Document ID: SEC-2006-0142-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-02-07T05:00Z

[Federal Register: February 7, 2006 (Volume 71, Number 25)]
[Notices]               
[Page 6300-6302]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe06-66]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53203; File No. SR-NASD-2006-016]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Establish a Mechanism for Handling Sub-Penny Orders in 
Securities Listed on the New York Stock Exchange or the American Stock 
Exchange

 January 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 January 31, 2006, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``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 filed this 
proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6) thereunder,\4\ which renders the proposed rule change effective 
immediately 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

    Nasdaq proposes to establish a mechanism for handling sub-penny 
orders in securities listed on the New York Stock Exchange (``NYSE'') 
or the American Stock Exchange (``Amex'') due to readiness issues at 
those two exchanges and to make another minor adjustment in the related 
rule language. The text of the proposed rule change is below. Proposed 
new language is in italics; proposed deletions are in [brackets].\5\
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    \5\ Changes are marked to the rule text that appears in the 
electronic NASD Manual found at http://www.nasd.com. Prior to the date when 

The NASDAQ Stock Market LLC (``NASDAQ LLC'') commences operations, 
NASDAQ LLC will file a conforming change to the rules of NASDAQ LLC 
approved in Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550 (January 23, 2006).
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* * * * *

6330. Obligations of CQS Market Makers

    (a) through (c) No change
    (d) Minimum Price Variation
    (1) No change
    (2) [When a quotation properly (not in violation of paragraph (1) 
above) priced in an increment of less than $0.01 is routed for 
execution via the ITS System to a market that does not accept 
quotations in increments of less than $0.01, such a quotation is 
rounded down (for bids) or up (for offers) to the nearest $0.01 
increment.] A quotation for a security listed on the New York Stock 
Exchange or the American Stock Exchange and properly (not in violation 
of paragraph (1) above) priced in an increment of less than $0.01 will 
be adjusted by the Nasdaq Market Center down (for bids) or up (for 
offers) to the nearest $0.01 increment prior to display, execution or 
routing. A quotation so adjusted will have no price priority over 
equivalent quotations that did not require adjustment under this 
paragraph.
* * * * *

4962. Minimum Quotation Increment

    The minimum quotation increment in the INET System for quotations 
of $1.00 or above in Nasdaq-listed securities and in securities listed 
on a national securities exchange shall be $0.01. The minimum quotation 
increment in the INET System for quotations below $1.00 in Nasdaq-
listed securities and in securities listed on a national securities 
exchange shall be $0.0001. However, if the Securities and Exchange 
Commission (``SEC'') permits, with respect to any security, the 
display, rank or acceptance of quotations priced at or above $1.00 per 
share in an increment smaller than $0.01, then the minimum quotation 
increment for such a security shall be the minimum permitted by the SEC 
or $0.0001, whichever is greater.
* * * * *

[[Page 6301]]

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
    On December 22, 2005, Nasdaq filed with the Commission a rule 
change \6\ to align Nasdaq's rules on minimum pricing increments with 
Rule 612 of the Commission's Regulation NMS.\7\ Consistent with Rule 
612, the Nasdaq Market Center (``NMC'') and Nasdaq's BRUT and INET 
facilities now accept quotes that are in increments ofleast $0.0001 if 
these quotes are priced below $1.00 or if they are in securities 
exempted by the Commission under Rule 612.\8\ Quotes priced above $1.00 
will be accepted by the NMC, BRUT, and INET in increments of at least 
$0.01 (unless they are in securities exempted by the Commission). These 
principles apply equally to Nasdaq-listed securities and to securities 
listed on other exchanges.
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    \6\ See Securities Exchange Act Release No. 53017 (December 22, 
2005), 70 FR 77225 (December 29, 2005). The rule change was 
effective immediately upon filing, but not operational until January 
31, 2006.
    \7\ 17 CFR 242.612.
    \8\ The present proposed rule change clarifies with respect to 
INET that the minimum pricing increment will, in fact, be $0.0001, 
as opposed to $0.001. This filing also includes an additional 
conforming change to the INET rules, to clarify that any security 
that receives the Commission's permission for sub-penny quoting 
above $1.00 will be eligible for such quoting on INET.
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    Under the present proposal, which is being made to accommodate the 
NYSE and the Amex, the NMC will adjust all proper (i.e., priced under 
$1.00 and in increments of not less than $0.0001) sub-penny quotes in 
NYSE- and Amex-listed securities as soon as it receives them. Offers 
will be adjusted upwards to the next whole cent, while bids will be 
adjusted downward to the next whole cent. Sub-penny quotes that are 
adjusted in this manner will be displayed, executed, or routed, as 
otherwise applicable, at the adjusted price and will not be accorded 
any price priority over the equivalent unadjusted whole-cent quotes. 
The NMC will adjust all sub-penny quotes that it receives for NYSE and 
Amex securities, regardless of whether such quotes are entered into the 
NMC directly or routed from another trading venue (including when the 
quotes are routed to the NMC from Nasdaq's BRUT or INET facilities).
    The ability of the NMC, BRUT, or INET to accept sub-penny quotes in 
Nasdaq-, NYSE-, or Amex-listed securities is not affected by this 
proposal. However, the ``accepted'' sub-penny quotes for NYSE-or Amex-
listed stocks will be adjusted before being displayed in the NMC or 
routed via the ITS linkage from the NMC to the NYSE or the Amex.
    Nasdaq views the proposal described above as temporary because it 
will, in most cases, deprive investors of the ability, envisioned in 
Rule 612, to trade in sub-pennies those NYSE and Amex listed stocks 
that are priced below $1.00. When Nasdaq determines that this approach 
is no longer appropriate, it will change the rule described herein by 
making an immediately effective filing with the Commission.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\9\ in general, and with 
Section 15A(b)(6) of the Act,\10\ in particular, in that it is designed 
to promote just and equitable principles of trade and to remove 
impediments to, and perfect the mechanism of, a free and open market.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 15 U.S.C. 78o-3(b)(6).
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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

    Because the proposed rule change: (1) Does not significantly affect 
the protection of investors or the public interest; (2) does not impose 
any significant burden on competition; and (3) does not become 
operative for 30 days after the date of the filing, 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 \11\ and 
Rule 19b-4(f)(6) thereunder.\12\ The Commission hereby waives the 30-
day operative delay.\13\ The Commission has previously determined that, 
for NMS stocks, quoting below $1.00 in sub-penny increments should be 
permitted and codified that view in Rule 612(b) of Regulation NMS.\14\ 
The proposed rule change to clarify that the minimum pricing increment 
for INET will be $0.0001 is consistent with Rule 612(b) and raises no 
new regulatory issues. With regard to the Exchange's proposal to round 
away all proper sub-penny quotes in NYSE- and Amex-listed securities 
immediately upon receipt by the NMC, the Commission believes that such 
rounding is non-controversial, as Rule 612 does not require that 
accepted sub-penny quotes priced below $1.00 be displayed, executed, or 
routed in sub-pennies. Therefore, the Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest.
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). Pursuant to Rule 19b-4(f)(6)(iii) 
under the Act, the Exchange is required to give 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 determined to waive this requirement.
    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37555 (June 29, 2005).
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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 purposes 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

[[Page 6302]]

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-NASD-2006-016 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 Number SR-NASD-2006-016. 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-2006-016 and should be submitted on or before 
February 28, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-1614 Filed 2-6-06; 8:45 am]

BILLING CODE 8010-01-P