Document ID: SEC-2006-0147-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Stock Exchange
Posted Date: 2006-02-07T05:00Z

[Federal Register: February 7, 2006 (Volume 71, Number 25)]
[Notices]               
[Page 6304-6305]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe06-68]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53195; File No. SR-NSX-2006-02]

 
Self-Regulatory Organizations; National Stock Exchange; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Exchange Rule 11.3 To Allow for Sub-Penny Quoting in Certain Securities

January 30, 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 January 30, 2006, the National Stock Exchange \SM\ (``NSX'' or the 
``Exchange'') 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 the Exchange. The Exchange 
has filed this proposal 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. 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 the 
Substance of the Proposed Rule Change

    The Exchange is proposing to amend Exchange Rule 11.3 to allow for 
sub-penny quoting in securities that are listed on the Nasdaq Stock 
Market where such quotes are priced less than $1.00 per share, and in 
any other security approved by the Commission for sub-penny quoting. 
Exchange Rule 11.3 currently prohibits, and will continue to prohibit, 
sub-penny quoting in securities whose quotes are at $1.00 or more per 
share, except to the extent otherwise approved by the Commission. The 
text of the proposed rule change is below. Proposed new language is 
italicized. Proposed deletions are indicated in [brackets].\5\
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    \5\ Certain technical changes to the rule text have been made 
pursuant to a telephone conversation between James C. Yong, Chief 
Regulatory Officer, NSX and Sara Gillis, Attorney, Division of 
Market Regulation, Commission on January 30, 2006.
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RULES OF NATIONAL STOCK EXCHANGE
* * * * *
CHAPTER XI
Trading Rules
* * * * *
Rule 11.3 Price Variations
    Bids, [or] offers, orders or indications of interests in [stocks] 
securities traded on the Exchange shall not be made [at a] in an 
increment smaller [variation] than:
    (i) $0.01 [per share; and in bonds at a smaller variation than \1/
8\ of 1% of the principal amount.] if those bids, offers or indications 
of interests are priced equal to or greater than $1.00 per share; or
    (ii) $0.0001 if those bids, offers or indications of interests are 
priced less than $1.00 per share and the security is listed on the 
Nasdaq Stock Market and is trading on the Exchange; or
    (iii) Any other increment established by the Commission for any 
security which has been granted an exemption from the minimum price 
increments requirements of SEC Rule 612(a) or 612(b).
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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. The Exchange 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
    Exchange Rule 11.3 currently provides that bids or offers in stocks 
traded on the Exchange shall not be made at a smaller variation than 
$0.01 per share. Rule 612 of Regulation NMS under the Act provides, in 
relevant part, that no national securities exchange shall ``display, 
rank, or accept from any person a bid or offer, an order, or an 
indication of interest in any NMS stock priced in an increment smaller 
than $0.01 if that bid or offer, order, or indication of interest is 
priced equal to or greater than $1.00 per share.'' \6\ Rule 612 also 
prohibits national securities exchanges from displaying, ranking or 
accepting bids, offers, orders, or indications of interest priced in 
increments smaller than $0.0001 if the bid, offer, order, or indication 
of interest is priced less than $1.00 per share.\7\ Finally, Rule 
612(c) of Regulation NMS provides that the Commission may grant 
exemptions from the minimum price increment requirements of Rule 612(a) 
and 612(b) ``if the Commission determines that such exemption is 
necessary or appropriate in the public interest, and is consistent with 
the protection of investors.'' \8\ The compliance date for Rule 612 is 
January 31, 2006 (the ``Compliance Date'').\9\
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    \6\ 17 CFR 242.612(a).
    \7\ 17 CFR 242.612(b).
    \8\ 17 CFR 242.612(c).
    \9\ See Securities Exchange Act Release No. 52196 (Aug. 2, 
2005), 70 FR 45529 (Aug. 8, 2005).
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    The Exchange is now proposing to prohibit the submission of bids, 
offers, orders, or indications of interest priced in increments smaller 
than (i) $0.0001 if the bid, offer, order, or indication of interest is 
priced less than $1.00 per share on securities that are listed in the 
Nasdaq Stock Market and traded on the Exchange, or (ii) the minimum 
price increment established by the Commission for any security that has 
been granted an exemption from the minimum price increment requirement 
of Rule 612(a) or 612(b) of Regulation NMS. Exchange Rule 11.3 
currently prohibits, and will continue to prohibit, sub-penny orders 
and quotes priced at $1.00 or more per share, except to the extent 
otherwise approved by the Commission, and will maintain a minimum 
increment of $0.01 for any security traded on the Exchange and listed 
by the New York Stock Exchange or American Stock Exchange.

[[Page 6305]]

    In connection with these revisions to Exchange Rule 11.3, the 
Exchange is also removing the language in Exchange Rule 11.3 relating 
to minimum price variations in bonds. The Exchange does not trade bonds 
and has not traded bonds for several years.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6(b) of the Act,\10\ in general, and 
Section 6(b)(5) of the Act,\11\ in particular, in that it is designed 
to promote just and equitable principles of trade and to remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system and, generally, in that it protects 
investors and the public interest. The Exchange also believes that the 
proposal is consistent with the quoting restrictions of Rule 612 of 
Regulation NMS.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange 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) does not become 
operative for 30 days after the date of the filing, 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 \12\ and 
Rule 19b-4(f)(6) thereunder.\13\ The Exchange has asked the Commission 
to waive the 30-day operative delay and allow the proposed rule change 
to become operative on January 31, 2006, the compliance date for Rule 
612. The Commission hereby grants that request.\14\ The Commission 
believes that waiving the operative delay is consistent with the 
protection of investors and the public interest. The Commission 
previously has considered whether, for NMS stocks, quoting below $1.00 
in sub-penny increments should be permitted. The Commission determined 
that it should and codified that view in Rule 612(b) of Regulation 
NMS.\15\ The Exchange's proposal to permit its members to make bids or 
offers--in NMS stocks that are listed on Nasdaq--priced below $1.00 in 
increments as small as $0.0001 is consistent with Rule 612(b) and 
raises no new regulatory issues.
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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. 
The Commission has determined to waive this requirement.
    \14\ 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. See 15 U.S.C. 
78c(f).
    \15\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37555 (June 29, 2005).
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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 
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-NSX-2006-02 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-NSX-2006-02. 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 will also be available for inspection and copying at the 
principal office of the Exchange. 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-NSX-2006-02 and should be submitted on or before 
February 28, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-1615 Filed 2-6-06; 8:45 am]

BILLING CODE 8010-01-P