Document ID: SEC-2006-1644-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-12-18T05:00Z

[Federal Register: December 18, 2006 (Volume 71, Number 242)]
[Notices]               
[Page 75788-75790]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de06-66]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54909; File No. SR-NASD-2006-129]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change Relating to the Use of a Special Indicator for 
Transactions Reported in Accordance With Section 3 of Schedule A to the 
NASD By-Laws

December 11, 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 29, 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 and 
II below, which Items have been prepared by the NASD. The NASD has 
submitted the proposed rule change under 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\ The NASD has asked the Commission to waive the 30-day 
operative delay provided in 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

    The NASD proposes to adopt new paragraph (f) of NASD Rule 6130C, 
``Trade Report Input,'' which will require members that report to the 
NASD/NSX Trade Reporting Facility (``NASD/NSX TRF'') \6\ odd-lot 
transactions, sales where the buyer and seller have agreed to a price 
substantially unrelated to the current market for the security (also 
referred to as ``away from the market sales''), and purchases or sales 
of securities effected upon the exercise of an over-the-counter 
(``OTC'') option to use a special indicator denoting that such 
transactions are reported in accordance with Section 3 of Schedule A to 
the NASD By-Laws. Because the systems changes required to enable the 
NASD/NSX TRF to support the proposed new trade report modifiers have 
not been completed, proposed NASD Rule 6130C(f) specifies that prior to 
December 15, 2006, members cannot use the NASD/NSX TRF to report these 
transactions to the NASD and must use another electronic mechanism to 
satisfy their reporting obligations. The text of proposed NASD Rule 
6130C(f) is substantially similar to NASD Rule 6130(g), which the 
Commission approved on June 12, 2006,\7\ and which became effective on 
December 1, 2006. In this proposal, the NASD also is proposing 
technical conforming changes to NASD Rule 6130(g).
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    \6\ The NASD/NSX TRF is the trade reporting facility established 
by the NASD and the National Stock Exchange.
    \7\ See Securities Exchange Act Release No. 53977 (June 12, 
2006), 71 FR 34976 (June 16, 2006) (order approving SR-NASD-2006-
055) (``June 2006 Order'').
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    The text of the proposed rule change is available at http://www.nasd.com, 

at the principal offices of the NASD, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the 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. The 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
Background
    In the June 2006 Order, the Commission approved an NASD proposal 
that, among other things, amended the NASD's By-Laws to require members 
to report to the NASD in an automated manner all transactions that must 
be reported to the NASD and that are subject to a regulatory 
transaction fee pursuant to Section 3 of Schedule A to the NASD By-Laws 
(``Section 3'').\8\ In that proposal, the NASD also adopted NASD Rule 
6130(g), which requires members to report to the System, defined to 
include the NASD/

[[Page 75789]]

Nasdaq Trade Reporting Facility (the ``NASD/Nasdaq TRF''), odd-lot 
transactions, away from the market sales, and OTC option exercises with 
a special indicator denoting that such transactions are reported in 
accordance with Section 3. The effective date of the proposal was 
December 1, 2006.
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    \8\ See June 2006 Order, supra note 7. Pursuant to Section 31 of 
the Act, the 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. The NASD obtains its Section 31 fees and assessments 
from its membership, in accordance with Section 3.
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    On November 6, 2006, the Commission approved the NASD's proposal to 
establish the NASD/NSX TRF.\9\ The NASD/NSX TRF provides members with 
an additional mechanism for reporting transactions in exchange-listed 
securities executed otherwise than on an exchange. The rules relating 
to the NASD/NSX TRF, which are found in the NASD Rule 4000C and 6000C 
Series, are substantially similar to the rules relating to the NASD/
Nasdaq TRF. The NASD/NSX TRF rules became effective on November 27, 
2006, the date on which the NASD/NSX TRF commenced operation with 
respect to certain Nasdaq-listed securities.
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    \9\ See Securities Exchange Act Release No. 54715 (November 6, 
2006), 71 FR 66354 (November 14, 2006) (order approving SR-NASD-
2006-108).
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Proposed Amendments
    The NASD proposes to adopt new NASD Rule 6130C(f) to require 
members that submit reports to the NASD/NSX TRF for odd-lot 
transactions, away from the market sales, and transactions pursuant to 
the exercise of an OTC option to use a special indicator denoting that 
such transactions are reported in accordance with Section 3. The 
proposed new paragraph specifies that transactions may be entered as 
clearing or non-clearing. Pursuant to NASD Rule 4632C(e), these 
transactions are not to be reported to the NASD/NSX TRF for purposes of 
publication. Proposed NASD Rule 6130C(f) also specifies the trade 
report modifiers that must be used when reporting these transactions to 
the NASD/NSX TRF: (1) .RO for transactions of less than a normal unit 
of trading; (2) .RA for away from the market sales; and (3) .RX for 
transactions effected pursuant to the exercise of an OTC option. These 
trade report modifiers are identical to the modifiers required under 
NASD Rule 6130(g).
    The text of proposed NASD Rule 6130C(f) differs slightly from the 
current text of NASD Rule 6130(g). While members have an affirmative 
obligation pursuant to Section 3 to report to the NASD in an automated 
manner all covered odd-lot transactions, away from the market sales, 
and exercises of OTC options, they are not required to report such 
transactions to the NASD/NSX TRF. Instead, members may use any NASD 
facility that accepts the electronic reporting of such transactions, 
e.g., the NASD/Nasdaq TRF or the Alternative Display Facility 
(``ADF''), to satisfy their reporting obligations. The text of proposed 
NASD Rule 6130C(f) makes clear that if members use the NASD/NSX TRF to 
report such transactions to the NASD, their reports must comply with 
the requirements set forth in NASD Rule 6130C(f). The NASD also is 
proposing conforming changes to the text of NASD Rule 6130(g) to 
maintain consistency among the rules for the NASD Trade Reporting 
Facilities and to clarify that members may, but are not required to, 
use the NASD/Nasdaq TRF to report such transactions.\10\
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    \10\ The NASD notes that ``System'' is defined for purposes of 
NASD Rule 6130 to include the OTC Reporting Facility, which is the 
only mechanism available to members for reporting transactions in 
OTC equity securities in accordance with NASD Rule 6620.
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    Finally, the NASD notes that the systems changes that will enable 
the NASD/NSX TRF to support the new trade report modifiers cannot be 
implemented as of December 1, 2006. As a result, proposed NASD Rule 
6130C(f) provides that prior to December 15, 2006, members cannot 
report these transactions to the NASD/NSX TRF and must use an 
alternative electronic mechanism to satisfy their reporting obligations 
under Section 3.
    The NASD believes that requiring members to report these 
transactions for regulatory purposes with the appropriate modifier will 
enhance the audit trail while preventing the dissemination of trade 
information that could distort the tape.
    The NASD has filed the proposed rule change for immediate 
effectiveness. The NASD proposes to make the proposed rule change 
operative on December 1, 2006, the effective date of the amendments to 
Section 3 and substantially similar amendments to NASD Rule 6130(g) 
relating to the NASD/Nasdaq TRF.\11\
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    \11\ See June 2006 Order, supra note 7.
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2. Statutory Basis
    The 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 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. The NASD believes that the proposed rule change will 
enhance the audit trail while preventing the dissemination of trade 
information that could distort the tape.
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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

    The NASD 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 NASD has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \13\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\14\ Because the NASD has designated the foregoing proposed 
rule change as one that: (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 of filing, 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 and Rule 19b-4(f)(6) 
thereunder. As required under Rule 19b-4(f)(6)(iii), the NASD provided 
the Commission with written notice of its intention to file the 
proposed rule change at least five business days prior to filing the 
proposal with the Commission or such shorter period as designated by 
the Commission.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The NASD has asked the Commission to 
waive the 30-day operative delay to allow the proposed rule change to 
become operative on December 1, 2006, the effective date for 
substantially similar amendments to NASD Rule 6130, which governs the 
NASD/Nasdaq TRF.\15\ The NASD notes, however, that the systems changes 
necessary to allow the NASD/NSX TRF to support the new

[[Page 75790]]

trade report modifiers provided in NASD Rule 6130C(f) could not be 
implemented as of December 1, 2006. For that reason, NASD Rule 6130C(f) 
prohibits NASD members from reporting transactions covered by NASD Rule 
6130(f) to the NASD/NSX TRF prior to December 15, 2006, and requires 
them to use an alternative electronic mechanism to satisfy their 
reporting obligations prior to that date.
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    \15\ See June 2006 Order, supra note 7.
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because it will allow NASD members to submit to the NASD/NSX TRF trade 
reports for the transactions specified in NASD Rule 6130C(f) on or 
after December 15, 2006, thereby providing NASD members with an 
additional means to satisfy their obligation to report these 
transactions.\16\ For this reason, the Commission designates that the 
proposal become operative on December 1, 2006.
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    \16\ For purposes only of waiving the 30-day operative delay, 
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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    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.

VI. 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-2006-129 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-2006-129. 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 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 publicly available. All submissions should refer to 
File Number SR-NASD-2006-129 and should be submitted on or before 
January 8, 2007.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-21452 Filed 12-15-06; 8:45 am]

BILLING CODE 8011-01-P