Document ID: SEC-2006-1351-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-10-18T04:00Z

[Federal Register: October 18, 2006 (Volume 71, Number 201)]
[Notices]               
[Page 61519-61524]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc06-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54591; File No. SR-NASD-2006-115]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of a Proposed Rule Change Relating to a 
New NASD Trade Reporting Facility Established in Conjunction With the 
Boston Stock Exchange

October 12, 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 September 29, 2006, 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 prepared by NASD. The

[[Page 61520]]

Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to adopt rules relating to a new Trade Reporting 
Facility (the ``NASD/BSE TRF'') to be established by NASD, in 
conjunction with the Boston Stock Exchange (``BSE''), that would 
provide members with another mechanism for reporting trades in 
exchange-listed securities effected otherwise than on an exchange. The 
proposed NASD/BSE TRF structure and rules are substantially similar to 
the Trade Reporting Facility established by NASD and the Nasdaq Stock 
Market, Inc. (the ``NASD/Nasdaq TRF'') and the rules relating thereto, 
which the Commission approved.\3\
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    \3\ See Securities Exchange Act Release No. 54084 (June 30, 
2006), 71 FR 38935 (July 10, 2006) (order approving File No. SR-
NASD-2005-087) (``NASD/Nasdaq TRF Approval Order''). The changes 
approved in the NASD/Nasdaq TRF Approval Order became effective on 
August 1, 2006, the date when The NASDAQ Stock Market LLC (the 
``Nasdaq Exchange'') commenced operation as a national securities 
exchange for Nasdaq-listed securities. On September 5, 2006, NASD 
filed a proposal that, among other things, expands the scope of the 
NASD/Nasdaq TRF rules to include reporting in all exchange-listed 
securities. See Securities Exchange Act Release No. 54451 (September 
15, 2006), 71 FR 55243 (September 21, 2006) (notice of filing of 
File No. SR-NASD-2006-104) (``September 2006 Proposal'').
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    The text of the proposed rule change is available on NASD's Web 
site at (http://www.nasd.com), at the principal office of NASD, at the 

Commission's Public Reference Room, and on the Commission's Web site 
(http://www.sec.gov).

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
    Among other things, the NASD/Nasdaq TRF Approval Order \4\ 
approved: (1) Amendments to the NASD Delegation Plan, NASD By-Laws and 
NASD rules to reflect a phased implementation strategy for the 
operation of the Nasdaq Stock Market LLC as a national securities 
exchange with respect to Nasdaq-listed securities during a transitional 
period; and (2) rules for reporting trades effected otherwise than on 
an exchange to the NASD/Nasdaq TRF, including the NASD Rule 4000 Series 
(The Trade Reporting Facility) and the NASD Rule 6100 Series (Clearing 
and Comparison Rules), which generally apply to trade reporting and 
clearing and comparison services via the NASD/Nasdaq TRF.
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    \4\ See note 3, supra.
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NASD/BSE Trade Reporting Facility
    The NASD proposes to establish a new NASD/BSE TRF on substantially 
the same terms as the NASD/Nasdaq TRF.\5\ The NASD/BSE TRF will provide 
members with another mechanism, which has been developed by the BSE, 
for reporting transactions in exchange-listed securities executed 
otherwise than on an exchange. Members will match and/or execute orders 
internally or through proprietary systems and submit these trades to 
the NASD/BSE TRF with the appropriate information and modifiers. The 
NASD/BSE TRF will report the trades to the appropriate exclusive 
securities information processor (``SIP'').\6\ As with trades reported 
to the NASD/Nasdaq TRF, NASD/BSE TRF transactions disseminated to the 
media will include a modifier indicating the source of such 
transactions that would distinguish them from transactions executed on 
or through the BSE. In addition, the NASD/BSE TRF will provide NASD 
with a real-time copy of each trade report for regulatory review 
purposes. At the option of the participant, the NASD/BSE TRF may also 
provide the necessary clearing information regarding transactions to 
the National Securities Clearing Corporation (``NSCC'').
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    \5\ In response to comments submitted to the Commission in 
connection with its proposal to establish the NASD/Nasdaq TRF, NASD 
indicated that it was prepared to implement a Trade Reporting 
Facility with any exchange based on whatever technology the exchange 
has available to it. See letter from Robert Glauber, Chairman and 
Chief Executive Officer, NASD, to the Hon. Christopher Cox, 
Chairman, U.S. Securities and Exchange Commission, dated May 2, 
2006. As the Commission noted in the NASD/Nasdaq TRF Approval Order, 
the Act does not prohibit NASD from establishing different 
facilities for purposes of fulfilling its regulatory obligations. 
See NASD/Nasdaq TRF Approval Order, supra note 3.
    \6\ NASD represents that the NASD/BSE TRF will have controls in 
place to ensure that transactions that are reported to the NASD/BSE 
TRF, but priced significantly away from the current market, will not 
be submitted to the SIP. The NASD notes that this is consistent with 
current practice in that neither NASD's Alternative Display Facility 
nor the NASD/Nasdaq TRF submits such trades to the SIP. According to 
the NASD, this practice is designed to preserve the integrity of the 
tape.
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    Like the NASD/Nasdaq TRF, the NASD/BSE TRF will be a facility of 
NASD, subject to regulation by NASD and NASD's registration as a 
national securities association. It will not be a service ``for the 
purpose of effecting or reporting a transaction'' on the BSE; rather, 
it will be a service for the purpose of reporting over-the-counter 
(``OTC'') transactions in exchange-listed securities to NASD.\7\ Thus, 
members that meet all applicable requirements will have the option of 
reporting transactions in exchange-listed securities executed otherwise 
than on an exchange to an NASD Trade Reporting Facility (the NASD/BSE 
TRF, the NASD/Nasdaq TRF, or the NASD/NSX TRF \8\), NASD's Alternative 
Display Facility (``ADF''),\9\ or NASD's Intermarket Trading System/
Computer Assisted Execution System (``ITS/CAES'') System.\10\
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    \7\ See NASD/Nasdaq TRF Approval Order, supra note 3.
    \8\ NASD also has filed a proposed rule change to establish a 
Trade Reporting Facility in conjunction with the National Stock 
Exchange (the ``NASD/NSX TRF''). See Securities Exchange Act Release 
No. 54479 (September 21, 2006), 71 FR 56573 (September 27, 2006) 
(notice of filing of File No. SR-NASD-2006-108). If approved by the 
Commission, the NASD/NSX TRF would provide members with another 
mechanism for reporting trades in Nasdaq-listed equity securities 
effected otherwise than on an exchange. NASD intends to submit a 
filing at a later date to expand reporting to the NASD/NSX TRF to 
include all exchange-listed securities.
    \9\ NASD has filed a proposed rule change proposing to expand 
ADF functionality to all exchange-listed securities. See Securities 
Exchange Act Release No. 54277 (August 4, 2006), 71 FR 46527 (August 
14, 2006) (notice of filing of File No. SR-NASD-2006-091).
    \10\ NASD has filed a proposed rule change to, among other 
things, provide for the operation of the ITS/CAES System, which 
includes the reporting of transactions in non-Nasdaq exchange-listed 
securities. See September 2006 Proposal, supra note 3. NASD 
represents that it will have an integrated audit trail of all TRF, 
ADF, and ITS/CAES System transactions, as applicable in a particular 
security, and will have integrated surveillance capabilities. NASD 
expects that comprehensive audit trail and surveillance integration 
on an automated basis will be completed by the end of the fourth 
quarter of 2006 for Nasdaq-listed securities and by the end of the 
first quarter of 2007 for non-Nasdaq exchange-listed securities. 
Prior to that time, NASD staff will be able to create an integrated 
audit trail on a manual basis as needed for regulatory purposes.

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[[Page 61521]]

    BSE has developed the system that participants will use to access 
the NASD/BSE TRF. Technical specifications to connect to the NASD/BSE 
TRF system are available upon request to NASD and will be accessible 
through the NASD's Web site at a later date.
NASD/BSE TRF Limited Liability Company Agreement
    NASD and BSE propose to enter into a Limited Liability Company 
Agreement of NASD/BSE Trade Reporting Facility LLC (``the NASD/BSE LLC 
Agreement''). The terms of the NASD/BSE LLC Agreement are substantially 
similar to the terms of the LLC agreement that NASD entered with Nasdaq 
Stock Market Inc. (``Nasdaq'').
    NASD will have sole regulatory responsibility for the NASD/BSE TRF, 
while BSE agrees to pay the cost of regulation and will provide systems 
to enable members to report trades to the NASD/BSE TRF. BSE will be 
entitled to the profits and losses, if any, derived from the operation 
of the NASD/BSE TRF.
    NASD, the ``SRO Member'' under the NASD/BSE LLC Agreement, will 
perform SRO Responsibilities including, but not limited to:
    (1) Adoption, amendment, and interpretation of policies arising out 
of and regarding any aspect of the operation of the facility considered 
material by the SRO Member, or regarding the meaning, administration, 
or enforcement of an existing rule of the SRO Member, including any 
generally applicable exemption from such a rule;
    (2) Approval of rule filings of the SRO Member prior to filing with 
the SEC;
    (3) Regulation of the NASD/BSE TRF's activities of or relating to 
SRO Responsibilities, including the right to review and approve, in the 
SRO Member's sole reasonable discretion, the regulatory budget for the 
NASD/BSE TRF;
    (4) Securities regulation and any other matter implicating SRO 
Responsibilities; and
    (5) Real-time market surveillance.\11\
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    \11\ The SRO Member will perform real-time market surveillance 
related to trades reported to the NASD/BSE TRF. However, because the 
NASD/BSE TRF via the Business Member will submit transaction 
information directly to the SIP, the NASD/BSE TRF via the Business 
Member also will establish and implement controls to ensure that 
transactions that are reported to the NASD/BSE TRF, but are priced 
significantly away from the current market, will not be submitted to 
the SIP. See supra note 6.
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    BSE, the ``Business Member'' under the NASD/BSE LLC Agreement, will 
be primarily responsible for the management of the facility's business 
affairs to the extent those activities are not inconsistent with the 
regulatory and oversight functions of NASD. Under Section 9(d) of the 
NASD/BSE LLC Agreement, each Member agrees to comply with the federal 
securities laws and the rules and regulations thereunder and to 
cooperate with the Commission pursuant to its regulatory authority.
    The NASD/BSE TRF will be managed by or under the direction of a 
Board of Directors to be established by the parties. NASD will have the 
right to designate at least one Director, the SRO Member Director, who 
may be a member of NASD's Board of Governors or an officer or employee 
of NASD designated by the NASD's Board of Governors. The SRO Member 
Director will have veto power over all major actions of the NASD/BSE 
LLC Board. Section 10(e) of the NASD/BSE LLC Agreement defines ``Major 
Actions'' to include:
    (1) Approving pricing decisions that are subject to the SEC filing 
process;
    (2) Approving contracts between the NASD/BSE TRF and the Business 
Member, any of its affiliates, directors, officers, or employees;
    (3) Approving Director compensation;
    (4) Selling, licensing, leasing, or otherwise transferring material 
assets used in the operation of the NASD/BSE TRF's business outside of 
the ordinary course of business with an aggregate value in excess of $3 
million;
    (5) Approving or undertaking a merger, consolidation, or 
reorganization of the NASD/BSE TRF with any other entity;
    (6) Entering into any partnership, joint venture, or other similar 
joint business undertaking;
    (7) Making any fundamental change in the market structure of the 
NASD/BSE TRF from that contemplated by the Members as of the date of 
the NASD/BSE LLC Agreement;
    (8) To the fullest extent permitted by law, taking any action to 
effect the voluntary, or which would precipitate an involuntary, 
dissolution or winding up of the Company, other than as contemplated by 
Section 21 of the NASD/BSE LLC Agreement;
    (9) Conversion of the NASD/BSE TRF from a Delaware limited 
liability company into any other type of entity;
    (10) Expansion of or modification to the business which results in 
the NASD/BSE TRF engaging in material business unrelated to the 
business of Non-System Trading; \12\
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    \12\ Pursuant to the NASD/BSE LLC Agreement, ``Non-System 
Trading'' means trading otherwise than on an exchange of securities 
for which the SEC has approved a transaction reporting plan pursuant 
to Rule 601 of Regulation NMS under the Act.
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    (11) Changing the number of Directors on or composition of the 
NASD/BSE LLC Board; and
    (12) Adopting or amending policies regarding access and credit 
matters affecting the NASD/BSE TRF.
    In addition, each Director agrees to comply with the federal 
securities laws and the rules and regulations thereunder and to 
cooperate with the Commission and the SRO Member pursuant to their 
regulatory authority.
    The principal difference between the NASD/BSE LLC Agreement and the 
LLC Agreement NASD entered with Nasdaq relates to termination. The 
initial term of the agreement is three years. During that time, until 
the NASD/BSE TRF reaches ``Substantial Trade Volume'' (defined as 
250,000 trades or more per day for three consecutive months), BSE may 
terminate the arrangement for convenience. After the NASD/BSE TRF 
reaches Substantial Trade Volume, either Member may terminate the NASD/
BSE Trade Reporting Facility LLC by providing to the other Member prior 
written notice of at least one year (as in the case with Nasdaq). 
Neither Member may deliver such notice before the second anniversary of 
the effective date of the NASD/BSE LLC Agreement. In addition, at any 
time, NASD may terminate in the event its status or reputation as a 
preeminent SRO is called into jeopardy by the actions of BSE or the 
NASD/BSE TRF. In the event of termination of the NASD/BSE TRF 
arrangement, NASD will be able to fulfill all of its regulatory 
obligations with respect to OTC trade reporting through its other 
facilities, including the NASD/Nasdaq TRF, ADF, and the ITS/CAES 
System.
NASD/BSE Trade Reporting Facility Rules
    Members will report trades in exchange-listed securities effected 
otherwise than on an exchange to the NASD/BSE TRF pursuant to NASD 
rules. As such, NASD is proposing rules relating to the use and 
operation of the NASD/BSE TRF that are substantially similar to the 
rules approved by the Commission relating to the NASD/Nasdaq TRF. 
Specifically, NASD is proposing the new NASD Rule 4000D and NASD Rule 
6100D Series, which largely track the NASD Rule 4000 and NASD Rule 6100 
Series that the Commission approved in the NASD/Nasdaq TRF Approval 
Order.\13\
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    \13\ See note 3, supra.
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    Similar to the NASD/Nasdaq TRF rules, to become a participant in 
the NASD/BSE TRF, an NASD member must meet minimum requirements as

[[Page 61522]]

outlined in NASD Rule 6120D. These include execution of, and continuing 
compliance with, a Participant Application Agreement; membership in, or 
maintenance of an effective clearing arrangement with a participant of 
a clearing agency registered pursuant to the Act; and the acceptance 
and settlement of each trade that the NASD/BSE TRF identifies as having 
been effected by the participant.
    Members that report trades to the NASD/BSE TRF must include the 
details of the trade, as required by the proposed rules. Participants 
must also include the unique order identifier assigned for purposes of 
reporting to the Order Audit Trail System pursuant to the NASD Rule 
6950 Series, thus enabling NASD to match the order against the trade 
that was reported to the tape by the NASD/BSE TRF.
    As with the NASD/Nasdaq TRF, participants may enter into ``give 
up'' arrangements whereby one member reports to the NASD/BSE TRF on 
behalf of another member. Participants must complete and submit to the 
NASD/BSE TRF the appropriate documentation reflecting the arrangement. 
Proposed NASD Rule 4632D(h) provides that the member with the reporting 
obligation remains responsible for the transaction submitted on its 
behalf. Further, both the member with the reporting obligation and the 
member submitting the trade to the NASD/BSE TRF are responsible for 
ensuring that the information submitted is in compliance with all 
applicable rules and regulations.\14\
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    \14\ As noted above, NASD/Nasdaq TRF participants may enter into 
``give up'' arrangements; however, the NASD/Nasdaq TRF rules 
currently do not speak to such arrangements. NASD has submitted a 
proposed rule change to amend the NASD/Nasdaq TRF rules to include a 
provision that is substantially similar to proposed NASD Rule 
4632D(h). See September 2006 Proposal, supra note 3.
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    In addition, participants will be able to submit ``riskless 
principal'' transactions \15\ to the NASD/BSE TRF. Similar to the NASD/
Nasdaq TRF, the non-media portion of a riskless principal transaction 
will not be reported to the tape, but will be submitted real-time to 
NASD for regulatory purposes and, at the option of the user, to NSCC. 
Proposed NASD Rule 4632D(e)(3)(B) \16\ would clarify that where the 
media leg of the riskless principal transaction is reported to the 
NASD/BSE TRF, the second, non-media leg must also be reported to the 
NASD/BSE TRF. However, where the media leg of the riskless principal 
transaction was previously reported by an exchange, the member would be 
permitted, but not required, to report the second, non-media leg to the 
NASD/BSE TRF. Members that choose to report such transactions to the 
NASD/BSE TRF must include all data elements required under the rules. 
Members should note, however, that transactions reported by an exchange 
should not be reported to NASD/BSE TRF for media purposes, as that 
would result in double reporting of the same transaction.\17\
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    \15\ A riskless principal transaction is a transaction in which 
a member, after having received a customer order, executes an 
offsetting transaction, as principal, with another customer or 
broker-dealer to fill that customer order and both transactions are 
executed at the same price.
    \16\ Proposed NASD Rule 4632D(e)(3)(B) mirrors recently proposed 
amendments to NASD Rule 4632(d)(3)(B) of the NASD/Nasdaq TRF rules. 
See September 2006 Proposal, supra note 3.
    \17\ Proposed NASD Rule 4632D(f)(6) provides that transactions 
reported on or through an exchange shall not be reported to the 
NASD/BSE TRF for purposes of publication. This proposed rule mirrors 
NASD Rule 4632(e)(6) of the NASD/Nasdaq TRF rules. See NASD/Nasdaq 
TRF Approval Order, supra note 3; Securities Exchange Act Release 
Nos. 53977 (June 12, 2006), 71 FR 34976 (June 16, 2006) (order 
approving File No SR-NASD-2006-055); and 54318 (August 15, 2006), 71 
FR 48959 (August 22, 2006) (notice of filing and immediate 
effectiveness of File No. SR-NASD-2006-098).
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    Finally, NASD will have the authority to halt trading otherwise 
than on an exchange reported to the NASD/BSE TRF. The scope of NASD's 
authority under proposed NASD Rule 4633D is identical to its authority 
to halt trading reported to the NASD/Nasdaq TRF and the ADF.
    As described below, the proposed rules differ from the current 
NASD/Nasdaq TRF rules in certain respects. Proposed NASD Rules 4100D 
and 4200D(a)(2) define ``designated securities'' for purposes of 
reporting trades to the NASD/BSE TRF as ``all NMS stocks as defined in 
Rule 600(b)(47) of Regulation NMS under the Act.'' Currently, NASD 
Rules 4100 and 4200(a)(2) define ``designated securities'' for purposes 
of reporting trades to the NASD/Nasdaq TRF as all Nasdaq National 
Market (now Nasdaq Global Market) and Nasdaq Capital Market securities 
and convertible bonds listed on Nasdaq. NASD has filed a proposed rule 
change to expand reporting to the NASD/Nasdaq TRF to include all 
exchange-listed securities and to include a definition of ``designated 
securities'' in NASD Rules 4100 and 4200(a)(2) that is identical to the 
definition proposed herein.\18\
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    \18\ See September 2006 Proposal, supra note 3.
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    Pursuant to proposed NASD Rule 6120D, only members of NASD may use 
the NASD/BSE TRF. Non-members will not be permitted to submit trade 
reports to the NASD/BSE TRF. Under very limited circumstances, certain 
Non-Member Clearing Organizations are granted access to and 
participation in the NASD/Nasdaq TRF.
    Pursuant to proposed NASD Rule 6140D, all trades submitted to the 
NASD/BSE TRF must be locked-in prior to entry into the System. The 
NASD/BSE TRF will have no trade comparison functionality. Thus, there 
are no proposed rules relating to trade matching, trade acceptance, or 
aggregate volume matching. Similarly, there will be no ``Browse'' 
function, meaning that participants will not be able to review or query 
for trades in the NASD/BSE TRF identifying the participant as a party 
to the transaction.
    The NASD/BSE TRF will not be able to support trade reporting for 
certain transactions. Specifically, transactions executed outside of 
normal market hours cannot be reported to the NASD/BSE TRF on an ``as/
of'' or next day (T+1) basis, pursuant to NASD Rule 4632D(a)(2). In 
addition, the NASD/BSE TRF will not support the .W or .PRP modifiers 
and, therefore, proposed NASD Rule 4632D(a)(7) provides that Stop Stock 
Transactions (as defined in NASD Rule 4200D), transactions at prices 
based on average-weighting or other special pricing formulae, and 
transactions that reflect a price different from the current market 
when the execution price is based on a prior reference point in time 
cannot be reported to the NASD/BSE TRF. Thus, proposed NASD Rules 
4632D(a)(2) and (7) expressly require members to report such trades to 
NASD via an alternative electronic mechanism.
    Similarly, proposed NASD Rule 4632D(a)(3) provides that 
participants must use an alternative electronic mechanism, and comply 
with all rules applicable to such alternative mechanism, to report 
transactions to NASD for which electronic submission to the NASD/BSE 
TRF is not possible. Where last sale reports of transactions in 
designated securities cannot be submitted to NASD via an alternative 
electronic mechanism, such as the ADF or another Trade Reporting 
Facility (for example, where the ticker symbol for the security is no 
longer available or a market participant identifier is no longer 
active), members shall report such transactions as soon as practicable 
to the NASD Market Regulation Department on Form T. Members are not to 
use Form T to report transactions that can be reported to NASD 
electronically, whether on trade date or on a subsequent date on an 
``as of'' basis (T+N).
    Unlike the NASD/Nasdaq TRF, participants will be able to use three-
party reports for reporting trades to the

[[Page 61523]]

NASD/BSE TRF. A three-party trade report is a single last sale trade 
report that denotes one Reporting Member (i.e., the member with the 
obligation to report the trade under proposed NASD Rule 4632D(b)) and 
two contra parties. Registered ECNs may submit three-party trade 
reports. In addition, riskless principal trades may be submitted by 
Reporting Members as three-party trade reports. Proposed NASD Rule 
4632D(c) sets forth the information requirements for two-party reports, 
while proposed NASD Rule 4632D(d) sets forth the information 
requirements for three-party reports. Members currently can use three-
party reports for purposes of reporting trades to the ADF. Proposed 
NASD Rules 4632D(c) and (d) mirror the existing ADF reporting 
requirements relating to two- and three-party trade reports (see NASD 
Rules 4632A(c) and (d)).
    As with the NASD/Nasdaq TRF, the NASD/BSE TRF will only accept non-
media or clearing-only trade reports for certain transactions; members 
cannot submit reports for these transactions for publication. Proposed 
NASD Rule 4632D(f) sets forth the types of transactions that cannot be 
reported for purposes of publication to the NASD/BSE TRF. Proposed NASD 
Rule 4632D(f) mirrors current NASD Rule 4632(e) of the NASD/Nasdaq TRF 
rules and includes two additional categories of trades: (1) The 
acquisition of securities by a member as principal in anticipation of 
making an immediate exchange distribution or exchange offering on an 
exchange; and (2) purchases of securities off the floor of an exchange 
pursuant to a tender offer. NASD's proposed rule change to expand 
reporting to the NASD/Nasdaq TRF for all exchange-listed securities 
proposes to amend NASD Rule 4632(e) to include these two additional 
categories of transactions.\19\ Thus, proposed NASD Rule 4632D(f) of 
the NASD/BSE TRF will be identical to NASD Rule 4632(e) of the NASD/
Nasdaq TRF rules.
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    \19\ See September 2006 Proposal, supra note 3.
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    Cancellation of any trade that has been submitted to the NASD/BSE 
TRF must be reported in accordance with proposed NASD Rule 4632D(g). 
Unlike the NASD/Nasdaq TRF, members cannot electronically report trade 
cancellations to the NASD/BSE TRF. Members must contact NASD/BSE Trade 
Reporting Facility Operations, within the prescribed time periods, to 
report the cancellation of any trade previously submitted to the NASD/
BSE TRF.
    Finally, members will not be permitted to aggregate individual 
executions of orders in a security at the same price into a single 
transaction report submitted to the NASD/BSE TRF. Thus, the proposed 
rule change does not contain a counterpart to NASD Rule 4632(f) or NASD 
Rule 6130(e) permitting ``bunched'' trades to be reported to the NASD/
Nasdaq TRF.
    NASD notes that the proposed rule change does not include any 
proposed rules relating to fees, assessments, and credits specifically 
related to the NASD/BSE TRF. Fees, assessments, and credits, if any, 
with respect to the NASD/BSE TRF will be the subject of a future rule 
filing with the Commission.
Proposed Implementation
    In light of the systems changes that are necessary for NASD to 
implement the NASD/BSE TRF for non-Nasdaq exchange-listed securities, 
NASD is proposing to implement the proposed rule change in two phases. 
Specifically, NASD proposes to implement the proposed rule change with 
respect to Nasdaq-listed equity securities and convertible debt on the 
first day of operation of the NASD/BSE TRF. NASD proposes to implement 
the proposed rule change with respect to non-Nasdaq exchange-listed 
securities at a later date.
    NASD will announce the implementation date of the first phase of 
the proposed rule change no later than 30 days following Commission 
approval and the second phase no later than 90 days following 
Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\20\ 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 establishment of the NASD/BSE TRF 
is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets because it 
will provide members another mechanism to report transactions in 
exchange-listed securities effected otherwise than on an exchange.
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    \20\ 15 U.S.C. 78o-3(b)(6).
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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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change; or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

 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 No. SR-NASD-2006-115 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-2006-115. 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

[[Page 61524]]

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 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-2006-115 and should be 
submitted on or before November 8, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-17319 Filed 10-17-06; 8:45 am]

BILLING CODE 8011-01-P