Document ID: SEC-2007-0666-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2007-05-11T04:00Z

[Federal Register: May 11, 2007 (Volume 72, Number 91)]
[Notices]               
[Page 26856-26858]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11my07-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55717; File No. SR-NASD-2007-029]

 
Self-Regulatory Organizations: National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to 
Access Fee Display Requirements for the OTCBB

May 7, 2007.
    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 April 20, 2007, 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 substantially prepared by NASD. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 6540(c) to exclude from the 
access fee display requirements access fees below a specified level.
    Below is the text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *
6540. Requirements Applicable to Market Makers
    (a) through (b) No Change.
    (c) A participating ATS or ECN shall reflect non-subscriber access 
or post-transaction fees in its published quotation [the ATS's or ECN's 
posted quoted] in the OTC Bulletin Board montage if:
    (1) The published quotation is priced equal to or greater than 
$1.00 and such fees exceed or accumulate to more than $0.003 per share; 
or
    (2) The published quotation is less than $1.00 and such fees exceed 
or accumulate to more than 0.3% of the published quotation price on a 
per share basis.
    (d) through (e) No Change.
* * * * *

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

    In its filing with the Commission, 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. NASD 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
    NASD Rule 6540(c) requires an alternative trading system (``ATS'') 
\3\ or electronic communications network (``ECN'') \4\ to reflect non-
subscriber access or post-transaction fees in its posted quotation in 
the OTC Bulletin Board (``OTCBB''). NASD established the requirements 
in Rule 6540(c) to permit ATSs and ECNs to participate in the OTCBB in 
the same way that market makers participate.\5\ Specifically, because a 
market maker does not charge access or post-transaction fees over and 
above its posted quotation, a participating ATS or ECN is prohibited 
from charging such fees, unless such fees are incorporated in the ATS's 
or ECN's posted quotation. Concerns have

[[Page 26857]]

been raised about the practical difficulties of complying with Rule 
6540(c) for ATSs and ECNs that choose to charge such fees.
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    \3\ See Rule 300(a) of Regulation ATS under the Act (defining 
``alternative trading system'').
    \4\ See Rule 600(b)(23) of Regulation NMS under the Act 
(defining ``electronic communication network'').
    \5\ See Securities Exchange Act Release No. 45915 (May 10, 
2002), 67 FR 35171 (May 17, 2002) (approving SR-NASD-2001-44).
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    First, NASD Rule 2320(g)(2) requires a member that displays priced 
quotations for the same non-exchange-listed security \6\ in two or more 
quotation mediums \7\ that permit quotation updates on a real-time 
basis to display the same priced quotation in each system. NASD 
established this requirement because members that display differently 
priced quotations in different quotation mediums for the same security 
can be confusing and misleading to other market participants and, more 
importantly, to public investors.\8\ Moreover, NASD believes that 
requiring that members display consistently priced quotations in 
multiple quotation mediums enhances the ability of other market 
participants to ascertain the best inter-dealer market for a 
security.\9\
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    \6\ The term ``non-exchange-listed security'' means any equity 
security that is not traded on any national securities exchange and 
does not include a ``restricted security,'' as defined by Commission 
Rule 144(a)(3) under the Securities Act of 1933, nor any security 
designated in the PORTAL Market, the Rule 6700 Series. See NASD Rule 
6610(c).
    \7\ The term ``quotation medium'' means any inter-dealer 
quotation system or any publication or electronic communications 
network or other device that is used by brokers or dealers to make 
known to others their interest in transactions in any security, 
including offers to buy or sell at a stated price or otherwise, or 
invitations of offers to buy or sell. See NASD Rule 2320(g)(4). The 
term quotation medium includes, without limitation, the OTCBB, the 
Electronic Pink Sheets, an ATS, and an ECN.
    \8\ See Securities Exchange Act Release No. 43319 (September 21, 
2000), 65 FR 58589 (September 29, 2000) (approving SR-NASD-00-20).
    \9\ See id.
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    Rule 2320(g)(2), in conjunction with Rule 6540(c), results in 
certain unintended consequences. Specifically, the effect of these 
rules is to require an ATS or ECN that charges an access fee to 
incorporate such access fee in its internal system quotation, 
notwithstanding the fact that internal subscribers of such system will 
not be charged that fee. NASD does not believe such a result furthers 
the goals of Rule 2320(g)(2) or Rule 6540(c).
    Second, by requiring an ATS or ECN to incorporate its access fee in 
its quote, the ATS or ECN may be forced to effect two trades at 
different prices rather than one trade at a single price: (1) The 
transaction with the subscriber that placed the original limit order at 
the limit order price, with no access fee charged; and (2) the 
transaction with the non-subscriber at the quoted price inclusive of 
the access fee charged to the non-subscriber. This has the unintended 
consequence of requiring two separate trade reports to the tape at each 
price for what previously was reportable as one trade and may also 
require the ATS or ECN to trade on a principal basis to effectuate the 
trade.
    In a prior rule filing (SR-NASD-2005-095) relating to restrictions 
on sub-penny quoting that was later withdrawn, NASD had proposed to 
eliminate Rule 6540(c), primarily because it was in direct conflict 
with the proposed sub-penny quotation restriction, given that most 
access fees are in sub-penny increments.\10\ In the context of that 
filing, several commenters opposed the proposed elimination of the 
requirements in Rule 6540(c), generally raising concerns that such 
elimination would lead to hidden and unregulated access fees because 
the deletion of Rule 6540(c) eliminates the practical disincentive to 
charge excessive fees.
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    \10\ See Securities Exchange Act Release No. 53024 (December 27, 
2005), 71 FR 159 (January 3, 2006) (notice of filing of proposed 
rule change and Amendment No. 2 to SR-NASD-2005-095).
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    In response to both the concerns raised regarding the practical 
difficulties with compliance with Rule 6540(c) and that ATSs and ECNs 
might charge hidden and excessive access fees, NASD is proposing to 
amend Rule 6540(c) to exclude from the requirements only those access 
fees that are less than or equal to $0.003 per share (or 0.3% of the 
published quotation price on a per-share basis in the case of published 
quotations below $1.00 per share).\11\ NASD believes this approach 
addresses the practical difficulties with incorporating the access fee 
in a quotation, while also addressing the concerns relating to possible 
excessive access fees raised by commenters in response to proposed rule 
change SR-NASD-2005-095.
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    \11\ The specified levels in this proposed rule change 
correspond to the access fees limits set forth in Rule 610(c) of 
Regulation NMS under the Act. Rule 610(c) of Regulation NMS, among 
other provisions, generally limits the fees that any trading center 
can charge (or allow to be charged) for accessing its protected 
quotation in an NMS stock priced equal to or greater than $1.00 per 
share to no more than $0.003 per share. If the price of a protected 
quotation is less than $1.00 per share, the fee cannot exceed 0.3% 
of the quotation price. See Securities Exchange Act Release No. 
51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (Regulation NMS 
Adopting Release).
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    In addition, NASD is proposing a non-substantive change to replace 
the term ``posted quote'' with the term ``published quotation.'' As 
noted above, the effective date of the proposed rule change would be 
the date of Commission approval. NASD would publish a Notice to Members 
announcing Commission approval no later than 30 days following any such 
approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\12\ which requires, among 
other things, that NASD rules must 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 is a 
reasonable means to ensure that access fees over a specified level are 
transparent to the marketplace.
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    \12\ 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 would 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. However, as 
noted previously, the Commission published for comment proposed rule 
change SR-NASD-2005-095 and several comments concerning access fees 
were received.\13\ The comments are summarized above.
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    \13\ See Letter from Andrew B. Stevens, Assistant General 
Counsel, NYSE Group, Inc., and Greg O'Connor, Director of 
Compliance, Archipelago Trading Services, Inc., to Nancy M. Morris, 
Secretary, Commission, dated February 14, 2007; Letter from Julian 
Rainero, on behalf of Pershing LLC, to Nancy M. Morris, Secretary, 
Commission, dated March 6, 2006; Letter from Patrick E. Brake, Jr., 
General Counsel, Hill, Thompson, Magid & Co., Inc., to Nancy M. 
Morris, Secretary, Commission, dated February 21, 2006; Letter from 
Jerry O'Connell, Chairman, Trading Committee, Securities Industry 
Association, to Nancy M. Morris, Secretary, Commission, dated 
February 17, 2006; Letter from William Yancey, Chairman, and John C. 
Giesea, President and Chief Executive Officer, Security Traders 
Association, to Nancy M. Morris, Secretary, Commission, dated 
February 8, 2006; Letter from R. Cromwell Coulson, Chief Executive 
Officer, Pink Sheets LLC, to Nancy M. Morris, Secretary, Commission, 
dated January 26, 2006; Letter from Phylis M. Esposito, Executive 
Vice President, Chief Strategy Officer, Ameritrade, Inc., to Nancy 
M. Morris, Secretary, Commission, dated January 24, 2006; Letter 
from Leonard J. Amoruso, Knight Capital Group, Inc., to Nancy M. 
Morris, Secretary, Commission, dated January 24, 2006; Letter from 
Michael Santucci, President, Kimberly Unger, Executive Director, and 
Stephen J. Nelson, Co-Chair, Security Traders Association of New 
York, Inc., to Nancy M. Morris, Secretary, Commission, dated January 
24, 2006; Letter from Phylis M. Esposito, Executive Vice President, 
Chief Strategy Officer, Ameritrade, Inc., to Nancy M. Morris, 
Secretary, Commission, dated October 31, 2005; and Letter from Kevin 
J. P. O'Hara, Chief Administrative Officer & General Counsel, 
Archipelago Trading Services, Inc., to Nancy M. Morris, Secretary, 
Commission, dated September 23, 2005.

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[[Page 26858]]

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2007-029 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-2007-029. 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 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-2007-029 and should be submitted on or before June 1, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-9069 Filed 5-10-07; 8:45 am]

BILLING CODE 8010-01-P