Document ID: SEC-2006-0569-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers,  Inc.
Posted Date: 2006-05-02T04:00Z

[Federal Register: May 2, 2006 (Volume 71, Number 84)]
[Notices]               
[Page 25876-25878]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02my06-106]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53730; File No. SR-NASD-2006-054]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change for Handling by INET and Brut of Sub-Penny Orders in 
Securities Listed on the New York Stock Exchange LLC or the American 
Stock Exchange LLC

April 26, 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 April 21, 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 and 
II below, which Items have been prepared by Nasdaq. Nasdaq has filed 
this 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.\5\ 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).
    \5\ On March 31, 2006, Nasdaq filed this rule proposal without 
designating it as immediately effective. See SR-NASD-2006-042. At 
the request of the Commission staff, Nasdaq has withdrawn that 
filing.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq has filed with the Commission a proposed rule change for the 
handling by Nasdaq's INET and Brut systems of sub-penny orders priced 
under $1.00 for securities listed on the New York Stock Exchange LLC 
(``NYSE'') or the American Stock Exchange LLC (``Amex''). Nasdaq has 
made this filing at the request of the Commission staff. The text of 
the proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in [brackets].\6\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

* * * * *

[[Page 25877]]

4904. Entry and Display of Orders

    (a) No change.
    (b) Display of Orders--The System will display orders submitted to 
the System as follows:
    (1) and (2) No change.
    (3) Minimum Price Variation--The minimum quotation increment for 
System Securities shall be $0.01 for quotations priced at or above 
$1.00 per share and $0.0001 for quotations priced below $1.00 per 
share; provided, however, that if the Securities and Exchange 
Commission (``SEC'') permits, with respect to any security, the 
display, rank or acceptance of quotations priced at or above $1.00 per 
share in an increment smaller than $0.01, then the minimum quotation 
increment for such a security shall be the minimum permitted by the SEC 
or $0.0001, whichever is greater. Quotations failing to meet this 
standard shall be rejected. A quotation for a security listed on the 
New York Stock Exchange or the American Stock Exchange and properly 
(not in violation of this paragraph) priced in an increment of less 
than $0.01 will be adjusted by the System down (for bids) or up (for 
offers) to the nearest $0.01 increment prior to display, execution or 
routing. A quotation so adjusted will have no price priority over 
equivalent quotations that did not require adjustment under this 
paragraph.
    (4) No change.
* * * * *

4962. Minimum Quotation Increment

    The minimum quotation increment in the INET System for quotations 
of $1.00 or above in Nasdaq-listed securities and in securities listed 
on a national securities exchange shall be $0.01. The minimum quotation 
increment in the INET System for quotations below $1.00 in Nasdaq-
listed securities and in securities listed on a national securities 
exchange shall be $0.0001. However, if the Securities and Exchange 
Commission (``SEC'') permits, with respect to any security, the 
display, rank or acceptance of quotations priced at or above $1.00 per 
share in an increment smaller than $0.01, then the minimum quotation 
increment for such a security shall be the minimum permitted by the SEC 
or $0.0001, whichever is greater. A quotation for a security listed on 
the New York Stock Exchange or the American Stock Exchange and properly 
(not in violation of this paragraph) priced in an increment of less 
than $0.01 will be adjusted by the INET System down (for bids) or up 
(for offers) to the nearest $0.01 increment prior to display, execution 
or routing. A quotation so adjusted will have no price priority over 
equivalent quotations that did not require adjustment under this 
paragraph.
* * * * *

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 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. 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
    Consistent with Rule 612 of Regulation NMS,\7\ as of January 31, 
2006, the Nasdaq Market Center (``NMC'') and Nasdaq's Brut and INET 
facilities accept quotes that are in increments of least $0.0001 if 
these quotes are priced below $1.00. Quotes priced above $1.00 are 
accepted by the NMC, Brut, and INET in increments of at least $0.01. 
These principles apply equally to Nasdaq-listed securities and to 
securities listed on other exchanges.
---------------------------------------------------------------------------

    \7\ 17 CFR 242.612.
---------------------------------------------------------------------------

    At the request of the Commission staff, in order to accommodate the 
NYSE and the Amex, the NMC continues to adjust all proper (i.e., priced 
under $1.00 and in increments of not less than $0.0001) sub-penny 
quotes in NYSE- and Amex-listed securities as soon as it receives 
them.\8\ Offers are adjusted upwards to the next whole cent, while bids 
are adjusted downward to the next whole cent. However, Nasdaq's INET 
and Brut facilities currently do not adjust proper sub-penny quotes in 
NYSE- or Amex-listed securities and instead allow sub-penny executions 
in such securities as contemplated under Rule 612.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 34-53203 (Jan. 31, 
2006), 71 FR 6300 (Feb. 7, 2006) (rule change to enable the NMC to 
continue adjusting sub-penny quotes priced below $1.00 in NYSE and 
Amex securities).
---------------------------------------------------------------------------

    The purpose of this filing is to implement within INET and Brut the 
same adjustment mechanism as was implemented earlier this year in the 
NMC. Specifically, proper (i.e., priced under $1.00 and in increments 
of not less than $0.0001) sub-penny quotes in NYSE- and Amex-listed 
securities will be adjusted on receipt by the Brut and INET Systems. 
Offers will be adjusted upwards to the next whole cent, while bids will 
be adjusted downward to the next whole cent. The ability of Brut or 
INET to accept sub-penny quotes in Nasdaq-, NYSE-, or Amex-listed 
securities is not affected by this proposal.
    As with the NMC sub-penny quote adjustments, Nasdaq views this rule 
change for Brut and INET, which is also being made at the request of 
the Commission staff, as temporary in nature because it will continue 
to deprive investors of the ability, envisioned in Rule 612, to trade 
in sub-pennies those NYSE- and Amex-listed stocks that are priced below 
$1.00. When Nasdaq determines that this approach is no longer 
appropriate, it will change the rule described herein by making an 
immediately effective filing with the Commission.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\9\ in general, and with 
Section 15A(b)(6) of the Act,\10\ in particular, in that it is designed 
to promote just and equitable principles of trade.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq 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

    Because the proposed rule change: (1) Does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days after the date of the filing, or such shorter 
time as the Commission may designate if consistent with the

[[Page 25878]]

protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\11\ and Rule 19b-4(f)(6) thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). As required by Rule 19b-
4(f)(6)(iii) under the Act, the Exchange also provided with the 
Commission with written 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 the 
proposed rule change.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative 
delay and allow the proposed rule change to become operative on May 1, 
2006. The Commission hereby grants that request.\13\ The Commission 
believes that the Exchange's proposal to round away all proper sub-
penny quotes in NYSE- and Amex-listed securities immediately upon 
receipt by Brut or INET raises no new regulatory issues, as Nasdaq 
implemented the same adjustment mechanism earlier this year in the NMC 
and Rule 612 does not require that accepted sub-penny quotes priced 
below $1.00 be displayed, executed, or routed in sub-pennies. 
Furthermore, this rule change will bring the quoting conventions of two 
Nasdaq trading facilities, Brut and INET, into line with those of the 
NMC without any further delay, thereby reducing the possibility of 
investor confusion. Therefore, the Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest.
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASD-2006-054 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-NASD-2006-054. 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 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-2006-054 and should be submitted on or before May 
23, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. E6-6597 Filed 5-1-06; 8:45 am]

BILLING CODE 8010-01-P