Document ID: SEC-2006-0170-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-02-10T05:00Z

[Federal Register: February 10, 2006 (Volume 71, Number 28)]
[Notices]               
[Page 7100-7101]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe06-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53233; File No. SR-NASD-2006-019]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Establish Uniform Order Warning and Rejection Parameters 
for the Nasdaq Market Center

February 6, 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 February 3, 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 substantially prepared by Nasdaq. 
Nasdaq filed the proposed rule change as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) under the Act,\3\ which rendered the 
proposal 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\ 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

    Nasdaq proposes to establish uniform order warning and rejection 
parameters for the Nasdaq Market Center. Nasdaq would like to implement 
the proposed rule change on February 6, 2006. The text of the proposed 
rule change is available on the NASD's Web site, http://www.nasd.com, 

at the NASD's Office of the Secretary, and at the Commission's Public 
Reference Room.

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 is proposing the establishment of uniform warning and 
rejection parameters for orders that, at the time of entry, cross the 
best bid/offer in the Nasdaq Market Center. Under the proposal, the 
Nasdaq Market Center would provide a warning message \4\ to market 
participants that enter an order that is 10% or more away from the 
Nasdaq inside, while orders that at the time of entry are 20% or more 
away from the inside would be rejected by the system. For orders priced 
less than $1.00, Nasdaq is proposing to implement specific penny-based 
warning and rejection parameters of $0.10 and $0.20 respectively. 
Market orders would not be subject to any price validation, and these 
warning and rejection parameters would apply regardless of the method 
used by the participant to enter the quote/order into the Nasdaq Market 
Center (e.g., FIX, QIX, CTCI or the New Nasdaq Workstation). These 
warning/rejection parameters are summarized below:
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    \4\ This warning message may be overridden by the entering 
party, in which case the order will be allowed entry into the system 
and processed in the normal course.

------------------------------------------------------------------------
                                        Warning             Reject
              Price                  (percentage/        (percentage/
                                        amount)             amount)
------------------------------------------------------------------------
Less than $1....................  $.10..............  $.20
$1-$999,999.....................  10%...............  20%
------------------------------------------------------------------------

    The warning and rejection parameters proposed here will be in 
effect from 8 a.m. through 4 p.m. eastern time and key off the best 
bid/offer prices within the Nasdaq Market Center at the time of order-
entry. Orders entered for participation in Nasdaq's opening and closing 
cross processes will not be subject to the proposed warning and 
rejection parameters.
    Nasdaq is establishing these parameters in an attempt to mitigate 
the negative market-wide impacts resulting from the entry of mis-priced 
orders, especially in cases of large system malfunctions resulting in 
the submission of numerous mis-priced orders into the public market in 
a very short time span. Nasdaq believes that its proposal continues to 
allow vigorous price discovery near the inside market while protecting 
the integrity of the market from distortions created by the submission 
of abnormally priced orders.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A of the Act,\5\ in general, and Section 15A(b)(6) \6\ of the 
Act, in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
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    \5\ 15 U.S.C. 78o-3.
    \6\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will impose 
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

    Nasdaq has neither solicited nor received written comments on the 
proposed rule change.

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

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) by its terms, 
does not become operative for 30 days after the date of filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of

[[Page 7101]]

investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\8\
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 30-day operative 
delay period for ``non-controversial'' proposals and make the proposed 
rule change effective and operative upon filing. The Commission 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest, because the 
proposed rule change is intended to protect the integrity of the Nasdaq 
market by reducing the incidence of the submission of grossly mis-
priced orders into the market. For this reason, the Commission 
designates the proposal to be effective and operative upon filing with 
the Commission.\9\
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    \9\ For the purposes only of accelerating the operative date 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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    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 the 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 
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-2006-019 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-2006-019. 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 the 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-2006-019 and should be submitted on or before March 
3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Nancy M. Morris,
Secretary.
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    \10\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-1830 Filed 2-9-06; 8:45 am]

BILLING CODE 8010-01-P