Document ID: SEC-2006-0231-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-02-23T05:00Z

[Federal Register: February 23, 2006 (Volume 71, Number 36)]
[Notices]               
[Page 9401-9402]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23fe06-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53316; File No. SR-NASD-2006-017]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Short Sale Processing in Nasdaq's INET Facility

February 15, 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 February 2, 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 substantially prepared by Nasdaq. 
Nasdaq filed the proposed rule change as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) under the Act,\3\ which rendered 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to clarify the method by which its INET facility 
processes orders to comply with short selling restrictions. Nasdaq 
would like to implement the proposed rule change immediately. The text 
of the proposed rule change is available on the NASD's Web site, http://www.nasd.com
, at the NASD's Office of the Secretary, and at the 

Commission's Public Reference Room.

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
    According to the Exchange, Nasdaq's INET System currently provides 
users the option of having the INET System price adjust and/or cancel 
short sale orders so as to comply with rules governing short selling. 
Under the proposal, Nasdaq is proposing to more fully explain the INET 
System's short sale compliance method and to apply it to all short sale 
orders entered into its System that are subject to short selling 
restrictions. As such, all orders to sell short that are subject to a 
short selling restriction would be processed as follows:
    For Nasdaq-listed securities, if an order to sell short is entered 
on a down bid that, if executed upon entry, would violate NASD Rule 
3350, the INET System will automatically re-price the

[[Page 9402]]

order to $0.01 above the current national best bid and enter the order 
on the book. The INET System would thereafter monitor the order and if 
the order market becomes marketable, but executing the order would 
result in a violation of NASD Rule 3350, the INET System would cancel 
the order off of the book.
    For non-Nasdaq securities, if an order to sell short is entered 
that, if executed upon entry, would violate Rule 10a-1 under the 
Act,\4\ the INET System would re-price the order to the next whole 
minimum price variation above the ``last sale'' on the consolidated 
tape and enter the order on the book. The INET System would thereafter 
monitor the order and if the order becomes marketable, but executing 
the order would result in a violation of Rule 10a-1 under the Act,\5\ 
the INET System would cancel the order off of the book.
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    \4\ 17 CFR 240.10a-1.
    \5\ See id.
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    The INET System would not cancel or adjust prices for orders to 
sell short in securities that are not subject to any short selling 
restriction (e.g., securities exempted from short selling restrictions 
by Regulation SHO or any other applicable exemption). Nasdaq notes that 
the INET System currently provides the short sale price adjustment and/
or cancellation process clarified here. Therefore, the NASD believes 
that adoption of the proposal would ensure that the INET System 
continues not to execute orders in violation of any applicable short 
selling restriction.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the Section 15A of the Act,\6\ in general, and Section 15A(b)(6) of the 
Act,\7\ in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 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 impose 
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

    Nasdaq has neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) by its terms, 
does not become operative for 30 days after the date of this 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 
\8\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 30-day operative 
delay period for ``non-controversial'' proposals and make the proposed 
rule change effective and operative upon filing. The Commission 
believes that waiver of the 30-day operative delay is consistent with 
the protection of investors and the public interest, because the 
proposed rule change is intended to clarify a process that is already 
in place, which is intended to ensure that the INET System continues 
only to execute orders that do not violate any applicable short selling 
restrictions. For this reason, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\10\
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    \10\ For the purpose only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition and capital formation. See 15 
U.S.C. 78c(f).
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    At any time within 60 days of the filing of a 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 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-2006-017 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-2006-017. 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-2006-017 and should be submitted on or before March 
16, 2006.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E6-2529 Filed 2-22-06; 8:45 am]

BILLING CODE 8010-01-P