Document ID: SEC-2006-0556-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-04-28T04:00Z

[Federal Register: April 28, 2006 (Volume 71, Number 82)]
[Notices]               
[Page 25271-25273]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap06-121]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53699; File No. SR-NASD-2006-050]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Extend Operation of NASD's Alternative Display Facility 
as a Temporary Pilot

April 21, 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 April 18, 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 prepared by NASD. NASD has filed the 
proposed rule change 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 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 for nine months, to January 26, 2007, 
the operation of NASD's Alternative Display Facility (``ADF'') on a 
pilot basis. The ADF pilot program, as approved by the Commission on 
July 24, 2002, and extended on April 7, 2003, January 26, 2004, October 
21, 2004, and July 20, 2005, will expire on April 26, 2006. The pilot 
permits members to quote and trade only Nasdaq-listed securities on or 
through the ADF. Below is the text of the proposed rule change. 
Proposed new language is in italics; proposed deletions are in 
[brackets].
* * * * *
4000A. NASD Alternative Display Facility
4100A. General
    NASD Alternative Display Facility (``ADF'') is the facility to be 
operated by NASD on a nine-month pilot basis for members that choose to 
quote or effect trades in Nasdaq securities (``ADF-eligible 
securities'') otherwise than on Nasdaq or on an exchange. The ADF will 
collect and disseminate quotations, compare trades, and collect and 
disseminate trade reports. Those NASD members that utilize ADF systems 
for quotation or trading activities must comply with the Rule 4000A, 
Rule 5400 and Rule 6000A Series, as well as all other applicable NASD 
Rules. The ADF pilot will expire on [April 26, 2006] January 26, 2007.
* * * * *

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
    On July 24, 2002, the Commission approved SR-NASD-2002-97,\5\ which 
authorizes NASD to operate the ADF on a pilot basis for nine months. 
NASD subsequently filed for immediate effectiveness proposed rule 
changes SR-NASD-2003-067 to extend the pilot until January 26, 2004; 
\6\ SR-NASD-2004-012 to extend the pilot until October 26, 2004; \7\ 
SR-NASD-2004-160 to extend the pilot until July 26, 2005; \8\ and SR-
NASD-2005-092 to extend the pilot until April 26, 2006.\9\ As described 
in detail in SR-NASD-2001-90, the ADF is a quotation collection, trade 
comparison, and trade reporting facility developed by NASD in 
accordance with the Commission's SuperMontage Approval Order \10\ and 
in conjunction with Nasdaq's anticipated registration as a national 
securities exchange.\11\ In addition, since the Commission gave its 
initial approval to the ADF pilot, NASD has filed several other ADF-
related rule change proposals that have been incorporated into the 
operation and administration of the pilot.\12\
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    \5\ Securities Exchange Act Release No. 46249 (July 24, 2002), 
67 FR 49822 (July 31, 2002).
    \6\ Securities Exchange Act Release No. 47633 (April 10, 2003), 
68 FR 19043 (April 17, 2003).
    \7\ Securities Exchange Act Release No. 49131 (January 27, 
2004), 69 FR 5229 (February 3, 2004).
    \8\ Securities Exchange Act Release No. 50601 (October 28, 
2004), 69 FR 64611 (November 5, 2004).
    \9\ Securities Exchange Act Release No. 52122 (July 25, 2005), 
70 FR 44133 (August 1, 2005).
    \10\ Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001).
    \11\ Securities Exchange Act Release No. 44396 (June 7, 2001), 
66 FR 31952 (June 13, 2001).
    \12\ On January 30, 2003, NASD filed proposed rule change SR-
NASD-2003-009 to revise the transaction and quotation-related fees 
applicable to ADF activity during the pilot program. The rule change 
proposal became effective upon filing, with an implementation date 
of February 17, 2003. On January 6, 2004, the Commission granted 
accelerated approval to SR-NASD-2003-145, a proposal to amend the 
ADF pilot rules to give jurisdiction to a three-member subcommittee 
of NASD's Market Regulation Committee to review system outage 
determinations under NASD Rule 4300A(f) and excused withdrawal 
denials under NASD Rule 4619A. The rule change proposal became 
effective contemporaneous with the Commission's approval. On 
December 4, 2003, NASD filed for immediate effectiveness a proposed 
rule change to amend Rule 4613A(c) to clarify that NASD may suspend 
quotations in the ADF displayed by any market participant, including 
an ECN, that are no longer reasonably related to the prevailing 
market.
    Additionally, NASD filed with the Commission three other rule 
change proposals. On March 12, 2004, the Commission approved SR-
NASD-2003-175, a proposal to repeal Rule 4613A(e)(1), which required 
members that display priced quotations for a Nasdaq security in two 
or more market centers to display the same priced quotations for 
that security in each market center. On August 18, 2004, the 
Commission approved SR-NASD-2004-002, a proposed rule change to 
amend NASD Rule 4300A to require an ADF Market Participant to 
provide advance written notice to NASD's ADF Market Operations 
before denying electronic access to its ADF quote to any NASD member 
in the limited circumstances where a broker-dealer fails to pay 
contractually obligated costs for access to the Market Participant's 
quotations. On March 10, 2005, the Commission approved SR-NASD-2004-
159, a proposed rule change to establish Rule 4400A, which gives 
NASD authority to receive and review complaints against ADF Market 
Participants that allege denial of direct or indirect access 
pursuant to NASD Rule 4300A.

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[[Page 25272]]

    The ADF ultimately should provide market participants the ability 
to quote and trade Nasdaq and exchange-listed securities. The current 
ADF pilot program, however, permits operation of the ADF with respect 
to Nasdaq securities only. This is because several regulatory issues 
relating to the trading of exchange-listed securities on the ADF have 
not been resolved.
    The ADF has been operating successfully during the pilot period. In 
the SuperMontage approval order, the Commission stated that the ADF met 
the conditions set forth in that order to provide an alternative 
quotation collection, trade comparison, and trade reporting facility. 
NASD believes that ADF has since continued to honor those conditions. 
Meanwhile, certain issues related to trading exchange-listed 
securities--and by extension, approval of the operation of ADF on a 
permanent basis--remain unresolved. Accordingly, NASD believes it is 
appropriate to extend the pilot period for ADF trading in Nasdaq 
securities for the shorter of nine months or until approval of the ADF 
on a permanent basis.
    The proposed rule change will become effective upon filing, will be 
implemented at the close of business on April 26, 2006, and will expire 
on January 26, 2007.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\13\ 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, to foster cooperation and coordination among 
persons engaged in regulating, clearing, settling, processing 
information and facilitating transactions in securities, 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. In addition, NASD believes that the proposed rule 
change is consistent with Section 15A(b)(6) of the Act because it does 
not permit unfair discrimination between customers, issuers, brokers, 
or dealers, fix minimum profits, impose any schedule or fix rates of 
commissions, allowances, discounts, or other fees to be charged by 
members, or regulate matters not related to the purposes of the Act or 
the administration of NASD.
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    \13\ 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 forgoing rule change does not: (1) Significantly affect 
the protection of investors or the public interest; (2) impose any 
significant burden on competition; and (3) become operative for 30 days 
after the date of this filing, or such shorter time as the Commission 
may designate, it has become effective pursuant to Section 19(b)(3)(A) 
of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under 19b-4(f)(6) normally may not 
become operative prior to 30 days after the date of filing.\16\ 
However, Rule 19b-4(f)(6)(iii) \17\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest.\18\ NASD has requested that the 
Commission waive the 30-day pre-operative delay, and the Commission 
hereby grants that request.\19\ The Commission believes that waiving 
the 30-day pre-operative delay is consistent with the protection of 
investors and in the public interest. This action will prevent the 
benefits provided by the current ADF pilot program from lapsing.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ Id.
    \18\ In addition, Rule 19b-4(f)(6)(iii) 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. The 
Commission has decided to waive the five-day pre-filing notice 
requirement.
    \19\ For the purposes only of waiving the 30-day pre-operative 
delay, 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 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 No. SR-NASD-2006-050 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 No. SR-NASD-2006-050. 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 NASD. All comments received will be posted

[[Page 25273]]

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 No. SR-NASD-2006-050 and should be submitted on or before May 19, 
2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-6375 Filed 4-27-06; 8:45 am]

BILLING CODE 8010-01-P