Document ID: SEC-2006-1470-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-11-16T05:00Z

[Federal Register: November 16, 2006 (Volume 71, Number 221)]
[Notices]               
[Page 66813-66814]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16no06-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54728; File No. SR-NASD-2006-114]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Adopt an Automated Process for Opening Quotations of 
ITS/CAES Market Makers

November 8, 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''), 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 filed the 
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. The 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish an automatic process for opening 
quotes in non-Nasdaq securities through the ITS/CAES System. Nasdaq 
implemented the proposed rule change on October 9, 2006.\5\ The text of 
the proposed rule change is available on the Nasdaq's Web site at 
http://www.nasdaq.com, at Nasdaq's Office of the Secretary and at the 

Commission's Public Reference Room.
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    \5\ Telephone conversation between John Yetter, Senior Associate 
General Counsel, Nasdaq, and Natasha Cowen, Special Counsel, 
Division of Market Regulation, Commission, on November 7, 2006.
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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
    Nasdaq is proposing to establish a procedure for automated initial 
display of quotations by ITS/CAES Market Makers. The procedure would be 
substantially the same as the existing procedure of The NASDAQ Stock 
Market LLC (the ``Nasdaq Exchange'') for automated opening quotes by 
market makers in Nasdaq-listed stocks under Nasdaq Exchange Rule 
4704(b). Specifically, the ITS/CAES System will display initial quotes 
of ITS/CAES Market Makers in one of three ways, at the option of the 
market maker: (i) At the last price and size (either including or 
excluding reserve size) entered by the market maker on the preceding 
trading day; (ii) at a price and size entered by the market maker prior 
to 9:25 a.m., or (iii) at a system-generated price of $0.01 (bid) and 
$200,001 (ask) and a size of 100 shares.\6\ Firms choosing the first 
two options will have their quotes displayed at such time as they 
specify, or if no time is specified, then at 9:25 a.m. Firms choosing 
the third option will have their quotes displayed at 9:25 a.m. Any 
quotes generated through this process will be replaced as soon as a 
market maker submits a quote update. The automated process will ensure 
that market makers do not inadvertently fail to maintain a two-sided 
quote at market open. The quotes displayed through this process will 
not be available for execution until 9:30 a.m.
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    \6\ Nasdaq notes that the default settings are different for 
ITS/CAES than for the Nasdaq Exchange to reflect the extremely high 
share prices of a small number of stocks listed on the New York 
Stock Exchange.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A of the Act,\7\ in general, and furthers the objectives of 
Section 15A(b)(5) of the Act,\8\ in particular, in that it is designed 
to facilitate transactions in securities, to promote just and equitable 
principles of trade, to enhance competition, and to protect investors 
and the public interest. The proposed rule change assists ITS/CAES 
market makers in maintaining a two-sided quote at market open and 
replicates functionality currently in use by the Nasdaq Exchange with 
respect to Nasdaq-listed stocks.
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    \7\ 15 U.S.C. 78o-3.
    \8\ 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 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

    Nasdaq 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act \9\ and 
Rule 19b-4(f)(6) thereunder.\10\

[[Page 66814]]

As required under Rule 19b-4(f)(6)(iii) under the Act,\11\ Nasdaq 
provided 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 filing of the proposed rule change.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\12\ 
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq has requested that the 
Commission waive the 30-day operative delay and render the proposed 
rule change operative immediately. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest. Waiver of the 30-day operative delay 
would enable ITS/CAES market makers to maintain a two-sided quote at 
market open and would replicate functionality currently in use by the 
Nasdaq Exchange with respect to Nasdaq-listed stocks. For the reasons 
stated above, the Commission therefore designated the proposal to 
become operative upon filing.\14\
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    \12\ Id.
    \13\ Id.
    \14\ For purposes of waiving the operative date of this proposal 
only, the Commission has considered the impact of the proposed rule 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    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-2006-114 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-2006-114. 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 offices of Nasdaq. 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-2006-114 and should be submitted on or before 
December 7, 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. E6-19379 Filed 11-15-06; 8:45 am]

BILLING CODE 8011-01-P