Document ID: SEC-2007-0168-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-02-02T05:00Z

[Federal Register: February 2, 2007 (Volume 72, Number 22)]
[Notices]               
[Page 5093-5095]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02fe07-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55181; File No. SR-NASD-2007-005]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change to Operate the Alternative Display Facility on 
a Permanent Basis

January 26, 2007.
    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 23, 2007, 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 substantially prepared by NASD. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons. In addition, the 
Commission is granting accelerated approval of the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD proposes to amend NASD Rule 4100A to operate its Alternative 
Display Facility (``ADF'') on a permanent 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, July 20, 2005, and April 
26, 2006, will expire on January 26, 2007. NASD has requested 
accelerated approval of the proposed rule change and proposes an 
operative date of January 27, 2007. The text of the proposed rule 
change is available at NASD, the Commission's Public Reference Room, 
and http://www.nasd.com.

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 had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III below. NASD has prepared summaries, set forth in

[[Page 5094]]

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,\3\ which 
authorized 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; 
\4\ SR-NASD-2004-012 to extend the pilot until October 26, 2004; \5\ 
SR-NASD-2004-160 to extend the pilot until July 26, 2005; \6\ SR-NASD-
2005-092 to extend the pilot until April 26, 2006; \7\ and SR-NASD-
2006-050 to extend the pilot until January 26, 2007.\8\ As described in 
detail in SR-NASD-2005-087, which replaced withdrawn rule filing SR-
NASD-2001-090, the ADF is a quotation collection, trade comparison, and 
trade reporting facility developed by NASD in accordance with the 
Commission's SuperMontage Approval Order \9\ and in conjunction with 
Nasdaq's then anticipated registration as a national securities 
exchange.\10\ 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,\11\ and accordingly, would now operate 
on a permanent basis as well.\12\
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    \3\ See Securities Exchange Act Release No. 46249 (July 24, 
2002), 67 FR 49822 (July 31, 2002).
    \4\ See Securities Exchange Act Release No. 47663 (April 10, 
2003), 68 FR 19043 (April 17, 2003).
    \5\ See Securities Exchange Act Release No. 49131 (January 27, 
2004), 69 FR 5229 (February 3, 2004).
    \6\ See Securities Exchange Act Release No. 50601 (October 28, 
2004), 69 FR 64611 (November 5, 2004).
    \7\ See Securities Exchange Act Release No. 52122 (July 25, 
2005), 70 FR 44133 (August 1, 2005).
    \8\ See Securities Exchange Act Release No. 53699 (April 21, 
2006), 71 FR 25271 (April 28, 2006).
    \9\ See Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (SR-NASD-99-53).
    \10\ See Securities Exchange Act Release No. 44396 (June 7, 
2001), 66 FR 31952 (June 13, 2001) (File No. 10-131). The Commission 
conditionally approved the Nasdaq Exchange application on January 
13, 2006. See Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550 (January 23, 2006).
    \11\ 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. See Securities Exchange Act Release No. 47331 
(February 10, 2003), 68 FR 7635 (February 14, 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. See Securities Exchange Act Release No. 49029 (January 6, 
2004), 69 FR 2167 (January 14, 2004). On December 4, 2003, NASD 
filed for immediate effectiveness SR-NASD-2003-181 to amend Rule 
4613A(c) to clarify that NASD may suspend quotations in the ADF 
displayed by any market participant, including an electronic 
communications network (``ECN''), that are no longer reasonably 
related to the prevailing market. See Securities Exchange Act 
Release No. 49075 (January 14, 2004), 69 FR 3414 (January 23, 2004). 
On March 12, 2004, the Commission approved SR-NASD-2003-175, a 
proposal to repeal Rule 4613A(e)(1), which required a member that 
displays 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. See Securities Exchange Act Release 
No. 49413 (March 12, 2004), 69 FR 12882 (March 18, 2004). 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. See Securities Exchange Act Release No. 50218 (August 
18, 2004), 69 FR 52055 (August 24, 2004). 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. See 
Securities Exchange Act Release No. 51356 (March 10, 2005), 70 FR 
12924 (March 16, 2005).
    \12\ On August 8, 2006, NASD filed SR-NASD-2006-096 as an 
immediately effective rule change. This rule change amended Rule 
4613A and adopted IM-4613A-1 to enable ECN members that post 
quotations through the ADF to request and receive multiple market 
participant identifiers. See Securities Exchange Act Release No. 
54307 (August 11, 2006), 71 FR 47551 (August 17, 2006). It should be 
noted that NASD is not requesting that SR-NASD-2006-096 operate on a 
permanent basis. Rather, NASD is requesting that this remain a pilot 
and will address this in a separate rule filing.
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    NASD believes that the ADF has been operating successfully during 
the pilot period. The Commission acknowledged this fact when it 
approved the launch of SuperMontage, stating that the ADF met the 
conditions set forth in its SuperMontage Approval Order to provide an 
alternative quotation collection, trade comparison, and trade reporting 
facility. NASD believes that the ADF has since continued to honor those 
conditions. Moreover, on September 28, 2006, the Commission approved SR 
NASD-2006-91,\13\ which, among other things, amended the ADF rules 
governing quoting, trade reporting, and clearing applicable to the ADF 
and extended this functionality to all NMS stocks.\14\ Accordingly, 
NASD believes it is appropriate to approve the operation of ADF on a 
permanent basis.
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    \13\ See Securities Exchange Act Release No. 54537 (September 
28, 2006), 71 FR 59173 (October 6, 2006).
    \14\ In addition, on January 5, 2007, NASD filed SR-NASD-2007-
001 for immediate effectiveness. This rule filing amended certain 
ADF rules to: (1) Expand the prohibition on locking and crossing 
quotations in NMS stocks to include pre-opening and post-closing 
quotations; (2) extend the obligation to comply with ADF rules to 
pre-opening quotes; and (3) replace the specific modifiers 
identified in Rule 4632(A)(a)(4) with a more general reference to 
modifiers as specified by NASD. See Securities Exchange Act Release 
No. 55088 (January 11, 2007), 72 FR 2573 (January 19, 2007). While 
NASD is requesting that the amendments made to ADF rules in both SR-
NASD 2006-091 and SR-NASD-2007-001 also become permanent, it should 
be noted that they will not be implemented until the Regulation NMS 
Trading Phase Date.
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    NASD proposes that the proposed rule change be operative on January 
27, 2007.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\15\ 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, and, in general, to protect investors and the 
public interest. NASD believes that approval of the operation of ADF 
rules on a permanent basis provides an effective mechanism for quoting 
and trading activities otherwise than on an exchange.
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    \15\ 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. 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.
[fxsp0]sec.[fxsp0]gov/rules/sro.shtml); or     Send an e-mail to rule-comments@sec.gov. Please include 

File

[[Page 5095]]

Number SR-NASD-2007-005 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-2007-005. 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.[fxsp0]sec.[fxsp0]gov/

rules/sro.[fxsp0]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 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 publicly available. All 
submissions should refer to File Number SR-NASD-2007-005 and should be 
submitted on or before February 23, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association.\16\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with Section 15A(b)(6) of the Act,\17\ which requires that 
the rules of the self-regulatory organization are 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. In addition, the Commission believes that the 
proposal is consistent with Section 15A(b)(11) of the Act \18\ in that 
it is designed to produce fair and informative quotations, to prevent 
fictitious or misleading quotations, and to promote orderly procedures 
for collecting, distributing, and publishing quotations.
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    \16\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ 15 U.S.C. 78o-3(b)(11).
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    In approving SR-NASD-2006-091, which, among other things, amended 
the ADF rules to align them with Regulation NMS, the Commission 
considered and addressed the regulatory issues regarding NASD's 
operation of the ADF. The Commission believes the instant proposal to 
make the ADF permanent does not raise any new regulatory issues. For 
the same reasons stated in its order approving SR-NASD-2006-091, the 
Commission believes that this proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities association.
    NASD has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of notice thereof in the Federal Register. The Commission 
believes that granting accelerated approval of the proposed rule change 
is appropriate because the proposed rule change does not raise any new 
regulatory issues. In addition, SR-NASD-2006-091 went through a full 
notice-and-comment period, and no comments were received. Accelerated 
approval of this proposal will allow the benefits of the ADF to 
continue without a lapse in the pilot due to expire on January 26, 
2007. Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\19\ for approving the proposed rule change prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register.
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    \19\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NASD-2007-005) be, and 
hereby is, approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1688 Filed 2-1-07; 8:45 am]

BILLING CODE 8010-01-P