Document ID: SEC-2006-0809-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-06-26T04:00Z

[Federal Register: June 26, 2006 (Volume 71, Number 122)]
[Notices]               
[Page 36369-36370]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn06-84]                         

[[Page 36369]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54015; File No. SR-NASD-2006-067]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Modify NASD Rule 7010(c)(2) To Allow NASD Members To 
Receive Transaction Credits for Automated Executions in Tape B 
Securities on an Estimated Monthly Basis

June 19, 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 May 30, 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 has filed 
the proposal as a ``non-controversial'' rule change 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.\5\ 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).
    \5\ Nasdaq asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify the methodology for distributing 
transaction credits under NASD Rule 7010(c)(2). Nasdaq will implement 
the proposed rule change with respect to invoices to be distributed on 
or about June 10, 2006. The text of the proposed rule change is 
available at NASD and at the Commission and at http://www.nasdaq.com/about/RuleFilings2006.stm
.

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 modify its current transaction credit program 
applicable to liquidity providers for automated executions in Tape B 
securities.\6\ Under the proposal, NASD members would be eligible to 
receive transaction credit payments on an estimated, monthly basis for 
quotes and orders posted by such members in Tape B securities that are 
executed by inbound marketable orders through ITS/CAES, Inet or Brut. 
Nasdaq is proposing the change as a competitive response to NYSE Arca, 
which instituted a similar estimated monthly credit program for Tape B 
securities last year.\7\
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    \6\ Tape B securities include securities that are listed for 
trading on the American Stock Exchange and certain other securities 
that are deemed to be eligible for such listing.
    \7\ Securities Exchange Act Release No. 51990 (August 15, 2005), 
70 FR 49351 (August 23, 2005) (SR-PCX-2005-16).
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    Currently, members that earn credits for such transactions receive 
them on a quarterly basis, after Nasdaq has received its share of 
market data revenue for Tape B from the Consolidated Tape Association 
(``CTA'') Plan. Under this proposal for estimated payments, members 
would be able to receive their share of credits, based on an estimate, 
on a monthly basis before the quarterly revenues from the CTA Plan are 
paid to Nasdaq. A member's estimated monthly amounts will be calculated 
by using the tape credit percentage specified in NASD Rule 7010(c)(2) 
(currently 50%) and applying such percentage to the estimated value of 
the member's trading activity. Nasdaq will, however, hold back a 
percentage of the estimated credit until Nasdaq receives payment for 
its share of market data revenue for the quarter, in order to ensure 
that it does not provide credits to market participants in excess of 
its actual obligations. The held-back percentages would be credited 
through a true-up calculation after Nasdaq receives its share of market 
data revenue for the quarter. Nasdaq expects the holdback percentage to 
be about 10%, but may vary it from month to month as needed to ensure 
that estimated payments do not exceed actual obligations. In accordance 
with Nasdaq's credit policies, all credits will be applied to 
outstanding balances due to Nasdaq from members before any direct 
payments are made.
    As an example, assume a firm is liquidity provider for 100,000 
trades during each month of a quarter. If Nasdaq estimates that each 
trade will generate $1.00 in market data revenue under the CTA Plan, 
the firm's estimate for each month of the quarter would be $50,000 
(100,000 x $1.00 x 0.50), from which Nasdaq would hold back $5,000 
($50,000 x 0.10). Therefore, the firm would be credited $45,000 each 
month. Assume that after the end of the quarter, the payments received 
from the plan amount to $0.95 per trade. At that time, Nasdaq would 
determine that the firm's actual credit for each month of the quarter 
was $47,500 (100,000 x $0.95 x 0.50) and Nasdaq would provide a true-up 
credit of $2,500 for each month (the actual of $47,500 less the 
estimated credit of $45,000) for a total quarterly true-up of $7,500.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\8\ in general, and with 
section 15A(b)(5) of the Act,\9\ in particular, in that it provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which the NASD operates or controls. The proposed rule change 
allows all NASD members eligible to receive transaction credits for 
providing liquidity to support executions in Tape B securities to 
receive credits on an estimated monthly basis.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 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 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.

[[Page 36370]]

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

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not 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, 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\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such 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.
    Nasdaq has asked that the Commission waive the 30-day operative 
delay contained in Rule 19b-4(f)(6)(iii) under the Act.\12\ The 
Commission believes such waiver is consistent with the protection of 
investors and the public interest, for it will allow Nasdaq to modify 
the methodology for distributing transaction credits under NASD Rule 
7010(c)(2) in such a way as to remain competitive within the 
marketplace. For these reasons, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\13\
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    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the 30-day operative delay of 
this proposal, 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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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 No. SR-NASD-2006-067 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2006-067. 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-2006-067 and should be submitted on or before July 17, 2006.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
[FR Doc. E6-9983 Filed 6-23-06; 8:45 am]

BILLING CODE 8010-01-P