Document ID: SEC-2006-1682-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes:National Association of Securities Dealers, Inc.
Posted Date: 2006-12-26T05:00Z

[Federal Register: December 26, 2006 (Volume 71, Number 247)]
[Notices]               
[Page 77429-77431]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26de06-77]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54953; File No. SR-NASD-2006-134]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Extending the Pilot Relating to Manning Price-Improvement 
Standards for Decimalized Securities

December 18, 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 December 7, 2006, the National Association of Securities Dealers, 
Inc. (``NASD'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by NASD. NASD 
has designated the proposal as constituting a ``non-controversial'' 
proposed rule change under Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders it 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

    NASD is proposing to extend through June 30, 2007, the current 
pilot price-improvement standards for decimalized securities contained 
in NASD Interpretive Material (``IM'') 2110-2--Trading Ahead of 
Customer Limit Order (``Manning Rule''). NASD proposes no changes to 
its rule text.\5\
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    \5\ NASD has proposed changes to the text of NASD IM 2110-2 in a 
separate filing, SR-NASD-2005-146, which is currently pending at the 
Commission. See Securities Exchange Act Release No. 54705 (November 
3, 2006), 71 FR 65863 (November 9, 2006) (Notice of filing of SR-
NASD-2005-146). The proposed changes in SR-NASD-2005-146 would 
amend, among other provisions, the price-improvement standards in 
NASD IM-2110-2.
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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, 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's Manning Rule requires an NASD member firm to provide a 
minimum level of price improvement to incoming orders in exchange-
listed securities if the firm chooses to trade as principal with those 
incoming orders at a price equal to or better than customer limit 
orders the firm currently holds. If a firm fails to provide the minimum 
level of price improvement to the

[[Page 77430]]

incoming order, the firm must execute its held customer limit orders at 
the price at which the firm traded for its own account or better. 
Generally, if a firm fails to provide the requisite amount of price 
improvement and also fails to execute its held customer limit orders, 
it is in violation of the Manning Rule.
    On April 6, 2001,\6\ the Commission approved, on a pilot basis, 
price improvement standards for decimalized securities contained in the 
Manning Rule. The applicable provision in the current version of the 
Manning Rule is as follows: \7\
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    \6\ See Securities Exchange Act Release No. 44165 (April 6, 
2001), 66 FR 19268 (April 13, 2001) (SR-NASD-2001-27).
    \7\ Pursuant to the terms of the Decimals Implementation Plan 
for the Equities and Options Markets, the minimum quotation 
increment for Nasdaq securities at the outset of decimal pricing is 
$0.01. On June 9, 2005, the Commission adopted Rule 612 of 
Regulation NMS which establishes minimum pricing increments for NMS 
stocks (e.g., exchange-listed securities). Rule 612 of Regulation 
NMS generally prohibits market participants from displaying, 
ranking, or accepting quotations, orders, or indications of interest 
in any NMS stock priced in an increment smaller than $0.01 if the 
quotation, order, or indication of interest is priced equal to or 
greater than $1.00 per share. If the quotation, order, or indication 
of interest is priced less than $1.00 per share, the minimum pricing 
increment is $0.0001. See Securities Exchange Act Release No. 51808 
(June 9, 2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04). 
Rule 612 of Regulation NMS became effective on January 31, 2006. See 
Securities Exchange Act Release No. 52196 (August 2, 2005), 70 FR 
45529 (August 8, 2005) (File No. S7-10-04).
    Given the adoption and implementation of Rule 612 of Regulation 
NMS, Nasdaq, among other market centers, implemented changes to its 
trading systems to accept, rank, execute and disseminate priced 
quotations in accordance with Rule 612 of Regulation NMS. Quotations 
submitted to Nasdaq that are not in compliance with Rule 612 of 
Regulation NMS are rejected.

    For Nasdaq securities authorized for trading in decimals 
pursuant to the Decimals Implementation Plan For the Equities and 
Options Markets, the minimum amount of price improvement necessary 
in order for a member to execute an incoming order on a proprietary 
basis in a security trading in decimals when holding an unexecuted 
limit order in that same security, and not be required to execute 
the held limit order, is as follows:
    (1) For customer limit orders priced at or inside the best 
inside market displayed in Nasdaq, the minimum amount of price 
improvement required is $0.01; and
    (2) For customer limit orders priced outside the best inside 
market displayed in Nasdaq, the member must price improve the 
incoming order by executing the incoming order at a price at least 
equal to the next superior minimum quotation increment in Nasdaq 
(currently $0.01).

    Since approval, these standards continue to operate on a pilot 
basis that terminates on December 31, 2006.\8\ NASD has determined to 
seek an extension of its current Manning Rule pilot until June 30, 
2007. NASD believes that such an extension provides for an appropriate 
continuation of the current Manning Rule price improvement standards 
while the Commission continues to analyze the issues related to 
customer limit order protection in a decimalized environment. NASD is 
not proposing any other changes to the pilot at this time. NASD 
proposes to make the proposed rule change operative on January 1, 2007.
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    \8\ See Securities Exchange Act Release No. 53972 (June 12, 
2006), 71 FR 35315 (June 19, 2006) (SR-NASD-2006-069).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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 that the proposed rule change will 
improve treatment of customer limit orders and enhance the integrity of 
the market.
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    \9\ 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 by NASD.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) thereunder \11\ 
because the proposal 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.\12\ NASD has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change effective 
immediately. NASD intends for the rule to become operative on January 
1, 2007. The Commission hereby grants the request.\13\ The Commission 
believes that such waiver is consistent with the protection of 
investors and the public interest because it will allow the protection 
of customer limit orders provided by the pilot to continue without 
interruption.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ Rule 19b-4(f)(6)(iii) under the Act requires that a self-
regulatory organization submit to the Commission 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 filing of the proposed rule 
change, or such shorter time as designated by the Commission. NASD 
complied with the five day pre-filing requirement.
    \13\ For purposes only of accelerating the operative date of the 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. See 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.\14\
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    \14\ See 15 U.S.C. 78s(b)(3)(C).
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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-2006-134 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-2006-134. 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

[[Page 77431]]

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-2006-134 and should be 
submitted on or before January 16, 2007.

    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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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-22007 Filed 12-22-06; 8:45 am]

BILLING CODE 8011-01-P