Document ID: SEC-2006-0592-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-05-08T04:00Z

[Federal Register: May 8, 2006 (Volume 71, Number 88)]
[Notices]               
[Page 26795-26797]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08my06-73]                         

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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-53748; File No. SR-NASD-2006-055

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of a Proposed Rule Change To Require 
Members To Report All Transactions that Must Be Reported to NASD and 
Are Subject to a Regulatory Transaction Fee to the Nasdaq Market Center 
and/or the Trade Reporting and Comparison Service

May 2, 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 April 21, 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 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 Section 3 of Schedule A to the NASD By-
Laws (``Section 3''), to require members to report all transactions 
that must be reported to NASD and that are subject to a regulatory 
transaction fee pursuant to Section 3 to the Nasdaq Market Center 
(``NMC'') and/or the Trade Reporting and Comparison Service 
(``TRACS''). In addition, NASD is proposing new provisions in NASD 
Rules 6130 and 6130A that would expressly require members to report 
odd-lot transactions, away from the market sales, and OTC options with 
special indicators denoting that such transactions are reported in 
accordance with Section 3.
    The text of the proposed rule change is available on NASD's Web 
site (http://www.nasd.com). from NASD's principal office, and at the 

Commission's Public Reference Room. The text of the proposed rule 
change also appears below. Proposed new language is italicized; 
proposed deletions are in brackets.\3\
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    \3\ NASD has filed another proposed rule change, SR-NASD-2005-
087, which, among other things, proposed a new Trade Reporting 
Facility. If this filing is approved prior to that filing, the Trade 
Reporting Facility rules would be amended to make conforming changes 
with this proposal. However, if SR-NASD-2005-087 is approved prior 
to the approval of this filing, this filing will be amended to make 
conforming changes with the Trade Reporting Facility rules.
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SCHEDULE A TO NASD BY-LAWS

* * * * *

Section 3--Regulatory Transaction Fee

    Each member shall be assessed a regulatory transaction fee. The 
amount shall be determined periodically in accordance with Section 31 
of the Act. Transactions assessable under this Section 3 that must be 
reported to NASD shall be reported in an automated manner.
* * * * *
4000. THE NASDAQ STOCK MARKET
* * * * *
4600. NASDAQ MARKET MAKER REQUIREMENTS
* * * * *
4630. Reporting Transactions in Nasdaq National Market Securities
* * * * *
4632. Transaction Reporting
    (a) through (d) No Change.
    (e) Transactions Not [Required] To Be Reported For Publication 
Purposes
    The following types of transactions shall not be reported for 
publication purposes:
    (1) through (6) No Change.
    (f) through (g) No Change.
* * * * *
4640. Reporting Transactions in Nasdaq Capital Market Securities
* * * * *
4642. Transaction Reporting
    (a) through (d) No Change.
    (e) Transactions Not [Required] To Be Reported For Publication 
Purposes
    The following types of transactions shall not be reported for 
publication purposes:
    (1) through (5) No Change.
    (f) through (g) No Change.
* * * * *
4000A. NASD ALTERNATIVE DISPLAY FACILITY
* * * * *
4600A. TRADING IN NASDAQ SECURITIES
* * * * *
4632A. Transactions Reported by Members
    (a) through (j) No Change.
    (k) Transactions Not To Be Reported To NASD For Publication 
Purposes
    The following types of transactions effected by NASD members shall 
not be reported to TRACS for publication purposes:
    (1) through (5) No Change.
    (I) No Change.
* * * * *
6000. NASD SYSTEMS AND PROGRAMS
6100. TRADE REPORTING SERVICE
* * * * *
6130. Trade Report Input
    (a) through (f) No Change.
    (g) Reporting Certain Transactions for Purposes of Regulatory 
Transaction Fee Assessment
    The following types of transactions that are assessed a regulatory 
transaction fee in accordance with Section 3 of Schedule A to the NASD 
By-Laws must be reported to the Nasdaq Market Center as prescribed 
below. Transactions must be submitted to the Nasdaq Market Center by 
6:30 p.m. Eastern Time (or the end of the Nasdaq Market Center 
reporting session that is in effect at that time).

(1) Odd-Lot Transactions

    Transactions for less than a normal unit of trading shall be 
reported to the Nasdaq Market Center with a modifier of .RO to 
designate the transaction as submitted for purposes of the regulatory 
transaction fee under Section 3 of Schedule A to the NASD By-Laws. 
Transactions may be entered as clearing or non-clearing.

(2) Away From the Market Sales

    Transactions where the buyer and seller have agreed to trade at a 
price substantially unrelated to the current market for the security, 
and consideration is given, shall be reported to the Nasdaq Market 
Center with a modifier of .RA to designate the

[[Page 26796]]

transaction as submitted for purposes of the regulatory transaction fee 
under Section 3 of Schedule A to the NASD By-Laws. Transactions may be 
entered as clearing or non-clearing.

(3) Exercises of OTC Options

    Transactions effected pursuant to the exercise of an OTC option 
shall be reported to the Nasdaq Market Center with a modifier of .RX to 
designate the transaction as submitted for purposes of the regulatory 
transaction fee under Section 3 of Schedule A to the NASD By-Laws. 
Transactions may be entered as clearing or non-clearing.
* * * * *
6400. REPORTING TRANSACTIONS IN LISTED SECURITIES
* * * * *
6420. Transaction Reporting
    (a) through (d) No Change.
    (e) Transactions Not [Required] To Be Reported For Publication 
Purposes
    The following types of transactions shall not be reported for 
inclusion on the Consolidated Tape:
    (1) through (8) No Change.
    (f) No Change.
* * * * *
6620. Transaction Reporting
    (a) through (d) No Change.
    (e) Transactions Not [Required] To Be Reported For Publication 
Purposes
    The following types of transactions shall not be reported for 
publication purposes:
    (1) through (4) No Change.
    (f) No Change.
* * * * *
6000A. NASD ADF SYSTEMS AND PROGRAMS
6100A. TRACS TRADE COMPARISON SERVICE
* * * * *
6130A. Trade Report Input
    (a) through (b) No Change.
    (c) Reporting Certain Transactions for Purposes of Regulatory 
Transaction Fee Assessment
    The following types of transactions that are assessed a regulatory 
transaction fee in accordance with Section 3 of Schedule A to the NASD 
By-Laws must be reported to TRACS as prescribed below. Transactions 
must be submitted to TRACS by 6:30 p.m. Eastern Time (or the end of the 
TRACS reporting session that is in effect at that time).

(1) Odd-Lot Transactions

    Transactions for less than a normal unit of trading shall be 
reported to TRACS with a modifier of .RO to designate the transaction 
as submitted for purposes of the regulatory transaction fee under 
Section 3 of Schedule A to the NASD By-Laws. Transactions may be 
entered as clearing or non-clearing.

(2) Away From the Market Sales

    Transactions where the buyer and seller have agreed to trade at a 
price substantially unrelated to the current market for the security, 
and consideration is given, shall be reported to TRACS with a modifier 
of .RA to designate the transaction as submitted for purposes of the 
regulatory transaction fee under Section 3 of Schedule A to the NASD 
By-Laws. Transactions may be entered as clearing or non-clearing.

(3) Exercises of OTC Options

    Transactions effected pursuant to the exercise of an OTC option 
shall be reported to TRACS with a modifier of .RX to designate the 
transaction as submitted for purposes of the regulatory transaction fee 
under Section 3 of Schedule A to the NASD By-Laws. Transactions may be 
entered as clearing or non-clearing.
* * * * *

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
    Pursuant to Section 31 of the Act,\4\ NASD and the national 
securities exchanges are required to pay transaction fees and 
assessments to the Commission that are designed to recover the costs 
related to the government's supervision and regulation of the 
securities markets and securities professionals. NASD obtains funds to 
pay its Section 31 fees and assessments from its membership, in 
accordance with Section 3. Currently, most of the transactions that are 
assessable under Section 3 are reported to NASD through automated 
facilities, because most transactions must be reported to NMC or TRACS 
pursuant to NASD trade reporting rules. NASD is able to use the 
transaction data reported to NMC and TRACS for Section 3 billing 
purposes. Member firms, however, are currently required to manually 
self-report covered sales of odd-lots, away from the market sales, and 
exercises of OTC options because these transactions are not otherwise 
required to be reported to NMC or TRACS.
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    \4\ 15 U.S.c. 78ee.
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    To improve NASD's programs related to compliance with Section 31 of 
the Act and Rule 31 thereunder,\5\ NASD is proposing to require NASD 
member firms to report all covered sales that must be reported to NASD 
and that are assessed under Section 3 in an automated manner. While the 
current manual self-reporting process has allowed NASD to meet its 
obligations under Section 31 of the Act, there have been instances when 
some members filed their self-reporting form late or amended previous 
forms in later months to include additional covered sales volume. NASD 
believes that requiring automated reporting of such covered sales would 
facilitate efficient, accurate, and timely reporting. Automated 
reporting would also reduce the burden on members that results from 
manually reporting certain transactions to NASD. In addition, the 
mandatory reporting of odd-lots and other transactions would enhance 
the regulatory audit trail while not providing distortive information 
to the publicly disseminated tape.
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    \5\ 17 CFR 240.31.
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    To fully automate NASD's procedures for assessing the regulatory 
transaction fee, NASD is proposing to amend: (1) Section 3 to create an 
affirmative obligation to report, in an automated manner, all covered 
sales that must be reported to NASD for purposes of Section 3; (2) NASD 
Rules 6130 and 6130A to require that members report all transactions 
reportable to NASD and subject to the regulatory transaction fee 
pursuant to Section 3 to NMC or TRACS and to identify certain 
transactions submitted specifically for a regulatory transaction fee 
assessment with a special indicator denoting their purpose; \6\ and (3) 
NASD Rules 4632,

[[Page 26797]]

4642, 4632A, 6420, and 6620 governing trade reporting that currently 
prohibit member firms from reporting odd-lot transactions, away from 
the market sales, and OTC options, as well as other identified 
transactions, to clarify that the prohibition found in the transaction 
reporting rules is limited to the submission of a transaction for 
publication purposes.\7\
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    \6\ NASD proposes to use the following modifiers for purposes of 
reporting to the NMC or TRACS certain transaction that are subject 
to the regulatory transaction fee under Section 3: (1) .RO to 
designate odd-lot transactions; (2) .RA to designate transactions 
where the buyer and seller have agreed to trade at a price 
substantially unrelated to the current market for the security; and 
(3) .RX to designate transactions effected pursuant to the exercise 
of an OTC option.
    \7\ The proposed amendments to NASD Rules 4632A and 6420 solely 
amend the headings of NASD Rules 4632A(k) and 6420(e), respectively. 
The text of these rules does not need to be amended because it 
already stated that the prohibition on reporting the identified 
transactions is limited to the submission of a transaction for 
publication purposes (or in the case of listed securities, for 
inclusion on the Consolidated Tape).
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    NASD will announce the effective date of the proposed rule change 
in a Notice to Members to be published no later than 60 days following 
Commission approval, if the Commission approves this proposal. The 
effective date would be at least 90 days following publication of the 
Notice to Members announcing Commission approval to allow firms 
sufficient time to make any necessary systems changes.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\8\ 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 requiring members to report, in an 
automated manner, all transactions that must be reported to NASD and 
are subject to the regulatory transaction fee would ensure more 
accurate and timely reporting of such transactions and would reduce the 
burden on members that results from manually reporting certain 
transactions.
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    \8\ 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.

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-2006-055 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-2006-055. 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-2006-055 and should be submitted on or before May 30, 2006.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
Nancy M. Morris,
Secretary.
[FR Doc. 06-4280 Filed 5-5-06; 8:45 am]

BILLING CODE 8010-01-M