Document ID: SEC-2005-0463-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-12-29T05:00Z

[Federal Register: December 29, 2005 (Volume 70, Number 249)]
[Notices]               
[Page 77223-77225]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de05-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52998; File No. SR-NASD-2005-139]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Amend NASD Rule 2111 to Eliminate References to NASD 
Rule 6440(f)(2), Which Will Be Repealed

December 22, 2005.
    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 1, 2005, 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, II 
and III below, which Items have been prepared by the NASD. The NASD 
filed the proposal as a ``non-controversial'' proposed rule change 
pursuant to Section 19(b)(3)(A) of the

[[Page 77224]]

Act\3\ and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission.\5\ The NASD proposes to 
implement the proposed rule change on January 9, 2006. 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\ As required by Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-
4(f)(6)(iii), the NASD submitted 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD proposes to amend NASD Rule 2111 to delete two references 
to NASD Rule 6440(f)(2) in light of SR-NASD-2004-045,\6\ which repealed 
that rule and will be implemented January 9, 2006. Correspondingly, the 
NASD will implement the instant proposed rule change on January 9, 
2006. The text of the proposed rule change is below. Proposed deletions 
are in [brackets].
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    \6\ See Securities Exchange Act Release No. 52226 (August 9, 
2005), 70 FR 48219 (August 16, 2005) (SR-NASD-2004-045).
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2111. Trading Ahead of Customer Market Orders

    This version of the rule does not become effective until January 9, 
2006.
    (a)-(d) No change.
    (e) This rule applies to limit orders that are marketable at the 
time they are received by the member or become marketable at a later 
time. Such limit orders shall be treated as market orders for purposes 
of this rule, however, these orders must continue to be executed at 
their limit price or better. If a customer limit order is not 
marketable when received, the limit order must be provided the full 
protections of IM-2110-2 [ or Rule 6440(f)(2), as applicable]. In 
addition, if the limit order was marketable when received and then 
becomes non-marketable, once the limit order becomes non-marketable, it 
must be provided the full protections of IM-2110-2 [or Rule 6440(f)(2), 
as applicable].
    (f)-(g) No change.
* * * * *

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 NASD included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The 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 August 9, 2005, the Commission approved proposed rule change SR-
NASD-2004-045 adopting NASD Rule 2111 (``Trading Ahead of Customer 
Market Orders''), which will be implemented on January 9, 2006. NASD 
Rule 2111 prohibits a member from trading for its own account at prices 
that would satisfy a customer market order in a Nasdaq or exchange-
listed security, unless the member immediately thereafter executes the 
customer market order. In addition, NASD Rule 2111 provides that if a 
customer limit order is not marketable when received, or if the limit 
order is marketable when received and then becomes non-marketable, the 
limit order must be provided the full protections of IM-2110-2 (the 
``Manning Rule'') or Rule 6440(f)(2), as applicable.\7\
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    \7\ At the time that the NASD filed SR-NASD-2004-045 in March of 
2004, the Manning Rule afforded limit order protection to Nasdaq 
securities and NASD Rule 6440(f)(2) afforded a similar protection to 
exchange-listed securities. In August of 2005, the Commission 
approved SR-NASD-2004-089, which extended the Manning Rule to 
exchange-listed securities. See Securities Exchange Act Release No. 
52210 (August 4, 2005), 70 FR 46897 (August 11, 2005) (SR-NASD-2004-
089).
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    On October 24, 2005, the NASD filed SR-NASD-2005-124 seeking to 
repeal NASD Rule 6440(f) because it overlaps and is generally 
duplicative of new NASD Rule 2111 and the Manning Rule, as amended.\8\ 
SR-NASD-2005-124 was filed for immediate effectiveness and the 
implementation date is January 9, 2006. In light of the repeal of NASD 
Rule 6440(f), the references to NASD Rule 6440(f)(2) in NASD Rule 2111 
should be deleted.
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    \8\ NASD Rule 6440(f) generally prohibits a member from buying 
(selling) an exchange-listed security for its own account while such 
member holds an unexecuted market order or unexecuted limit order to 
buy (sell) such security for a customer.
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2. Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act, which requires, among 
other things, that NASD rules 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. The NASD believes that the proposed rule change will 
further the goals of improving the treatment of market orders and 
enhancing the integrity of the market by bringing consistency and 
clarity to its conduct rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The NASD believes that the proposed rule change will not impose 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

    The NASD has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing proposed rule change 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, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\9\ and Rule 19b-4(f)(6) thereunder.\10\ 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.\11\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 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

[[Page 77225]]

     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASD-2005-139 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and NASD Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-139. 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-2005-139 
and should be submitted on or before January 19, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-8064 Filed 12-28-05; 8:45 am]

BILLING CODE 8010-01-P