Document ID: SEC-2006-0658-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-05-23T04:00Z

[Federal Register: May 23, 2006 (Volume 71, Number 99)]
[Notices]               
[Page 29697-29698]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23my06-94]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53819; File No. SR-NASD-2006-052]

 
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 Reflect the Revised 
Effective Date of Certain Amendments to NASD's Order Audit Trail System 
Rules

May 17, 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 20, 2006, 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, 
II, and III below, which Items have been prepared by NASD. NASD has 
designated the proposed rule change as constituting a stated policy, 
practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule under Section 
19(b)(3)(A)(i) of the Act \3\ and Rule 19b-4(f)(1) thereunder,\4\ which 
renders the proposal effective upon receipt of this filing with the 
Commission. The Exchange filed Amendment No. 1 to the proposed rule 
change on May 15, 2006.\5\ 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\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
    \5\ In Amendment No. 1, NASD made certain technical and 
clarifying changes to the rule text and throughout the proposed rule 
change. For purposes 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 the period 
to commence on May 15, 2006, the date on which the Exchange filed 
Amendment No. 1. See 15 U.S.C. 78s(b)(3)(C).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to establish July 10, 2006 as the effective date 
of the amendments to NASD's Order Audit Trail System (``OATS'') rules 
approved by the Commission on September 28, 2005 \6\ and March 30, 
2006.\7\
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    \6\ See Securities Exchange Act Release No. 52521 (September 28, 
2005), 70 FR 57909 (October 4, 2005) (SR-NASD-00-23). See also 
Notice to Members 05-78 (November 2005).
    \7\ See Securities Exchange Act Release No. 53580 (March 30, 
2006), 71 FR 17529 (April 6, 2006) (SR-NASD-2006-040). See also 
Notice to Members 06-15 (April 2006).
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    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].\8\
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    \8\ The proposed changes indicated below are based on rule text 
approved by the SEC on September 28, 2005 and March 30, 2006, which, 
but for this subsequent filing, would have become effective May 8, 
2006. See supra notes 5 and 6.
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* * * * *
6950. Order Audit Trail System
* * * * *
6957. Effective Date
    The requirements of the Order Audit Trail System shall be effective 
in accordance with the following schedule:
    (a) and (b) No Change.
    (c) Manual Orders
    The requirements of the Order Audit Trail System shall be effective 
on July 10, 2006[six months after publication of the revised OATS 
Reporting Technical Specifications relating to SR-NASD-00-23,] for all 
manual orders, provided that firms shall be required to report 
information item (18) specified in Rule 6954(b) only to the extent such 
item is available to them.
    (d) No Change.
* * * * *
6958. Exemption to the Order Recording and Data Transmission 
Requirements
    (a) through (b) No Change.
    (c) This Rule shall be in effect until July 10, 2011[May 8, 2011].
* * * * *

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
    NASD is proposing to establish July 10, 2006 as the effective date 
of the amendments to NASD's rules relating to OATS requirements 
approved by the Commission on September 28, 2005 and March 30, 2006. 
Specifically, on September 28, 2005, the SEC approved amendments to 
NASD Rules 6950 through 6957 (``OATS Rules'').\9\ The amendments to the 
OATS Rules: (1) Implement the OATS reporting requirements for manual 
orders (``OATS Phase III''); (2) provide that members are required to 
capture and report the time the order is received by the member from 
the customer for all orders; (3) expand the order transmittal 
requirements to include orders routed to a member's trading desk or 
trading department; (4) exclude certain members from the definition of 
``Reporting Member'' for those orders that meet specified conditions 
and are recorded and reported to OATS by another member; and (5) permit 
NASD to grant exemptive relief from the OATS reporting requirements in 
certain circumstances to members that meet specified criteria.
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    \9\ See supra note 5.
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    On March 30, 2006, the SEC approved further amendments to the OATS 
Rules

[[Page 29698]]

that expand NASD's OATS exemptive authority to include electronic 
recording requirements.\10\ As amended, NASD has the authority to grant 
exemptive relief from the OATS electronic recording and reporting 
requirements for manual orders to members that meet specified criteria.
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    \10\ See supra note 6.
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    The current effective date of these amendments is May 8, 2006. 
Since approval of these amendments, several firms and service bureaus 
have requested that the effective date of the amended OATS requirements 
be extended, noting the significant technological changes required to 
implement the OATS requirements for manual orders in particular. NASD 
understands the concerns raised and believes that extending the 
effective date of the recent amendments to the OATS Rules until July 
10, 2006 will greatly assist firms and service bureaus by providing 
additional time to ensure that all the necessary system changes can be 
tested and implemented, thereby helping to ensure the integrity and 
accuracy of OATS data.
    Accordingly, NASD is proposing to establish July 10, 2006 as the 
effective date of the amendments to NASD's OATS Rules approved by the 
Commission on September 28, 2005 and March 30, 2006. In doing so, NASD 
also is proposing amendments to NASD Rules 6957(c) and 6958(c) to 
reflect the amended effective date.
    NASD has filed the proposed rule change for immediate 
effectiveness. NASD announced the revised effective date in its Notice 
to Members 06-17 (April 2006).
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\11\ 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 extending the effective date of the 
recent amendments to the OATS Rules will provide firms and service 
bureaus more time to make necessary system changes to ensure compliance 
with the amended OATS requirements.
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    \11\ 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

    While NASD did not specifically solicit comment on the proposed 
rule change, NASD received one written comment letter regarding certain 
implementation issues and concerns.\12\ Specifically, the commenter 
contends that release of the OATS Reporting Technical Specifications 
and subsequent clarification from NASD staff regarding the OATS 
reporting requirements highlighted new development requirements that 
were not accounted for in their original implementation planning. As 
such, the commenter requests that NASD extend the time for testing and 
extend the compliance date for the amended OATS reporting requirements. 
As described herein, NASD is proposing to extend the effective date of 
the recent amendments to the OATS Rules to provide additional time for 
firms and service bureaus to make necessary system changes to ensure 
compliance with the amended OATS requirements.
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    \12\ See Letter from Financial Information Forum, on behalf of 
FIF Service Bureau Committee, to Paul McKenney, NASD, dated March 
29, 2006.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \13\ and paragraph (f)(1) of Rule 19b-4 
thereunder,\14\ in that the proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of NASD. 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(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 Number SR-NASD-2006-052 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-2006-052. 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 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 No. SR-
NASD-2006-052 and should be submitted on or before June 13, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-7817 Filed 5-22-06; 8:45 am]

BILLING CODE 8010-01-P