Document ID: SEC-2006-0149-0001
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 6302-6304]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07fe06-67]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53192; File No. SR-NASD-2006-004]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Extend Pilot Programs Relating to Multiple Market 
Participant Identifiers

 January 30, 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 12, 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 has filed 
the proposal as a ``non-controversial'' rule change 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.\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\ Nasdaq asked the Commission to waive the five-day pre-filing 
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to continue two pilot programs that provide market 
participants who execute transactions in Nasdaq and exchange-listed 
securities through its systems the ability to display trading interest 
using up to 10 individual Market Participant Identifiers (``MPIDs''). 
The text of the proposed rule change is available at NASD, the NASD Web 
site, and at the Commission.

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
    As set forth in more detail below, Nasdaq is proposing to re-
establish two pilot programs that inadvertently were permitted to lapse 
on December 1, 2005. On March 1, 2004, Nasdaq filed SR-NASD-2004-037 
\6\ with the Commission, establishing the ability of ECNs and market 
makers in Nasdaq securities to use up to 10 individual MPIDs to display 
attributable quotes and orders in the Nasdaq Quotation Montage. On July 
29, 2004, Nasdaq filed SR-NASD-2004-097 \7\ with the Commission, which 
created this same capability for ECNs and market makers using Nasdaq 
systems to quote and trade exchange-listed securities. MPIDs for Nasdaq 
and exchange-listed securities are allocated and, when Nasdaq is 
reaching technological limits for displayed, attributable MPIDs, re-
allocated using the same procedures.\8\ Additional MPIDs are known as a 
``Supplemental MPID'' with a market maker's or ECN's first MPID being 
known as the ``Primary MPID.'' Nasdaq subsequently filed SR-NASD-2004-
134 \9\ with the Commission, which extended both pilots through March 
1, 2005, and SR-NASD-2005-069,\10\ which extended the pilots through 
November 30, 2005. Nasdaq is proposing to re-establish the pilot 
programs through November 30, 2006.
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    \6\ Securities Exchange Act Release No. 49471 (March 25, 2004), 
69 FR 17006 (March 31, 2004).
    \7\ Securities Exchange Act Release No. 50140 (August 3, 2004), 
69 FR 48535 (August 10, 2004).
    \8\ Under those procedures, rankings are based only on the 
volume associated with a member's Supplemental MPID--Primary MPIDs 
will be excluded from the calculation. The member with lowest volume 
using a Supplemental MPID will continue to be the first to lose the 
display privilege, but only with respect to the Supplemental MPID 
that caused it to have the lowest ranking; the member will not lose 
its authority to use the Supplemental MPID in that security to 
submit quotes and orders to SIZE or the display privileges 
associated with that Supplemental MPID with respect to other 
securities in which it is permitted to use the identifier. When 
reallocating the display privileges, requests for Primary MPIDs will 
continue to receive precedence over requests for Supplemental MPIDs.
    \9\ Securities Exchange Act Release No. 50434 (September 23, 
2004), 69 FR 58564 (September 30, 2004).
    \10\ Securities Exchange Act Release No. 51810 (June 9, 2005), 
70 FR 34803 (June 15, 2005).

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[[Page 6303]]

    The purpose of providing Supplemental MPIDs is to provide quoting 
market participants a better ability to organize and manage diverse 
order flows from their customers and to route orders and quotes to 
Nasdaq's listed trading facilities from different units/desks. To the 
extent that this flexibility provides increased incentives to provide 
liquidity to Nasdaq systems, all market participants can be expected to 
benefit.\11\
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    \11\ Nasdaq assesses no fees for the issuance or use of 
Supplemental MPIDs other than the Commission-approved transaction 
fees set forth in NASD Rule 7010.
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    The restrictions on the use of any Supplemental MPID are the same 
as those applicable to a Primary MPID. Regardless of the number of 
MPIDs used, NASD members will trade exchange-listed securities using 
Nasdaq systems in compliance with all pre-existing NASD and Commission 
rules governing the trading of these securities. There are only two 
exceptions to this general principle. First, the continuous quote 
requirement and the need to obtain an excused withdrawal, or functional 
excused withdrawal, as described in NASD Rule 5220(e), as well as the 
procedures described in NASD Rule 4710(b)(2)(B) and (b)(5), do not 
apply to Supplemental MPIDs; second, only one MPID may be used to 
engage in passive market making or to enter stabilizing bids pursuant 
to NASD Rules 4614 and 4619. In all other respects, market makers and 
ECNs will have the same rights and obligations in using a Supplemental 
MPID to enter quotes and orders and to display quotations, as they do 
today.
    The granting of Supplemental MPIDs is secondary to the integrity of 
the Nasdaq system trading those issues. As such, ECNs and market makers 
may not use a Supplemental MPID or Supplemental MPIDs to accomplish 
indirectly what they would be prohibited from doing directly through a 
single MPID. For example, members will not be permitted to use a 
Supplemental MPID to avoid their Manning or best execution obligations 
or their obligations under the Commission's Order Handling Rules, the 
firm quote rule, the OATS rules, and the Commission order routing and 
execution quality disclosure rules. To the extent that the allocation 
of Supplemental MPIDs creates regulatory confusion or ambiguity, every 
inference will be drawn against the use of Supplemental MPIDs in a 
manner that would diminish the quality or rigor of the regulation of 
the Nasdaq market. Accordingly, if it is determined that a Supplemental 
exchange-listed MPID is being used improperly, Nasdaq will withdraw its 
grant of the Supplemental MPID for all purposes for all securities.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\12\ in general, and with 
section 15A(b)(6) of the Act,\13\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. In particular, Nasdaq 
believes the use of multiple MPIDs in listed securities can be expected 
to provide greater flexibility in the processing of diverse order 
flows, thereby improving overall system liquidity for the benefit of 
all market participants.
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    \12\ 15 U.S.C. 78o-3.
    \13\ 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, 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 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 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, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
\14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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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.
    Nasdaq has asked that the Commission waive the 5-day pre-filing 
notice requirement and the 30-day operative delay contained in Rule 
19b-4(f)(6)(iii) under the Act.\16\ The Commission believes such waiver 
is consistent with the protection of investors and the public interest, 
for it will allow these lapsed pilots to be reinstated as quickly as 
possible. For these reasons, the Commission designates the proposal to 
be effective and operative upon filing with the Commission.\17\
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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 No. SR-NASD-2006-004 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-2006-004. 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

[[Page 6304]]

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 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-2006-004 and should be 
submitted on or before February 28, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-1617 Filed 2-6-06; 8:45 am]

BILLING CODE 8010-01-P