Document ID: SEC-2006-1006-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2006-08-07T04:00Z

[Federal Register: August 7, 2006 (Volume 71, Number 151)]
[Notices]               
[Page 44734-44738]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au06-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54253; File No. SR-NASDAQ-2006-018]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Regarding Technical and Conforming Changes to Nasdaq's 2000 and 3000 
Series Rules

 July 31, 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 July 25, 2006, The NASDAQ Stock Market LLC (``Exchange'' or 
``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 
this proposed rule change as a ``non-controversial'' rule change 
pursuant to Section 19(b)(3)(A)(iii) 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)(iii).
    \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

    Nasdaq proposes to conform the Rule 2000 and 3000 Series of 
Nasdaq's rules to certain changes made to the Rule 2000 and 3000 Series 
of the rules of National Association of Securities Dealers, Inc. 
(``NASD'') since approval of Nasdaq's rules by the Commission in 
January 2006, to make several minor modifications, and to correct 
certain typographical errors in the approved rules. Nasdaq proposes to 
implement the proposed rule change immediately.
    The text of the proposed rule change is included below. Proposed 
new

[[Page 44735]]

language is italicized; deletions are [bracketed].
* * * * *
2111. Trading Ahead of Customer Market Orders
    (a) Nasdaq members and persons associated with a member shall 
comply with NASD Rule 2111 as if such Rule were part of Nasdaq's rules.
    (b) For purposes of this Rule, references to IM-2110-2, Rule 2320, 
and Rule 3110[, and Rule 6440] shall be construed as references to 
Nasdaq IM-2110-2, Nasdaq Rule 2320, and Nasdaq Rule 3110[, and Nasdaq 
Rule 6440].
    (c) Nasdaq members and persons associated with a member relying 
upon the exemption set forth in NASD Rule 2111(f) shall comply with the 
provisions of the NASD Rule 4600 Series and 6400 Series cited therein 
as if such Rules were part of Nasdaq's Rules. Nasdaq and NASD 
Regulation, an affiliate of NASD, are parties to the Regulatory 
Contract pursuant to which NASD Regulation has agreed to perform 
certain functions on behalf of Nasdaq. Therefore, Nasdaq members are 
complying with Nasdaq Rule 2111(f) by complying with NASD Rule 2111(f) 
as written, including, for example, filing requirements and 
notifications. In addition, functions performed by NASD Regulation, 
NASD Regulation departments, and NASD Regulation staff under Nasdaq 
Rule 2111(f) are being performed by NASD Regulation on behalf of 
Nasdaq.
* * * * *
    2520. Margin Requirements
    (a) No change.
    (b) A member designated to Nasdaq for oversight pursuant to SEC 
Rule 17d-1 shall comply with the initial and maintenance margin 
requirements of Regulation T and the NASD Rule 2520 as if such Rules 
were part of Nasdaq's Rules.
    (c) No change.
    [(c)](d) Pursuant to the Rule 9600 Series, Nasdaq may exempt any 
member from the requirements contained in paragraph (e)(3) of NASD Rule 
2520, as applied to Nasdaq members through Nasdaq Rule 2520, if the 
account referenced in paragraph (e)(3) of NASD Rule 2520 is confined 
exclusively to transactions and positions in exempted securities.
* * * * *
2810. Direct Participation Programs
    (a) No change.
    (b) For purposes of this Rule 2810:
    (1)--(2) No change.
    (3) for purposes of this Rule only, Nasdaq members and their 
associated persons shall comply with applicable provisions of NASD Rule 
2710 as [of]if such Rule were part of Nasdaq's Rules.
    (c) No change.
* * * * *
    2852. Reporting Requirements
    (a) Each member shall file with Nasdaq Regulation a report with 
respect to each account in which the member has an interest, each 
account of a partner, officer, director or employee of such member, and 
each customer account of the member, which has established an aggregate 
position of 100,000 index warrants on the same side of the market in an 
index warrant issue listed on Nasdaq, combining such index warrant 
position with positions in index warrants overlying the same index on 
the same side of the market traded on Nasdaq or another national 
securities exchange.
    (b) Such report shall identify the person or persons having an 
interest in such account and shall identify separately the total number 
of each type of index warrant that comprises the reportable position in 
such account. The report shall be in such form as may be prescribed by 
Nasdaq Regulation and shall be filed no later than the close of 
business on the next business day following the day on which the 
transaction or transactions necessitating the filing of such report 
occurred. Whenever a report shall be required to be filed with respect 
to an account pursuant to this Rule, the member filing such report 
shall file with Nasdaq Regulation such additional periodic reports with 
respect to such account as Nasdaq Regulation may from time to time 
prescribe.
    2853. Liquidation of Index Warrant Positions
    (a) Whenever Nasdaq Regulation determines that a person or group of 
persons acting in concert holds or controls an aggregate position 
(whether short or long) in index warrants overlying the same index in 
excess of the position limitations established by Rule 2850, it may, 
when deemed necessary or appropriate in the public interest and for the 
protection of investors, direct any member or all members carrying a 
position in index warrants overlying such index for such person or 
persons to liquidate such position or positions, or portions thereof, 
as expeditiously as possible and consistent with the maintenance of an 
orderly market, so as to bring such person or persons into compliance 
with the position limitations contained in Rule 2850.
    (b) Whenever such a directive is issued by Nasdaq Regulation no 
member receiving notice thereof shall accept and/or execute for any 
person or persons named in such directive any order to purchase or sell 
short any index warrants based on the same index, unless in each 
instance express approval therefor is given by Nasdaq Regulation, or 
the directive is rescinded.
    2854. [Trading Halts or Suspensions] Reserved
    [(a) The trading in an index warrant on Nasdaq shall be halted 
whenever Nasdaq Regulation shall conclude that such action is 
appropriate in the interests of a fair and orderly market and to 
protect investors. Among the factors that may be considered are the 
following:]
    [(1) trading has been halted or suspended in underlying stocks 
whose weighted value represents 20% or more of the index value;]
    [(2) the current calculation of the index derived from the current 
market prices of the stocks is not available;]
    [(3) other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.]
    [(b) Trading in index warrants that has been the subject of a 
trading halt or suspension may resume if Nasdaq Regulation determines 
that the conditions which led to the halt or suspension are no longer 
present or that the interests of a fair and orderly market are served 
by a resumption of trading. In either event, the reopening may not 
occur until Nasdaq Regulation has determined that trading in underlying 
stocks whose weighted value represents more than 50% of the index is 
occurring.]
* * * * *

IM-3010-1. Standards for Reasonable Review

    (a) Nasdaq members and persons associated with a member shall 
comply with NASD Interpretive Material IM-3010-1 as if such Rule were 
part of Nasdaq's Rules.
    (b) For purposes of this Rule:
    (1) references to Rule 3010 shall be construed as references to 
Nasdaq Rule 3010; and
    (2) references to ``NASD Rules'' shall be construed as references 
to ``Nasdaq Rules''.

IM-3010-2. Guidance on Heightened Supervision Requirements

    Nasdaq members shall comply with NASD Notice to Members 97-19 as if 
such Rule were part of Nasdaq's Rules.
* * * * *

IM-3011-1. Independent Testing Requirements

    Nasdaq members and persons associated with a member shall comply

[[Page 44736]]

with NASD Interpretive Material IM-3011-1 as if such Rule were part of 
Nasdaq's Rules. For purposes of this Rule, references to Rule 3011 
shall be construed as references to Nasdaq Rule 3011.

IM-3011-2. Review of Anti-Money Laundering Compliance Person 
Information

    Nasdaq members and persons associated with a member shall comply 
with NASD Interpretive Material IM-3011-2 as if such Rule were part of 
Nasdaq's Rules. For purposes of this Rule, references to Rule 3011 
shall be construed as references to Nasdaq Rule 3011.
3012. Supervisory Control System
    (a) Members and persons associated with a member shall comply with 
NASD Rule 3012 as if such Rule were part of Nasdaq's rules. Nasdaq and 
NASD Regulation, an affiliate of NASD, are parties to the Regulatory 
Contract pursuant to which NASD Regulation has agreed to perform 
certain functions on behalf of Nasdaq. Therefore, Nasdaq members are 
complying with Nasdaq Rule 3012 by complying with NASD Rule 3012 as 
written, including, for example, filing requirements and notifications. 
In addition, functions performed by NASD Regulation, NASD Regulation 
departments, and NASD Regulation staff under Nasdaq Rule 3012 are being 
performed by NASD Regulation on behalf of Nasdaq.
    (b) No change.
* * * * *
3080. Disclosure to Associated Persons When Signing Form U[-]4
    Nasdaq Members shall comply with NASD Rule 3080 as if such Rule 
were part of Nasdaq's Rules. In lieu of incorporating in the written 
statement the language in paragraph (2) of NASD Rule 3080, members 
shall include the following provision:

A claim alleging employment discrimination, including a sexual 
harassment claim, in violation of a statute is not required to be 
arbitrated under Nasdaq rules. Such a claim may be arbitrated under 
Nasdaq rules only if the parties have agreed to arbitrate it, either 
before or after the dispute arose. The rules of other arbitration 
forums may be different.

* * * * *
3110. Books and Records
    (a)-(e) No change.
    (f) Requirements When Using Predispute Arbitration Agreements With 
Customers
    (1)-(2) No change.
    (3)(A) A member shall provide a customer with a copy of any 
predispute arbitration clause or customer agreement executed between 
the customer and the member, or inform the customer that the member 
does not have a copy thereof, within ten business days of receipt of 
the customer's request. If a customer requests such a copy before the 
member has provided the customer with a copy pursuant to subparagraph 
(2)(B) of this [Rule]paragraph, the member must provide a copy to the 
customer by the earlier date required by this subparagraph (3)(A) or by 
subparagraph (2)(B).
    (B) No change.
    (4)-(7) No change.
    (g)-(j) No change.
* * * * *
3130. Regulation of Activities of Members Experiencing Financial and/or 
Operational Difficulties
    (a) A member designated to Nasdaq for oversight pursuant to SEC 
Rule 17d-1 shall comply with NASD Rule 3130 (except NASD Rule 3130(a)) 
as if such Rule were part of Nasdaq's Rules.
    (b) No change.

IM-3130. Restrictions on a Member's Activity

    (a) A member designated to Nasdaq for oversight pursuant to SEC 
Rule 17d-1 shall comply with NASD Interpretive Material 3130 (except 
IM-3130(d)) as if such Rule were part of Nasdaq's Rules.
    (b) No change.
* * * * *
3360. Short-Interest Reporting
    (a) To the extent such information is not otherwise reported to the 
NASD in conformance with NASD Rule 3360, each member shall maintain a 
record of total ``short'' positions in all customer and proprietary 
firm accounts in securities listed on Nasdaq and shall regularly report 
such information to Nasdaq in such a manner as may be prescribed by 
Nasdaq. [For the purposes of this rule, the term ``customer'' includes 
a broker/dealer.] Reports shall be made as of the close of the 
settlement date designated by Nasdaq. Reports shall be received by 
Nasdaq no later than the second business day after the reporting 
settlement date designated by Nasdaq.
    (b) For purposes of this Rule[,]:
    (1) ``short'' positions to be reported are those resulting from 
``short sales'' as that term is defined in SEC Rule 200[, under the 
Act]of Regulation SHO, with the exception of positions that meet the 
requirements of Subsections (e)(1), (6), (7), (8), and (10) of SEC Rule 
10a-1 adopted under the Act[.]; and
    (2) the term ``customer'' includes a broker-dealer.
* * * * *

3380. Order Entry and Execution Practices

    No member or associated person may engage in conduct that has the 
intent or effect of splitting any order into multiple smaller orders 
for execution or any execution into multiple smaller executions for 
transaction reporting for the primary purpose of maximizing a monetary 
or in-kind amount to be received by the member or associated person as 
a result of the execution of such orders or the transaction reporting 
of such executions. For purposes of this rule, ``monetary or in-kind 
amount'' shall be defined to include, but not be limited to, any 
credits, commissions, gratuities, payments for or rebates of fees, or 
any other payments of value to the member or associated person.
338[0]1. SEC Rule 19c-1--Governing Certain Off-Board Agency 
Transactions by Members of National Securities Exchanges
    No rule, stated policy, or practice of this exchange shall prohibit 
or condition, or be construed to prohibit or condition or otherwise 
limit, directly or indirectly, the ability of any member acting as 
agent to effect any transaction otherwise than on this exchange with 
another person (except when such member also is acting as agent for 
such other person in such transaction), in any equity security listed 
on this exchange or to which unlisted trading privileges on this 
exchange have been extended.
* * * * *

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 modifying its 2000 and 3000 Series Rules, which are based 
to a substantial extent on comparable NASD

[[Page 44737]]

Rules, to conform them to certain changes made to the Rule 2000 and 
3000 Series of the rules of NASD since approval of Nasdaq's rules by 
the Commission in January 2006, to make several minor modifications, 
and to correct certain typographical errors in the approved rules. 
Specifically, Nasdaq is:
     Amending Nasdaq Rule 2111, which incorporates NASD Rule 
2111 by reference, to reflect certain changes to the underlying text of 
that rule made by SR-NASD-2005-139.\5\
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    \5\ See Securities Exchange Act Release No. 52998 (December 22, 
2005), 70 FR 77223 (December 29, 2005) (SR-NASD-2005-139).
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     Amending Nasdaq Rules 2852 and 2853 at the request of SEC 
staff to reflect that certain functions identified therein will be 
performed by Nasdaq Regulation staff.
     Deleting Nasdaq Rule 2854, governing trading halts and 
suspension of index warrants, so that it may be transferred to Nasdaq 
Rule 4120, which contains Nasdaq's other rules concerning trading halts 
and suspensions. The change to Nasdaq Rule 4120 will be made by a 
corresponding filing concerning technical amendments to the Nasdaq 4000 
Series rules that Nasdaq will submit on or prior to August 1, 2006 on 
an immediately effective basis.
     Incorporating by reference NASD IM-3013-1, which was added 
to the NASD Rules by SR-NASD-2003-104,\6\ and making a conforming 
change to the numbering of current Nasdaq IM-3010.
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    \6\ See Securities Exchange Act Release No. 52403 (September 9, 
2005), 70 FR 54782 (September 16, 2005) (SR-NASD-2003-104).
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     Incorporating by reference NASD IM-3011-1 and IM-3011-2, 
which were added to the NASD Rules by SR-NASD-2005-066.\7\
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    \7\ See Securities Exchange Act Release No. 53030 (December 28, 
2005), 71 FR 632 (January 5, 2006) (SR-NASD-2005-066).
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     Amending Nasdaq Rule 3012, which incorporates NASD Rule 
3012 by reference, to include language that reflects a filing 
requirement added to the NASD Rule by SR-NASD-2005-084.\8\
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    \8\ See Securities Exchange Act Release No. 52799 (November 18, 
2005), 70 FR 71573 (November 29, 2005) (SR-NASD-2005-084).
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     Amending Nasdaq Rule 3360 to reflect minor changes made to 
the comparable NASD Rule by SR-NASD-2005-112.\9\
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    \9\ See Securities Exchange Act Release No. 53224 (February 3, 
2006), 71 FR 7101 (February 10, 2006) (SR-NASD-2005-112).
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     Adopting new Nasdaq Rule 3380, which is based on NASD Rule 
3380, and which was added to the NASD Rules by SR-NASD-2005-144,\10\ 
and renumbering existing Nasdaq Rule 3380 as Nasdaq Rule 3381.
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    \10\ See Securities Exchange Act Release No. 53371 (February 24, 
2006), 71 FR 11008 (March 3, 2006).
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     Amending Nasdaq Rules 2520, 2810, 3080, 3110, 3130, and 
Nasdaq IM-3130 to correct typographical errors.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(5) of the Act,\12\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, 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. The proposed 
rule change conforms the Rule 2000 and 3000 Series of Nasdaq's rules to 
certain changes made to the Rule 2000 and 3000 Series of NASD rules 
since approval of Nasdaq's rules by the Commission in January 2006, 
makes several minor modifications and corrects certain typographical 
errors in the approved rules.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(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.

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

    The foregoing proposed rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act \13\ and Rule 19b-4(f)(6) \14\ 
thereunder because it 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, provided that the self-regulatory organization has given the 
Commission written notice of its intent to file the proposed rule 
change at least five business days prior to the filing date of the 
proposed rule change.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ As required under Rule 19b-4(f)(6)(iii), Nasdaq provided 
the Commission with written notice of its intent to file the 
proposed rule change at least five days prior to the filing date.
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    Nasdaq has requested that the Commission waive the 30-day pre-
operative period requirement for ``non-controversial'' proposals, based 
upon a representation that such waiver will allow Nasdaq to implement 
the rule changes, which have either recently been made effective as 
changes to NASD rules or are technical in nature, prior to the time 
when Nasdaq begins to operate as a national securities exchange. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest. Waiver of the 
30-day operative period will allow Nasdaq to implement these changes 
immediately so that they can be in place prior to the time Nasdaq 
begins to operate as a national securities exchange. Accordingly, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\16\ 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.
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    \16\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rules impact on 
efficiency, competition, and capital formation. See 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 Number SR-NASDAQ-2006-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary,

[[Page 44738]]

Securities and Exchange Commission, Station Place, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2006-018. 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 NASDAQ. 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-NASDAQ-2006-018 and should be submitted on or before 
August 28, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-12697 Filed 8-4-06; 8:45 am]

BILLING CODE 8010-01-P