Document ID: SEC-2006-1405-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-10-31T05:00Z

[Federal Register: October 31, 2006 (Volume 71, Number 210)]
[Notices]               
[Page 63814-63816]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc06-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54651; File No. SR-NASD-2006-119]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Enhance the Flexibility of Nasdaq's INET Facility Order 
Routing Process for Reactive Only DOT Orders That Currently Are 
Ultimately Directed to the New York Stock Exchange or the American 
Stock Exchange

 October 25, 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 October 18, 2006, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq

[[Page 63815]]

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 proposed rule change pursuant to paragraph (f)(6) of Rule 
19b-4 under the Act,\3\ which renders the proposal effective upon 
filing with the Commission.\4\ 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\ 17 CFR 240.19b-4(f)(6).
    \4\ Nasdaq gave the Commission written notice of its intention 
to file the proposed rule change on October 6, 2006.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to enhance the flexibility of Nasdaq's INET 
Facility (``INET'') order routing process for reactive only DOT orders 
(``Reacting Only Dot Orders'') that currently are ultimately directed 
to the New York Stock Exchange (``NYSE'') or the American Stock 
Exchange, as appropriate.
    The text of the proposed rule change is available at the 
Commission's Public Reference Room, at NASD, and at http://www.nasdaq.com.

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 proposes to increase the flexibility of the INET order 
routing process for orders that currently are ultimately directed to 
other market centers. Currently, parties entering a marketable INET 
Reactive Only Dot Order are first directed to have those orders 
processed in the INET System and, after exhausting available liquidity 
in the INET System, thereafter automatically routed to other market 
centers. If the INET Reactive Only Dot Order is not marketable, it is 
added to the INET book. Nasdaq is proposing to modify the behavior of 
the INET order routing process for Reactive Only DOT Orders so that 
orders or residual orders can be sent to other market centers for 
potential execution whereby unexecuted shares will be returned to the 
INET System rather than the current practice of the unfilled orders 
remaining on the books of the other market centers until executed or 
cancelled.
    Nasdaq believes that the proposed rule change will enhance the 
ability of market participants to take advantage of beneficial 
liquidity residing across all market centers as other market centers 
become more automated. Customers use the ``Reactive Only DOT'' order 
type when they want their order to be posted on the INET book for 
potential execution, but do not want to miss potential executions at 
other market centers, including the NYSE. Before the introduction of 
the NYSE Hybrid system, there was no way to receive an automatic 
execution in response to an Immediate or Cancel (``IOC'') order sent to 
the NYSE. As such, the order type as it works today will post the order 
on INET and ``react'' to quotes at other market centers. The system 
will send an IOC order to electronic market centers if they have a 
locking (marketable) quote. If the locking quote is at the NYSE, today 
Nasdaq will send the order to the NYSE and it will reside there until 
executed or cancelled.
    With the introduction of the NYSE Hybrid system comes a new feature 
that Nasdaq would like to utilize using this order type. The new 
feature is the ability to receive immediate automatic executions in 
response to IOC orders. Nasdaq would like to be able to use this 
routing strategy to better respond to the requests of customers (i.e., 
post the order to INET unless marketable on another market center and 
send an IOC to the NYSE when the NYSE has a locking quote, the same as 
Nasdaq does for other market centers). As before, no INET System 
Reactive Only Dot Order will execute in a Nasdaq-operated execution 
venue at an inferior price to one that is available at an accessible 
alternative venue.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\5\ in general, and with 
Section 15A(b)(6) of the Act,\6\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.

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, as amended.

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 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, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 
19b-4(f)(6) thereunder.\7\
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    \5\ 15 U.S.C. 78o-3.
    \6\ 15 U.S.C. 78o-3(b)(6).
    \7\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has asked the Commission to waive the 30-day operative 
delay. The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Such waiver will allow the intended benefits of the proposed 
modification to be made available as soon as practicable. For these 
reasons, the Commission designates the proposal to be effective and 
operative upon filing with the Commission.\8\
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    \8\ 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. 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

[[Page 63816]]

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-2006-119 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-2006-119. 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 Number SR-NASD-2006-119 
and should be submitted on or before November 21, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18252 Filed 10-30-06; 8:45 am]

BILLING CODE 8011-01-P