Document ID: SEC-2006-1004-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-08-07T04:00Z

[Federal Register: August 7, 2006 (Volume 71, Number 151)]
[Notices]               
[Page 44747-44749]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07au06-117]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54256; File No. SR-NASD-2006-087]

 
 Self-Regulatory Organizations; National Association of 
Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness 
of Proposed Rule Change Relating to NASD Rule 5110 and Certain Other 
NASD Rules Amended Pursuant to SR-NASD-2005-087

 August 1, 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 20, 2006, 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 proposed rules change 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 upon filing with the Commission. NASD proposes to 
make the proposed rule change operative on the date on which the Nasdaq 
Stock Market LLC (``Nasdaq Exchange'') commences operation as a 
national securities exchange for Nasdaq-listed securities.\5\ 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\ These securities will not include approximately 40 
securities that are dually-listed on the New York Stock Exchange.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD proposes to (1) amend NASD Rule 5110 to clarify that the 
rule is applicable to both Nasdaq and non-Nasdaq exchange-listed 
securities; and (2) make technical, non-substantive changes to certain 
other NASD rules that were amended by proposed rule change SR-NASD-
2005-087.\6\ Rule 5110 and the other amendments to NASD rules proposed 
by SR-NASD-2005-087 will become effective on the date upon which the 
Nasdaq Exchange operates as a national securities exchange for Nasdaq-
listed securities. Currently, that date is projected to be August 1, 
2006. The text of the proposed rule change is available on the NASD's 
Web site (http://www.nasd.com), at NASD's principal office, at the 

Commission's Public Reference Room.
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    \6\ The NASD filed SR-NASD-2005-087 on July 11, 2005 and 
Amendment No. 1 on June 15, 2006. The Commission approved SR-NASD-
2005-087, as amended, on June 30, 2006. See Securities Exchange Act 
Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006) 
(``June 30 Approval Order'').
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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 proposed rule change. 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.

[[Page 44748]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On June 30, 2006, the Commission approved SR-NASD-2005-087.\7\ 
Among other things, in SR-NASD-2005-087, the NASD proposed (1) 
amendments to the NASD Delegation Plan, NASD By-Laws and NASD rules to 
reflect a proposed phased implementation strategy for the operation of 
the Nasdaq Exchange as a national securities exchange with respect to 
Nasdaq-listed securities during a transitional period; and (2) rules 
for reporting transactions effected otherwise than on an exchange to 
the new Trade Reporting Facility. The NASD is filing this proposed rule 
change in anticipation of SR-NASD-2005-087 becoming effective to (1) 
amend Rule 5110 to clarify that the rule is applicable to both Nasdaq 
and non-Nasdaq exchange-listed securities; and (2) make technical, non-
substantive changes to certain other NASD rules that were amended by 
SR-NASD-2005-087.
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    \7\ Id.
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Amendments to Rule 5110

    Pursuant to SR-NASD-2005-087, NASD proposed to renumber Rule 
6440(i) as Rule 5110 and extend its application to Nasdaq exchange-
listed securities. Currently, the rule prohibits members from 
executing, otherwise than on an exchange, a transaction in a security 
subject to an initial public offering until such security has first 
opened for trading on the national securities exchange listing the 
security, as indicated by the dissemination of an opening transaction 
in the security by the listing exchange via the Consolidated Tape.
    As described in footnote 23 of the June 30 Approval Order, the NASD 
is proposing to amend Rule 5110 to delete the reference to 
dissemination of the opening transaction ``via the Consolidated Tape.'' 
Pursuant to SR- NASD-2005-087, Rule 5110 is intended to apply to both 
Nasdaq and non-Nasdaq exchange-listed securities. As such, the 
reference in the rule to the Consolidated Tape is too narrow given that 
transactions in securities listed on the Nasdaq Exchange are reported 
to the Nasdaq Unlisted Trading Privileges Plan.

Technical, Non-Substantive Amendments

    NASD is proposing a number of grammatical and technical, non-
substantive changes to certain NASD rules that were amended by SR-NASD-
2005-087.
    Rules 4120A, 4633 and 6431 give NASD authority to halt trading on 
the ADF and trading reported to the Trade Reporting Facility, with 
respect to Nasdaq-listed securities, and trading otherwise than on an 
exchange with respect to non-Nasdaq exchange-listed securities, 
respectively. These rules are intended to be consistent in their 
language and application. Accordingly, NASD is proposing to amend Rule 
4633(a)(2)(C)(i) and (ii) and Rule 6431(a)(2)(C)(i) and (ii) by 
replacing the word ``believes'' with the word ``determines.'' The 
proposed change would conform the language of these rules to the 
language of Rule 4120A(a)(2)(C)(i) and (ii).\8\
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    \8\ Specifically, each rule grants NASD authority to halt trades 
in a particular security, including in the event of extraordinary 
market activity in the security. Rule 4120A(a)(2)(C)(i) and (ii) 
provides that NASD may exercise this authority if it ``determines'' 
that such activity is caused by the misuse or malfunction of a 
system operated by or linked to NASD or a national securities 
exchange. In otherwise identical provisions, Rule 4633(a)(2)(C)(i) 
and (ii) and Rule 6431(a)(2)(C)(i) and (ii) use the word 
``believes'' instead of ``determines.''
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    NASD is also proposing to amend Rule 4633 to change references to 
trading halts ``on'' or ``in'' the Trade Reporting Facility to 
``reported to'' the Trade Reporting Facility, to clarify that trades 
are not executed on the Trade Reporting Facility.
    In addition, SR-NASD-2005-087 inadvertently renumbered 
subparagraphs (MM) through (PP) of Rule 2860(b)(2) as (KK) through 
(OO). These subparagraphs should have been renumbered (KK) through 
(NN). As a result, there currently is no subparagraph (OO). Therefore, 
the proposed rule change would renumber the rule's subparagraphs (PP) 
through (AAA) as (OO) through (ZZ).
    Finally, several rule changes that were approved by the Commission 
and implemented subsequent to the filing of Amendment No. 1 to SR-NASD-
2005-087 change the underlying or proposed text provided in Exhibit 5 
of SR-NASD-2005-087. As a result, NASD is proposing changes to the rule 
text approved pursuant to SR-NASD-2005-087 to make it consistent with 
the other recently approved rule changes. These include the following 
rule changes along with the rules affected: SR-NASD-2000-023 amended 
Rules 6951 and 6954; SR-NASD-2005-098 amended Rule 6740 (renumbered as 
Rule 6640 pursuant to SR-NASD-2005-087); SR-NASD-2006-040 amended Rule 
9610; and SR-NASD-2006-080 amended Rule 4901. In addition, the ``Nasdaq 
National Market'' was recently renamed the ``Nasdaq Global Market,'' 
and pursuant to SR-NASD-2006-068, a number of rules were amended to 
change ``Nasdaq National Market,'' ``NNM'' or ``Nasdaq National Market 
securities'' to ``Nasdaq Global Market,'' ``NGM'' or ``Nasdaq Global 
Market securities,'' respectively.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\9\ 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. NASD believes that the proposed rule change relating 
to Rule 5110 will result in uniform regulation of securities that are 
subject to an initial public offering. In addition, NASD believes that 
the proposed rule change will enhance the integrity of the market by 
increasing the consistency and clarity of its rules.
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    \9\ 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, as amended.

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 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, it 
has become effective pursuant to Section 19(b)(3)(A) of the Act,\10\ 
and Rule 19b-4(f)(6) thereunder.\11\ At any time within 60 days of the 
filing of the proposed rule change the Commission may summarily

[[Page 44749]]

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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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally 
does not become operative prior to 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\13\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The NASD has asked the 
Commission to waive the 30-day pre-operative delay. The Commission 
believes that such waiver is consistent with the protection of 
investors and the public interest because it would allow the NASD to 
update and clarify its rules.\14\ For this reason, the Commission 
designates the proposed rule change to be operative on the date that 
the Nasdaq Exchange begins operations as a national securities exchange 
for Nasdaq-listed securities.\15\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \15\ As noted above, the Nasdaq Exchange is currently scheduled 
to commence operating as a national securities exchange with respect 
to Nasdaq-listed securities on August 1, 2006.
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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-NASD-2006-087 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-2006-087. 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 the 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-2006-087 and should be submitted on or before August 28, 2006.
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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Nancy M. Morris,
Secretary.
[FR Doc. E6-12738 Filed 8-4-06; 8:45 am]

BILLING CODE 8010-01-P