Document ID: SEC-2006-1373-0001
Agency: sec
Document Type: Notice
Title: Self-regulatoryorganizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-10-24T04:00Z

[Federal Register: October 24, 2006 (Volume 71, Number 205)]
[Notices]               
[Page 62329-62331]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24oc06-96]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54614; File No. SR-NASD-2006-117]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Enhance the Brut Directed Cross Order

October 17, 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 October 4, 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 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

    Nasdaq proposes to enhance the flexibility of the Brut Directed 
Cross Order by allowing it to check and, if appropriate, interact with 
available liquidity in any of Nasdaq's three execution systems (ITS/
CAES System, Brut, and INET) before further processing. Nasdaq has 
designated this proposal as noncontroversial and has requested that the 
Commission waive the 30-day pre-operative waiting period contained in 
Rule 19b-4(f)(6)(iii) under the Act.\5\
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    \5\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is below. Proposed new 
language is in

[[Page 62330]]

italics; proposed deletions are in [brackets].

4903. Order Entry Parameter

    (a) No Change.
    (b) Brut Cross Orders--
    (1) General. A Brut Cross Order is an order that is displayed in 
the System, and is executable against marketable contra-side orders in 
the System. The order also is eligible for routing to other market 
centers. If marketable upon receipt against both orders in the System 
as well as other market centers, the order shall execute first against 
System orders. With the exception of Directed Cross Orders, once a Brut 
Cross Order is routed (in whole or in part) to another market center, 
any remaining unexecuted or returned portion of the order shall be 
posted in System and shall no longer be eligible for routing to other 
market centers. Directed Cross Orders directed to the New York Stock 
Exchange shall remain at the exchange until executed or cancelled by 
the entering party.
    (A)-(C) No Change.
    (D) A Brut Cross Order may also be designated as a Directed Cross 
Order. A Directed Cross Order is an order that is entered into the 
System during market hours and is executable against marketable contra-
side orders in the System. The order also is eligible for routing to 
other market centers. After being processed and exhausting available 
liquidity, the order is automatically routed to the specific market 
center selected by the entering party for potential execution. Any 
portion of the Directed Cross Order that remains unfilled after being 
routed to the selected market center will be returned to the entering 
party. For Directed Cross Orders directed to the New York Stock 
Exchange [if, after being processed in the Brut System and exhausting 
available liquidity in the Brut System], such orders will first 
interact with any available liquidity in the Brut, INET, and ITS/CAES 
systems [be automatically routed to the ITS/CAES System and INET for 
potential execution] and thereafter, if instructed by the entering 
party, to other market centers that provide automated electronic 
executions before being sent to the New York Stock Exchange. Directed 
Cross Orders directed to the New York Stock Exchange shall remain at 
the New York Stock Exchange until executed or cancelled by the entering 
party.
    (E)-(F) No Change.
    (c)-(f) 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, 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
    Nasdaq proposes to increase the flexibility of the Brut Directed 
Cross Order for orders directed to the New York Stock Exchange 
(``NYSE''). Currently parties entering a Brut Directed Cross Order 
directed to the NYSE have those orders first processed in the Brut 
System and, after exhausting available liquidity in the Brut System, 
thereafter automatically routed to the ITS/CAES System and Nasdaq's 
INET Facility for potential execution and finally, if instructed by the 
entering party, to other market centers that provide automated 
electronic executions before being sent to the NYSE. Nasdaq proposes to 
modify the behavior of the Brut Directed Cross Order so that it will 
now check and, if appropriate, interact with available liquidity in any 
of the following Nasdaq-operated execution facilities: The ITS/CAES 
System, Nasdaq's Brut Facility, and Nasdaq's INET Facility, before 
being sent upon request to other market centers that provide automated 
electronic executions before finally being delivered to the NYSE. 
Nasdaq notes that each Nasdaq-operated execution facility would be 
checked for available liquidity before the order is routed away to 
another market.\6\
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    \6\ Telephone conversation between Tomas Moran, Associate 
General Counsel, Nasdaq, and Theodore S. Venuti, Attorney, Division 
of Market Regulation, Commission, on October 10, 2006.
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    Nasdaq believes that the above change will enhance the ability of 
market participants to take advantage of beneficial liquidity residing 
across all three of Nasdaq's current execution systems. Further, such 
processing will increase the likelihood of having users' NYSE-bound 
orders executed electronically thereby improving the speed and 
efficiency of the market as a whole. As before, no Brut Directed Cross 
Order will execute in a Nasdaq-operated execution venue at an inferior 
price to one that is available at an accessible alternative venue.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\7\ in general, and with 
section 15A(b)(6) of the Act,\8\ 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 a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \7\ 15 U.S.C. 78o-3.
    \8\ 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.

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

    The foregoing proposed rule change is subject to section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(6) thereunder \10\ 
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 Nasdaq 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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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has fulfilled the five-day pre-filing requirement. Nasdaq 
has requested that the Commission waive the 30-day pre-operative delay. 
The Commission believes that waiving the 30-day pre-operative delay is 
consistent

[[Page 62331]]

with the protection of investors and the public interest because such 
waiver would immediately allow a Brut Directed Cross Order to check 
and, if appropriate, interact with available liquidity in any of 
Nasdaq's three execution systems (ITS/CAES System, Brut, and INET) 
before further processing. For these reasons, the Commission designates 
the proposed rule change to be effective and operative upon filing with 
the Commission.\11\
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    \11\ For the purposes only of waiving the 30-day pre-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-NASD-2006-117 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-2006-117. 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 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-2006-117 and should be submitted on or before November 14, 
2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-17733 Filed 10-23-06; 8:45 am]

BILLING CODE 8011-01-P