68120 Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 

15 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 217 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(i).

4 17 CFR 240.19b–4(f)(6). 5Rule 19b–4(f)(6) allows for a proposed rule 

change to take effect upon filing with the 

Commission provided that the self-regulatory 

organization has given the Commission written 

notice of its intent to file the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change. NASD complied with 

this pre-filing requirement. See e-mail from 

Stephanie Dumont, NASD to Katherine A. England, 

Assistant Director, Division of Market Regulation, 

dated October 11, 2005.

6See footnotes 8 and 9, infra.

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–CHX–2005–26 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303.

All submissions should refer to File 

No. SR–CHX–2005–26. 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 the Exchange. 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 No. 

SR–CHX–2005–26 and should be 

submitted on or before November 30, 

2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.15

Jonathan G. Katz, 

Secretary.

[FR Doc. 05–22334 Filed 11–8–05; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52722; File No. SR–NASD–

2005–124] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change to Repeal NASD Rule 

6440(f) 

November 2, 2005. 

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 October 

24, 2005, 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 prepared by NASD. NASD filed 

this proposal as a ‘‘non-controversial’’

rule change pursuant to section 

19(b)(3)(A)(i) 3 of the Act, and Rule 19b–

4(f)(6) 4 thereunder, which renders the 

proposal effective upon filing with the 

Commission.5 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 is proposing to repeal NASD 

Rule 6440(f) in light of proposed rule 

changes that have recently been 

approved by the Commission expanding 

market order protection and limit order 

protection to exchange-listed 

securities.6 NASD proposes to make the 

proposed rule change operative on 

January 9, 2006. Below is the text of the 

proposed rule change. Proposed 

deletions are in brackets.

* * * * *

6440. Trading Practices 

(a) through (e) No change. 

[(f)(1) No member shall:] 

[(A) personally buy or initiate the 

purchase of an eligible security for its 

own account or for any account in 

which it or any person associated with 

it is directly or indirectly interested, 

while such member holds or has 

knowledge that any person associated 

with it holds an unexecuted market 

order to buy such security in the unit of 

trading for a customer; or] 

[(B) sell or initiate the sale of any such 

security for any such account, while it 

personally holds or has knowledge that 

any person associated with it holds an 

unexecuted market order to sell such 

security in the unit of trading for a 

customer.] 

[(2) No member shall:] 

[(A) buy or initiate the purchase of 

any such security for any such account, 

at or below the price at which it 

personally holds or has knowledge that 

any person associated with it holds an 

unexecuted limited price order to buy 

such security in the unit of trading for 

a customer; or] 

[(B) sell or initiate the sale of any such 

security for any such account at or 

above the price at which it personally 

holds or has knowledge that any person 

associated with it holds an unexecuted 

limited price order to sell such security 

in the unit of trading for a customer.] 

[(3) The provisions of this paragraph 

shall not apply:] 

[(A) to any purchase or sale of any 

such security in an amount less than the 

unit of trading made by a member to 

offset odd-lot orders for customers,] 

[(B) to any purchase or sale of any 

such security upon terms for delivery 

other than those specified in such 

unexecuted market or limited price 

order,] 

[(C) to any unexecuted order that is 

subject to a condition that has not been 

satisfied.] 

[(D) to any purchase or sale for which 

a member has negotiated specific terms 

and conditions applicable to the 

acceptance of limit orders that are:] 

[(i) for customer accounts that meet 

the definition of an ‘‘institutional 

account’’ as that term is defined in Rule 

3110(c)(4); or] 

[(ii) for 10,000 shares or more, unless 

such orders are less than $100,000 in 

value.] 

(g) through (j) redesignated as (f) 

through (i).

* * * * *

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 

Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 68121

7NASD Rule 6440(f) applies to over-the-counter 

transactions in ‘‘eligible securities,’’ which are 

defined in NASD Rule 6410(d) as ‘‘all common 

stocks, preferred stocks, long-term warrants, and 

rights entitling the holder to acquire an eligible 

security, listed or admitted to unlisted trading 

privileges on the American Stock Exchange or the 

New York Stock Exchange, and securities listed on 

regional stock exchanges, which substantially meet 

the original listing requirements of the New York 

Stock Exchange or the American Stock Exchange.’’

8See Securities Exchange Act Release No. 52210 

(August 4, 2005), 70 FR 46897 (August 11, 

2005)(SR–NASD–2004–089).

9See Securities Exchange Act Release No. 52226 

(August 9, 2005), 70 FR 48219 (August 16, 

2005)(SR–NASD–2004–045).

10 In SR–NASD–2004–045 and SR–NASD–2004–

089, NASD specifically noted its intent to repeal 

NASD Rule 6440(f) in light of the overlap between 

the proposed rule changes and NASD Rule 6440(f).

11 15 U.S.C. 78o–3(b)(6).

12 15 U.S.C. 78s(b)(3)(A)(i).

13 17 CFR 240.19b–4(f)(6).

14See footnote 5, supra.

15See discussion footnotes 8–10, supra.

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 

NASD Rule 6440(f)(1) prohibits a 

member from personally buying 

(selling) an exchange-listed security 7 for 

its own account while such member 

holds an unexecuted market order to 

buy (sell) such security for a customer. 

Similarly, NASD Rule 6440(f)(2) 

prohibits a member from buying 

(selling) an exchange-listed security for 

its own account while such member 

holds an unexecuted limit order to buy 

(sell) such security for a customer. 

NASD seeks to repeal NASD Rule 

6440(f) in light of two proposed rule 

changes that have recently been 

approved by the Commission that also 

restrict a member’s trading when 

holding customer market and limit 

orders in exchange-listed securities.

Specifically, on August 4, 2005, the 

Commission approved proposed rule 

change SR–NASD–2004–089,8 which, 

among other things, expands the 

application of NASD Interpretative 

Material (IM) 2110–2, Trading Ahead of 

Customer Limit Order (commonly 

referred to as the ‘‘Manning Rule’’) to 

exchange-listed securities. NASD 

Interpretive Material 2110–2 generally 

prohibits a member from trading for its 

own account at prices that would satisfy 

a customer’s limit order, unless the 

member immediately thereafter executes 

the customer’s limit order. In addition, 

on August 9, 2005, the Commission 

approved proposed rule change SR–

NASD–2004–045 adopting NASD Rule 

2111, which prohibits a member that 

accepts and holds a customer market 

order from trading for its own account 

at prices that would satisfy the customer 

market order in a Nasdaq or exchangelisted security, unless the member 

immediately thereafter executes the 

customer market order.9

NASD believes that NASD Rule 

6440(f) overlaps and is generally 

duplicative of the above-referenced rule 

changes.10 Accordingly, NASD is 

proposing to repeal NASD Rule 6440(f) 

to ensure consistency in the application 

of limit order and market order 

protection and to eliminate potential 

confusion as to members’ obligations 

with respect to these orders in 

exchange-listed securities.

NASD has filed the proposed rule 

change for immediate effectiveness. The 

implementation date will be January 9, 

2006, such that both SR–NASD–2004–

045 and SR–NASD–2004–089 will be in 

effect by that date.

2. Statutory basis 

NASD believes that the proposed rule 

change is consistent with 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 that the proposed rule change 

will ensure consistency in the treatment 

of customer limit orders and customer 

market orders for exchange-listed 

securities and will enhance the integrity 

of the market.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASD does not believe that the 

proposed rule change will 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 

NASD has neither solicited nor 

received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, and 

NASD provided the Commission with 

written notice of its intent to file the 

proposed rule change at least five days 

prior to the filing date, the proposed 

rule change has become effective 

pursuant to section 19(b)(3)(A)(i) 12 of 

the Act and Rule 19b–4(f)(6) 13

thereunder. NASD has complied with 

this pre-filing requirement.14 NASD 

proposes to make the proposed rule 

change operative on January 9, 2006 to 

coincide with the implementation of 

SR–NASD–2004–045 and SR–NASD–

2004–089.15

At any time within 60 days of the 

filing of the 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, as amended, 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–2005–124 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–NASD–2005–124. 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 

68122 Federal Register / Vol. 70, No. 216 / Wednesday, November 9, 2005 / Notices 

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.

5Rule 3012 became effective on January 31, 2005, 

which would require a member’s first Rule 3012 

report to be submitted by no later than January 31, 

2006 and at least annually thereafter; however, a 

member may elect to submit its first Rule 3012 

report by no later than April 1, 2006. Importantly, 

a member’s first Rule 3012 report must encompass 

the period from January 31, 2005 (the effective date 

of Rule 3012) up to the submission date (or a 

reasonable period of time immediately preceding 

the submission date). Each ensuing Rule 3012 

report may not be for a period greater than 12 

months from the date of the preceding Rule 3012 

report (but may be for a shorter time period if a 

member elects to prepare a report more frequently 

than annually).

6Rule 3013 and IM–3013 became effective on 

December 1, 2004, which would require a member’s 

first certification to be executed by December 1, 

2005 and annually thereafter; however, a member 

may elect to execute its first certification by no later 

than April 1, 2006 and annually thereafter.

7Each ensuing annual certification must be 

effected no later than on the anniversary date of the 

previous year’s certification. See IM–3013, n.1.

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 offices 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–2005–124 and 

should be submitted on or before 

November 30, 2005.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.16

Jonathan G. Katz, 

Secretary.

[FR Doc. 05–22333 Filed 11–8–05; 8:45 am]

BILLING CODE 8010–01–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52727; File No. SR–NASD–

2005–121] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Amendments 

to Rule 3012, Rule 3013, and IM–3013 

November 3, 2005. 

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 October 

14, 2005, the National Association of 

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

with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, and II below, which Items 

have been prepared by NASD. NASD 

has designated the proposed rule change 

as constituting a ‘‘non-controversial’’

rule change 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 receipt of this 

filing by 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 is proposing to amend NASD 

Rule 3012 (Supervisory Control 

System), Rule 3013 (Annual 

Certification of Compliance and 

Supervisory Processes), and IM–3013 

(Annual Compliance and Supervision 

Certification) to allow members, by no 

later than April 1, 2006, to submit the 

initial annual report required by Rule 

3012 and to execute the initial annual 

certification required by Rule 3013 and 

IM–3013. Below is the text of the 

proposed rule change. Proposed new 

language is in italics.

* * * * *

3012. Supervisory Control System 

(a) General Requirements 

(1) Each member shall designate and 

specifically identify to NASD one or 

more principals who shall establish, 

maintain, and enforce a system of 

supervisory control policies and 

procedures that (A) test and verify that 

the member’s supervisory procedures 

are reasonably designed with respect to 

the activities of the member and its 

registered representatives and 

associated persons, to achieve 

compliance with applicable securities 

laws and regulations, and with 

applicable NASD rules and (B) create 

additional or amend supervisory 

procedures where the need is identified 

by such testing and verification. The 

designated principal or principals must 

submit to the member’s senior 

management no less than annually, a 

report 5 detailing each member’s system 

of supervisory controls, the summary of 

the test results and significant identified 

exceptions, and any additional or 

amended supervisory procedures 

created in response to the test results.

(2) No change. 

(b) Dual Member No change.

* * * * *

Rule 3013. Annual Certification of 

Compliance and Supervisory Processes 

(a) Designation of Chief Compliance 

Officer No change. 

(b) Annual Certification. 

Each member shall have its chief 

executive officer (or equivalent officer) 

certify annually,6 as set forth in IM–

3013, that the member has in place 

processes to establish, maintain, review, 

test and modify written compliance 

policies and written supervisory 

procedures reasonably designed to 

achieve compliance with applicable 

NASD rules, MSRB rules and federal 

securities laws and regulations, and that 

the chief executive officer has 

conducted one or more meetings with 

the chief compliance officer in the 

preceding 12 months to discuss such 

processes.

* * * * *

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 

Rule 3013 requires that each 

member’s chief executive officer 

(‘‘CEO’’), or other equivalent officer, 

certify annually according to the terms 

set forth in IM–3013 that the member 

has in place processes to establish, 

maintain, review, test and modify its 

written supervisory procedures. The 

first annual certification is currently due 

by December 1, 2005.7 Before a CEO can 

complete the annual certification 

requirement, IM–3013 requires, among 

other things, that the CEO, chief