Document ID: SEC-2006-0275-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-03-03T05:00Z

[Federal Register: March 3, 2006 (Volume 71, Number 42)]
[Notices]               
[Page 11008]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr06-105]                         

[[Page 11008]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53371; File No. SR-NASD-2005-144]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval of a Proposed Rule Change 
Relating to Order Entry and Execution Practices

February 24, 2006.

I. Introduction

    On December 8, 2005, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Securities and Exchange 
Commission (``Commission'') pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934, as amended, (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change relating to order entry and 
execution practices. The proposed rule change was published in the 
Federal Register on January 23, 2006.\3\ The Commission has received 
one comment on the proposal.\4\ This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(l).
    \2\ 17 CFR 240. 19b-4.
    \3\ See Securities Exchange Act Release No. 53132 (January 17, 
2006), 71 FR 3584.
    \4\ See email comment from Jefferson Wigley, Managing Member, 
Sun Trading LLC, dated February 15, 2006 (``Sun Trading Letter'').
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II. Description of the Proposal

    The NASD proposed to add Rule 3380 to prohibit members and 
associated persons from 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 payment to the member or associated persons as a 
result of the execution of such orders or the transaction reporting of 
such executions.

III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change and 
finds that it is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
association,\5\ particularly Section 15A(b)(6) of the Act,\6\ which 
requires that an association's rules be designed to prevent fraudulent 
and manipulative acts and practices, promote just and equitable 
principles of trade, remove impediments to, and perfect the mechanism 
of, a free and open market and, in general, protect investors and the 
public interest.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
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    In its comment letter on behalf of Sun Trading LLC,\7\ the 
commenter argues, in essence, that the rule proposal should be limited 
to the splitting of customer orders, and that trade shredding should be 
permitted for member proprietary trades, since this could allow members 
to make tighter and more efficient markets. Accordingly, the commenter 
suggests that the Commission limit the application of the rule to 
exclude trading by market makers and proprietary trading firms where no 
customer orders are involved. The commenter believes that the 
Commission has adequately addressed the issue of trade shredding in the 
newly adopted Regulation NMS and that further steps would be counter 
productive.
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    \7\ See supra note 4.
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    While Regulation NMS will revise the current plan formulas, which 
allocate market data revenues based either solely on the number of 
trades, or on trade and share volume, to reduce the emphasis on trade 
volume, the Commission believes it is appropriate for self-regulatory 
organizations (``SROs'') to take additional steps to address trade 
shredding and its potentially distortive effects. The Commission notes 
that, to date, it has approved rule changes to address the practice of 
trade shredding from four SROs.\8\ The remaining SROs have filed 
proposed rule changes to address the issue of trade shredding.\9\
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    \8\ See Securities Exchange Act Release Nos. 52341 (August 26, 
2005), 70 FR 52455 (September 2, 2005) (SR-BSE-2005-20); 52683 
(October 26, 2005), 70 FR 66480 (November 2, 2005) (SR-NYSE-2005-
62); 53070 (January 6, 2006), 71 FR 2286 (January 13, 2006) (SR-
Phlx-2005-63); 53088 (January 10, 2006), 71 FR 2605 (January 17, 
2006) (SR-CBOE-2005-92).
    \9\ See SR-Amex-2005-112, SR-CHX-2006-03, SR-PCX-2006-10. 
National Stock Exchange expects to file a trade shredding rule 
change proposal in the near future.
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    The Commission believes that the proposed rule change should 
further deter the distortive practice of trade shredding, and, 
therefore, promote just and equitable principles of trade.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-NASD-2005-144), be 
and hereby is, approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-3029 Filed 3-2-06; 8:45 am]

BILLING CODE 8010-01-P