Document ID: SEC-2006-0973-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-07-31T04:00Z

[Federal Register: July 31, 2006 (Volume 71, Number 146)]
[Notices]               
[Page 43256-43258]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31jy06-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54203; File No. SR-NASD-2006-089]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to NASD Rule 5100 (Short Sale Rule)

July 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 July 21, 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 and 
II below, which Items have been prepared by NASD. NASD has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. NASD proposes to implement the proposed rule change on the 
date on which The Nasdaq Stock Market LLC (the ``Nasdaq Exchange'') 
commences operation as a national securities exchange for Nasdaq-listed 
securities. 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.I9b-4.
    \3\ 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

    NASD is proposing to amend NASD Rule 5100 to allow members to use, 
for a transitional period only, the Nasdaq Exchange best (inside) bid 
rather than the national best (inside) bid for purposes of application 
of the rule. Pursuant to SR-NASD-2005-087, Rule 5100 will become 
effective on the date upon which the Nasdaq Exchange operates as a 
national securities exchange for Nasdaq-listed securities.\4\ 
Currently, that date is projected to be August 1, 2006.
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    \4\ NASD filed SR-NASD-2005-987 on July 11, 2005 and Amendment 
No. 1 on June 15, 2006. The Commission approved SR-NASD-2005-087, as 
amended, on June 30, 2006. See Exchange Act Release No. 54084 (June 
30, 2006), 71 FR 38935 (July 10, 2006).
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    Below is the text of the proposed rule change. Proposed new 
language is italicized.
* * * * *

5000. Trading OtherWise Than on an Exchange

* * * * *

5100. Short Sale Rule

    (a) With respect to trades reported to the ADF or the Trade 
Reporting Facility, no member shall effect a short sale in a Nasdaq 
Global Market Security (as that term is defined in Rule 4200) otherwise 
than on an exchange for the account of a customer or for its own 
account at or below the current national best (inside) bid when the 
current national best (inside) bid is below the preceding national best 
(inside) bid in the security. In addition, for a transitional period 
ending on November 3, 2006, members may use the Nasdaq Exchange best 
(inside) bid rather than the national best (inside) bid for purposes of 
the application of this rule, provided that the member has submitted 
prior written notification to NASD of this selection. Members are 
required to use the same bid tick test on a firm-wide basis. A member 
using the Nasdaq Exchange best (inside) bid may not use the national 
best (inside) bid prior to the end of the transitional period unless 
the member submits prior written notification to NASD of this change. 
For the purposes of this rule, the term ``customer'' includes a non-
member broker-dealer.
    (b) through (l) No Change.
* * * * *

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,

[[Page 43257]]

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

Background

    On June 30, 2006, the Commission approved SR-NASD-2005-087.\5\ 
Among other things, SR-NASD-2005-087 proposed (1) amendments to the 
NASD Delegation Plan, NASD By-Laws and NASD rules to reflect a proposed 
phased implementation strategy for the operation of the Nasdaq Exchange 
as a national securities exchange with respect to Nasdaq-listed 
securities during a transitional period, and (2) rules for reporting 
transactions effected otherwise than on an exchange to the new Trade 
Reporting Facility.
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    \5\ Id.
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    NASD is filing this proposed rule change in anticipation of SR-
NASD-2005-087 becoming effective to amend Rule 5100 to allow members to 
use, for a transitional period only, the Nasdaq Exchange best (inside) 
bid rather than the national best (inside) bid for purposes of 
application of the rule.

Proposed Amendment to Rule 5100

    Pursuant to SR-NASD-2005-087, NASD proposed to renumber Rule 3350 
(Short Sale Rule) as Rule 5100 under the Rule 5000 Series (Trading 
Otherwise Than On An Exchange). Rule 5100 provides that, with respect 
to trades reported to NASD's Alternative Display Facility or the Trade 
Reporting Facility, no member shall effect a short sale in a Nasdaq 
Global Market 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.
    Pursuant to current Rule 3350(a)(2), with respect to trades in 
Nasdaq Global Market securities reported to Nasdaq, the application of 
the rule is based on the best (inside) bid displayed in the Nasdaq 
Market Center. Thus, some members are currently using the Nasdaq best 
bid for purposes of the application of this rule and may need 
additional time to revise their systems to use the national best bid 
for purposes of over-the-counter trading reported to the Trade 
Reporting Facility. Accordingly, NASD is proposing to amend Rule 5100 
to provide that, for a transitional period ending on November 3, 
2006,\6\ members may use the Nasdaq Exchange best (inside) bid rather 
than the national best (inside) bid for purposes of application of the 
rule. Members must submit prior written notice to NASD of this 
selection and will be required to use the same bid tick test on a firm-
wide basis. The proposed rule change would also expressly provide that 
a member using the Nasdaq Exchange best (inside) bid may not use the 
national best (inside) bid prior to the end of the transitional period 
on November 3, 2006 unless the member submits prior written notice to 
NASD of this change.
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    \6\ NASD contemplates that when the transitional period expires 
on November 3, 2006, this amendment will be automatically deleted 
from the NASD Manual without submission of another proposed rule 
change.
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    As noted in Item 2 of this filing, NASD has filed the proposed rule 
change for immediate effectiveness. The effective date will be the date 
upon which the Nasdaq Exchange operates as a national securities 
exchange for Nasdaq-listed securities, which is the effective date of 
SR-NASD-2005-087.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ 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 the proposed rule change will 
protect investors because it will afford members sufficient time to 
make necessary systems adjustments to ensure compliance with the Short 
Sale Rule.
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    \7\ 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

    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.\8\ A proposed rule change filed under 19b-
4(f)(6) normally may not become operative prior to 30 days after the 
date of filing.\9\ However, Rule 19b-4(f)(6)(iii) \10\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest.
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    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 17 CFR 240.19b-4(f)(6)(iii).
    \10\ Id.
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    NASD has requested that the Commission waive the 30-day pre-
operative delay and the five-day pre-filing notice requirement and 
designate the proposed rule change, as amended, to become effective 
upon filing. NASD believes that the waiver of the five-day pre-filing 
requirement is necessary so that members will have certainty with 
respect to this change and can be formally notified immediately. NASD 
believes that the waiver of the 30-day operative requirement is 
necessary so that the proposed rule change can become effective on the 
same date that SR-NASD-2005-087 becomes effective. As noted above, it 
is currently anticipated that the effective date will be August 1, 
2006. The Commission believes that waiving the 30-day pre-operative 
delay and the five-day pre-filing notice requirement is consistent with 
the protection of investors and the public interest because it will 
maintain the status quo for NASD members while they revise their 
systems. For the reasons stated above, the Commission designates the 
proposal to become effective and operative on the same date that SR-
NASD-2005-087 becomes effective, currently anticipated to be August 1, 
2006.\11\
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    \11\ For purposes only of accelerating the operative date of 
this proposal, 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.\12\
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    \12\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposal, the Commission 
considers the period to commence on July 21, 2006, the date on which 
the Exchange submitted this filing.

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[[Page 43258]]

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-2006-089 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-2006-089. 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-2006-089 and should be submitted on or before August 21, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-12176 Filed 7-28-06; 8:45 am]

BILLING CODE 8010-01-P