Document ID: SEC-2007-0216-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-02-12T05:00Z

[Federal Register: February 12, 2007 (Volume 72, Number 28)]
[Notices]               
[Page 6635-6637]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12fe07-129]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55245; File No. SR-NASD-2007-009]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change Relating to Extension of NASD's Short Sale Rule 
Contained in Rule 5100 and Short Sale Standard Contained in IM-5100

February 5, 2007.
    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 January 26, 2007, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASD. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons. For the reasons discussed below, the 
Commission is granting accelerated approval of the proposed rule 
change.
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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 is proposing to extend retroactively to December 16, 2006, and 
prospectively through December 15, 2007, the pilot effectiveness of 
Rule 5100 (Short Sale Rule). NASD is also seeking to extend the pilot 
effectiveness of the penny ($0.01) legal short sale standard contained 
in Interpretive Material (IM) 5100. Without such extension, these 
pilots would have expired on December 15, 2006. NASD does not propose 
any substantive changes to the pilots; the only changes are making the 
pilots effective on a retroactive basis to December 16, 2006 and 
extending the pilots' expiration dates to December 15, 2007.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.\3\
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    \3\ There are no proposed changes to the text of IM-5100.
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* * * * *
5100. Short Sale Rule
    (a) through (k) No Change.
    (l) This section shall be in effect until December 15, 200[6]7.
* * * * *

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
    Proposal to Extend Penny Short Sale Rule. Section 10(a) of the Act 
gives the Commission plenary authority to regulate short sales \4\ of 
securities registered on a national securities exchange, as needed to 
protect investors. Rule 10a-1(a)(1) provides that, subject to certain 
exceptions, a listed security may be sold short (A) at a price above 
the price at which the immediately preceding sale was effected (plus 
tick), or (B) at the last sale price if it is higher than the last 
different price (zero-plus tick).\5\
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    \4\ A short sale is a sale of a security that the seller does 
not own or any sale that is consummated by the delivery of a 
security borrowed by, or for the account of, the seller. See Rule 
200(a) of Regulation SHO under the Act.
    \5\ See 17 CFR 240.10a-1(a)(1).
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    On June 29 1994, the Commission granted temporary approval to 
NASD's short sale rule, Rule 5100 (formerly Rule

[[Page 6636]]

3350),\6\ applicable to Nasdaq Global Market (``NGM'') securities \7\ 
on a pilot basis.\8\ Rule 5100 applies to short sales of OTC 
transactions reported to the Alternative Display Facility (``ADF'') or 
a Trade Reporting Facility (``TRF''). Rule 5100 provides that, with 
respect to trades reported to the ADF or the TRF, no member shall 
effect a short sale in a NGM security otherwise than on an exchange at 
or below the current national best (inside) bid when the current 
national best (inside) bid is below the preceding national best 
(inside) bid (referred to as the ``bid test'').
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    \6\ NASD has renumbered Rule 3350 and IM-3350 as Rule 5100 and 
IM-5100, respectively. See Securities Exchange Act Release No. 54084 
(June 30, 2006), 71 FR 38935 (July 10, 2006) (File No. SR-NASD-2005-
087).
    \7\ Nasdaq Global Market securities were formerly known as 
Nasdaq National Market securities. See Securities Exchange Act 
Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006).
    \8\ See Securities Exchange Act Release No. 34277 (June 29, 
1994), 59 FR 34885 (July 7, 1994) (``Short Sale Rule Approval 
Order'').
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    Since approval, NASD proposed, and the Commission approved, 
numerous extensions of NASD's short sale rule and it continues to 
operate on a pilot basis.\9\ NASD has determined to seek an extension 
of the pilot until December 15, 2007 and to make it effective on a 
retroactive basis to December 16, 2006. NASD believes that such an 
extension provides an appropriate continuation of NASD's short sale 
price test contained in Rule 5100 while the Commission considers 
whether changes to short sale price tests are necessary in light of 
current market practices and the purposes underlying short sale 
regulation.\10\
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    \9\ See Securities Exchange Act Release No. 53093 (January 10, 
2006), 71 FR 2966 (January 18, 2006) (Notice of Immediate 
Effectiveness of SR-NASD-2005-149 extending the Short Sale Rule and 
continued suspension of Primary Market Maker standards).
    \10\ See Securities Exchange Act Release No. 54891 (December 7, 
2006), 71 FR 75067 (December 13, 2006) (proposed amendments to 
Regulation SHO and Rule 10a-1 under the Act).
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    Proposal to Extend Penny Short Sale Standard. On March 2, 2001, the 
Commission approved, on a pilot basis,\11\ the proposal to establish a 
$0.01 above the bid standard for legal short sales in NGM securities as 
part of the Decimals Implementation Plan for the Equities and Options 
Markets. This pilot program has been continuously extended since that 
date and expired on December 15, 2006.\12\ NASD now proposes to extend 
retroactively to December 16, 2006, and prospectively through December 
15, 2007, the penny short sale pilot program. Extension of the pilot 
will allow NASD and the Commission to maintain the status quo until the 
Commission takes further action on short sale price tests.
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    \11\  See Securities Exchange Act Release No. 44030 (March 2, 
2001), 66 FR 14235 (March 9, 2001) (SR-NASD-2001-09).
    \12\ See supra note 9.
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    If approved, NASD will continue during the pilot period to require 
NASD members seeking to effect ``legal'' short sales when the current 
national best (inside) bid is lower than the preceding national best 
(inside) bid, to execute those short sales at a price that is at least 
$0.01 above the current national best (inside) bid in that security. 
NASD believes that such an extension provides for an appropriate 
continuation of the current penny short sale standards while the 
Commission continues to consider the effectiveness of short sale price 
tests. NASD is not proposing any other changes to the pilot at this 
time.
    NASD is requesting that the Commission accelerate the effectiveness 
of the proposed rule change and is seeking to make the proposed rule 
change effective on a retroactive basis to December 16, 2006.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\13\ which requires, among 
other things, that NASD rules must 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 it is in the best interest of investors 
and the public to extend the short sale regulation pilot program. NASD 
also believes that it is important to continue the pilot while the 
Commission continues to consider the effectiveness of short sale price 
tests.\14\
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    \13\ 15 U.S.C. 78o-3(b)(6).
    \14\ See supra note 10.
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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

    NASD has requested that the Commission find good cause pursuant to 
Section 19(b)(2) of the Act \15\ for approving the proposed rule change 
prior to the 30th day after publication in the Federal Register. The 
Commission finds that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to NASD and, in particular, the requirements of Section 15A 
of the Act and the rules and regulations thereunder.\16\ The Commission 
finds good cause for approving the proposed rule change prior to the 
30th day after the date of publication of notice of filing thereof in 
that accelerated approval will allow the short sale pilot program to 
operate without interruption.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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-2007-009 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-2007-009. 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

[[Page 6637]]

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 Number SR-NASD-2007-009 and should be 
submitted on or before March 5, 2007.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
that the proposed rule change (SR-NASD-2007-009) is approved on an 
accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-2303 Filed 2-9-07; 8:45 am]

BILLING CODE 8010-01-P