Document ID: SEC-2006-1540-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Stock Exchange, Inc.
Posted Date: 2006-11-29T05:00Z

[Federal Register: November 29, 2006 (Volume 71, Number 229)]
[Notices]               
[Page 69163-69165]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no06-91]                         

[[Page 69163]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54808; File No. SR-NSX-2006-15]

 
Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Add a Rule Regarding Third-Party Routing Services in Respect of Orders 
Entered Into NSX BLADE

November 21, 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 November 21, 2006, the National Stock Exchange, Inc. (``NSX'' or 
``Exchange'') 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 the Exchange. NSX has filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders 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\ 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

    The Exchange proposes to add a new NSX Rule 2.12 describing the 
terms under which the Exchange would provide routing services procured 
from a third party with respect to orders entered into its new state of 
the art trading system, NSX BLADE. The text of the proposed rule change 
is below. Proposed new language is in italics.
RULES OF NATIONAL STOCK EXCHANGE, INC.
* * * * *
CHAPTER II--ETP Holders of the Exchange
* * * * *
Rule 2.11 NSX Securities, LLC
    (a)-(b) No change.
    (c) This Rule 2.11 shall become effective on March 1, 2007.
    Rule 2.12 Order Routing Services
    The Exchange will route orders to other trading centers under 
certain circumstances (``Routing Services'') as described in Chapter XI 
of these Rules. The Exchange will provide its Routing Services pursuant 
to the terms of three separate agreements: (1) an agreement between the 
Exchange and each ETP Holder on whose behalf orders will be routed; (2) 
an agreement between the Exchange and each third-party broker-dealer 
that will serve as a ``give-up'' on an away trading center when the ETP 
Holder on whose behalf an order is routed is not also a member or 
subscriber of the away trading center; and (3) an agreement between the 
Exchange and a third-party service provider (``Technology Provider'') 
pursuant to which the Exchange licenses the routing technology used by 
the Exchange for its Routing Services (``Exchange-Technology Provider 
Agreement''). This Rule 2.12 shall be effective through February 28, 
2007.
    Interpretations and Policies
    .01 (a) The Exchange will provide its Routing Services in 
compliance with these Rules, as well as other provisions of the 
Exchange's By-Laws and Rules where applicable, and with the provisions 
of the Act and the rules thereunder, including, but not limited to, the 
requirements in Section 6(b)(4) and (5) of the Act that the rules of a 
national securities exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities, and not be designed to permit 
unfair discrimination between customers, issuers, brokers, or dealers.
    (b) As provider of the Routing Services, the Exchange will license 
the necessary routing technology for use within its own systems and 
accordingly will control the logic that determines when, how, and where 
orders are routed away to other trading centers.
    (c) The Exchange will establish and maintain procedures and 
internal controls reasonably designed to adequately restrict the flow 
of confidential and proprietary information between the Exchange 
(including its facilities) and the Technology Provider, and, to the 
extent the Technology Provider reasonably receives confidential and 
proprietary information, that adequately restrict the use of such 
information by the Technology Provider to legitimate business purposes 
necessary for the licensing of routing technology.
    (d) The Exchange-Technology Provider Agreement will include terms 
and conditions that enable the Exchange to comply with this 
Interpretation and Policy .01.
* * * * *

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

    In its filing with the Commission, NSX 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. NSX 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
    The Exchange proposes to add a new NSX Rule 2.12 relating to the 
routing of orders to other trading centers by the Exchange. The 
proposed Rule would apply to orders entered into the Exchange's new 
state of the art trading system, NSX BLADE, and would be effective 
through February 28, 2007. NSX states that this Rule is proposed to be 
effective for a finite period so that the Exchange can offer routing 
services through NSX BLADE while the Exchange's wholly-owned 
subsidiary, NSX Securities, LLC (``NSX Securities'') completes its 
registration process as a broker-dealer with the National Association 
of Securities Dealers, Inc. (``NASD'') (and thus becomes available to 
provide routing services), and while the Exchange evaluates its options 
for providing routing services to ETP Holders. The Exchange states that 
the ability to route orders entered into NSX BLADE to away markets for 
execution at the best available prices is a key feature of NSX's new 
system.
    Proposed NSX Rule 2.12 provides that the Exchange's routing 
services would be provided under the terms of (i) an agreement between 
the Exchange and each ETP Holder on whose behalf the orders would be 
routed, (ii) an agreement between the Exchange and each third party 
broker-dealer that would serve as a ``give-up'' on any away trading 
center when the ETP Holder on whose behalf an order is routed is not 
also a member or subscriber at the away trading center, and (iii) an 
agreement between the Exchange and a third-party service provider 
pursuant to which the Exchange licenses the routing technology used by 
the Exchange for its routing services, as well as in compliance with 
the provisions of the Act and the rules thereunder, and other 
applicable provisions of the Exchange's

[[Page 69164]]

By-Laws and Rules. Proposed NSX Rule 2.12 also provides for (i) the 
equitable allocation of dues, fees and other charges, (ii) Exchange 
control of the routing logic, and (iii) the establishment and 
maintenance of procedures and internal controls designed to protect 
confidential and proprietary information.
    Proposed NSX Rule 2.12 provides that the Rule would be effective 
through February 28, 2007.\5\ The Exchange intends to provide routing 
services in accordance with proposed NSX Rule 2.12 until February 28, 
2007, unless the Exchange, with the Commission's approval, amends 
proposed NSX Rule 2.12 before such date. During such time period, the 
Exchange intends to evaluate its options for providing routing 
services. At the conclusion of such time period, the Exchange may 
decide to (i) continue the approach provided for in proposed NSX Rule 
2.12 on a permanent basis and not use NSX Securities as the outbound 
router (by filing a proposed rule change to delete NSX Rule 2.11 and 
renumber proposed NSX Rule 2.12), (ii) use the Exchange's original 
approach of NSX Securities as an outbound router and discontinue the 
approach provided for in proposed NSX Rule 2.12 (by filing a proposed 
rule change to delete proposed NSX Rule 2.12), or (iii) file a proposed 
rule change to allow ETP Holders to use either NSX Securities or the 
approach provided for in proposed NSX Rule 2.12 for outbound routing. 
The Exchange's use of NSX Securities as an outbound router would be 
contingent on NSX Securities' successful completion of its registration 
process as a broker-dealer with NASD.
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    \5\ With this rule filing the Exchange also proposes to amend 
NSX Rule 2.11, relating to NSX Securities' Outbound Router function, 
to provide that such Rule would become effective on March 1, 2007, 
immediately after proposed NSX Rule 2.12 ceases to be effective.
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2. Statutory Basis
    NSX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(5) of the Act,\7\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to 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. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    The foregoing proposed rule change is subject to Section 
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(6) thereunder \9\ 
because the proposal: (i) Does not significantly affect the protection 
of investors or the public interest; (ii) does not impose any 
significant burden on competition; and (iii) does not become operative 
prior to 30 days after the date of filing or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that NSX has given the Commission 
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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
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    NSX has fulfilled the five-day pre-filing requirement. NSX has 
requested that the Commission waive the 30-day operative delay 
requirement. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest because such waiver would immediately provide NSX and its 
market participants with the ability to route orders to away markets 
for execution at the best available prices, a key feature of NSX BLADE, 
which is now operational. The Commission notes that this proposed rule 
change is substantially similar to the rules of another self-regulatory 
organization.\10\ For these reasons, the Commission hereby waives the 
30-day operative delay requirement.\11\ The Commission notes that NSX 
intends to offer outbound routing to its ETP Holders beginning on 
November 27, 2006.
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    \10\ Rule 126B-AEMI of the American Stock Exchange LLC. See 
Securities Exchange Act Release No. 54552 (September 29, 2006), 71 
FR 59546 (October 10, 2006) (approving File No. SR-Amex-2005-104).
    \11\ For the 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).
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    At any time within 60 days of the filing of such 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-NSX-2006-15 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-NSX-2006-15. 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 NSX. 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-NSX-2006-15 and should

[[Page 69165]]

be submitted on or before December 20, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
Nancy M. Morris,
Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E6-20218 Filed 11-28-06; 8:45 am]

BILLING CODE 8011-01-P