASD–

2006–091, NASD is proposing to amend 

Rule 4632(f) to expressly prohibit a 

member from aggregating individual 

executions of orders in a security at the 

same price into a single transaction 

report for tape purposes. NASD has 

determined that prohibiting the 

bunching of transactions when reporting 

to an NASD facility helps ensure greater 

transparency of individual transactions. 

However, for purposes of trades that are 

not printed to the tape, NASD is 

proposing to amend Rule 6130(e) to 

continue to permit members—for 

clearing purposes only—to aggregate 

individual executions of orders in a 

security at the same price with the 

identical contra party and submit a 

single report to the System.19

NASD has filed the proposed rule 

change for immediate effectiveness. In 

accordance with the Regulation NMS 

compliance dates established by the 

Commission,20 NASD proposes to make 

the proposed rule change operative on 

the Pilot Stocks Phase Date, which is 

currently anticipated to be May 21, 

2007. However, the NASD/Nasdaq TRF 

will begin accepting trade reports 

submitted in compliance with the 

proposed rule change starting on the 

Trading Phase Date, which is currently 

anticipated to be February 5, 2007. This 

does not, however, change in any way 

a member’s responsibilities under the 

Regulation NMS compliance dates.21


sroberts on PROD1PC70 with NOTICES
Federal Register / Vol. 72, No. 12 / Friday, January 19, 2007 / Notices 2573 

22 15 U.S.C. 78o–3(b)(6). 

23 15 U.S.C. 78s(b)(3)(A)(iii). 

24 17 CFR 240.19b–4(f)(6). 

25NASD has satisfied the five-day pre-filing 

requirement. 26 17 CFR 200.30–3(a)(12). 

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). 

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. 

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 

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. 

All submissions should refer to File 

Number SR–NASD–2007–002. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room. Copies of the filing also will be 

available for inspection and copying at 

the principal office of NASD. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASD–2007–002 and 

should be submitted on or before 

February 9, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.26

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 

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. 

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]. 


sroberts on PROD1PC70 with NOTICES