Document ID: SEC-2006-0236-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-02-23T05:00Z

[Federal Register: February 23, 2006 (Volume 71, Number 36)]
[Notices]               
[Page 9395-9398]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe06-103]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53320; File No. SR-NASD-2006-023]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Thereto To Modify Pricing for NASD 
Members Using the Nasdaq Market Center and Nasdaq's Brut and Inet 
Facilities

February 15, 2006.
    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 February 13, 2006, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), 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 prepared by Nasdaq. On February 
14, 2006, Nasdaq submitted Amendment No. 1 to the proposed rule 
change.\3\ Nasdaq has designated this proposal as one establishing or 
changing a due, fee, or other charge imposed by the self-regulatory 
organization under section 19(b)(3)(A)(ii) of the Act,\4\ and Rule 19b-
4(f)(2) thereunder,\5\ which renders the proposal effective upon filing 
with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made certain technical corrections to the 
proposed rule text.
    \4\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \5\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify the pricing for NASD members using the 
Nasdaq Market Center and Nasdaq's Brut and Inet Facilities (``Nasdaq 
Facilities'') to trade securities priced under $1.00. Nasdaq states 
that it will implement the proposed rule change on February 13, 2006. 
The text of the proposed rule change, as amended, is set forth below. 
Proposed new language is in italics; proposed deletions are in 
[brackets].\6\
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    \6\ Changes are marked to the rule text that appears in the 
electronic NASD Manual found at http://www.nasd.com. Prior to the 

date when The NASDAQ Stock Market LLC (``NASDAQ LLC'') commences 
operations, NASDAQ LLC will file a conforming change to the rules of 
NASDAQ LLC approved in Securities Exchange Act Release No. 53128 
(January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131).

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[[Page 9396]]

7010. System Services

    (a)-(h) No change.
    (i) Nasdaq Market Center, Brut, and Inet Order Execution and 
Routing.
    (1) The following charges shall apply to the use of the order 
execution and routing services of the Nasdaq Market Center, Brut, and 
Inet (the ``Nasdaq Facilities'') by members for all Nasdaq-listed 
securities subject to the Nasdaq UTP Plan and for Exchange-Traded Funds 
that are not listed on Nasdaq. The term ``Exchange-Traded Funds'' shall 
mean Portfolio Depository Receipts, Index Fund Shares, and Trust Issued 
Receipts as such terms are defined in Rule 4420(i), (j), and (l), 
respectively.

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

------------------------------------------------------------------------
                             Order Execution
------------------------------------------------------------------------
  Order that accesses the Quote/Order of a market participant that does
  not charge an access fee to market participants accessing its Quotes/
                  Orders through the Nasdaq Facilities:
------------------------------------------------------------------------
Charge to member entering order:
    Members with an average daily    $0.0028 per share executed (or, in
     volume through the Nasdaq        the case of executions against
     Facilities in all securities     Quotes/Orders at less than $1.00
     during the month of (i) more     per share, 0.1% of the total
     than 30 million shares of        transaction cost).
     liquidity provided, and (ii)
     more than 50 million shares of
     liquidity accessed and/or
     routed.
    Other members..................  $0.0030 per share executed (or, in
                                      the case of executions against
                                      Quotes/Orders at less than $1.00
                                      per share, 0.1% of the total
                                      transaction cost).
Credit to member providing
 liquidity:
    Members with an average daily    $0.0025 per share executed (or $0,
     volume through the Nasdaq        in the case of executions against
     Facilities in all securities     Quotes/Orders at less than $1.00
     during the month of more than    per share).
     30 million shares of liquidity
     provided.
    Other members..................  $0.0020 per share executed (or $0,
                                      in the case of executions against
                                      Quotes/Orders at less than $1.00
                                      per share).
------------------------------------------------------------------------
Order that accesses the Quote/Order of a market participant that charges
an access fee to market participants accessing its Quotes/Orders through
                  the Nasdaq [Market Center]Facilities:
------------------------------------------------------------------------
Charge to member entering order:
    Members with an average daily    $0.001 per share executed (but no
     volume through the Nasdaq        more than $10,000 per month).
     Facilities in all securities
     during the month of more than
     500,000 shares of liquidity
     provided.
    Other members..................  $0.001 per share executed.
------------------------------------------------------------------------
               Order Routing for Nasdaq-Listed Securities
------------------------------------------------------------------------
Any order entered by a member that   The greater of (i) $0.004 per share
 is routed outside of the Nasdaq      executed or (ii) a pass-through of
 Facilities and that does not         all applicable access fees charged
 attempt to execute in the Nasdaq     by electronic communications
 Facilities prior to routing.         networks that charge more than
                                      $0.003 per share executed.
Any other order entered by a member
 that is routed outside of the
 Nasdaq Facilities:
    Members with an average daily    The greater of (i) $0.0028 per
     volume through the Nasdaq        share executed or (ii) a pass-
     Facilities in all securities     through of all applicable access
     during the month of (i) more     fees charged by electronic
     than 30 million shares of        communications networks that
     liquidity provided, and (ii)     charge more than $0.003 per share
     more than 50 million shares of   executed.
     liquidity accessed and/or
     routed.
    Other members..................  The greater of (i) $0.0030 per
                                      share executed or (ii) a pass-
                                      through of all applicable access
                                      fees charged by electronic
                                      communications networks that
                                      charge more than $0.003 per share
                                      executed.
------------------------------------------------------------------------
      Order Routing for Exchange-Traded Funds Not Listed on Nasdaq
------------------------------------------------------------------------
Order routed to the New York Stock   See DOT fee schedule in Rule
 Exchange (``NYSE'') through its      7010(i)(6).
 DOT system.
Any other order entered by a member  $0.004 per share executed.
 that is routed outside of the
 Nasdaq Facilities and that does
 not attempt to execute in the
 Nasdaq Facilities prior to routing.
Order routed to the American Stock   $0.01 per share executed.
 Exchange (``Amex'') after
 attempting to execute in the
 Nasdaq Facilities.
Order routed through the             $0.0007 per share executed.
 Intermarket Trading System
 (``ITS'') after attempting to
 execute in the Nasdaq Facilities.
Order routed to venues other than    $0.0035 per share executed.
 the NYSE and Amex after attempting
 to execute in the Nasdaq
 Facilities.
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[[Page 9397]]

    (2)-(7) No change.
    (j)-(w) 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, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, and discussed any comments it received on the proposed rule 
change, as amended. The text of these statements may be examined at the 
places specified in Item IV below. Nasdaq 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
    Since the beginning of February, Nasdaq has observed an increase in 
the extent to which market participants are posting limit orders in 
certain securities priced under $1.00 in circumstances where the price 
of the posted order locks or crosses prices available on other markets 
or improves upon the NBBO by an extremely small amount. The alteration 
in market participant behavior appears to be a result of both Nasdaq's 
introduction of subpenny pricing in Nasdaq-listed securities priced 
under $1.00, as well as the dissemination of said pricing via the 
Securities Information Processor, and a recent Nasdaq pricing change 
that eliminated caps on liquidity provider rebates for these 
securities. As a result, it appears that certain participants are 
submitting orders in these low-priced securities in a manner calculated 
to earn liquidity provider rebates. Because Nasdaq considers this 
behavior detrimental to market quality, Nasdaq proposes to modify its 
pricing for securities priced under $1.00 to eliminate the liquidity 
provider credit. To offset the effect of this change on market 
participants engaged in legitimate trading of these securities, Nasdaq 
also proposes to reduce the fee to access liquidity in these stocks 
from the current fee of $0.0028 or $0.003 per share to a charge equal 
to 0.1% of the total transaction cost. Thus, in a transaction to buy 
1,000 shares at $0.50, the charge to access liquidity would be $0.50. 
This change will also ensure that Nasdaq's pricing for low-priced 
securities is consistent with Rule 610(c)(2) of Regulation NMS when it 
takes effect later this year. Rule 610(c)(2) will limit fees for access 
to quotations under $1.00 to no more than 0.3% of the quotation price 
per share.
    This filing applies to NASD members and is effective immediately. 
Nasdaq is also submitting a filing to apply the changes to non-members 
using the Brut and Inet facilities,\7\ and also plans to submit a 
filing to make both the member and non-member changes retroactive to 
February 1, 2006.
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    \7\ See Securities Exchange Act Release No. 53321 (February 15, 
2006) (File No. SR-NASD-2006-024).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of section 15A of the Act,\8\ in 
general, and with section 15A(b)(5) of the Act,\9\ in particular, in 
that it provides for the equitable allocation of reasonable dues, fees 
and other charges among members and issuers and other persons using any 
facility or system which the NASD operates or controls. Nasdaq states 
that the proposed rule change, as amended, would modify Nasdaq's fees 
and rebates associated with Nasdaq-listed securities priced under $1.00 
in order to eliminate incentives to engage in behavior with respect to 
such securities that has degraded market quality.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
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 rule change is subject to section 19(b)(3)(A)(ii) of 
the Act \10\ and subparagraph (f)(2) of Rule 19b-4 thereunder \11\ 
because it establishes or changes a due, fee, or other charge 
applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ For purpose of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers that period 
to commence on February 14, 2006, the date that the NASD filed 
Amendment No. 1.
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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 rule-comments@sec.gov. Please include 

File No. SR-NASD-2006-023 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 No. SR-NASD-2006-023. 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 will also be available for inspection and copying at the 
principal office of the 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

[[Page 9398]]

submissions should refer to File No. SR-NASD-2006-023 and should be 
submitted on or before March 16, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-2518 Filed 2-22-06; 8:45 am]

BILLING CODE 8010-01-P