[Federal Register: June 26, 2006 (Volume 71, Number 122)]
[Notices]
[Page 36369-36370]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn06-84]
[[Page 36369]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54015; File No. SR-NASD-2006-067]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change to Modify NASD Rule 7010(c)(2) To Allow NASD Members To
Receive Transaction Credits for Automated Executions in Tape B
Securities on an Estimated Monthly Basis
June 19, 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 May 30, 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 modify the methodology for distributing
transaction credits under NASD Rule 7010(c)(2). Nasdaq will implement
the proposed rule change with respect to invoices to be distributed on
or about June 10, 2006. The text of the proposed rule change is
available at NASD and at the Commission and at http://www.nasdaq.com/about/RuleFilings2006.stm
.
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 modify its current transaction credit program
applicable to liquidity providers for automated executions in Tape B
securities.\6\ Under the proposal, NASD members would be eligible to
receive transaction credit payments on an estimated, monthly basis for
quotes and orders posted by such members in Tape B securities that are
executed by inbound marketable orders through ITS/CAES, Inet or Brut.
Nasdaq is proposing the change as a competitive response to NYSE Arca,
which instituted a similar estimated monthly credit program for Tape B
securities last year.\7\
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\6\ Tape B securities include securities that are listed for
trading on the American Stock Exchange and certain other securities
that are deemed to be eligible for such listing.
\7\ Securities Exchange Act Release No. 51990 (August 15, 2005),
70 FR 49351 (August 23, 2005) (SR-PCX-2005-16).
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Currently, members that earn credits for such transactions receive
them on a quarterly basis, after Nasdaq has received its share of
market data revenue for Tape B from the Consolidated Tape Association
(``CTA'') Plan. Under this proposal for estimated payments, members
would be able to receive their share of credits, based on an estimate,
on a monthly basis before the quarterly revenues from the CTA Plan are
paid to Nasdaq. A member's estimated monthly amounts will be calculated
by using the tape credit percentage specified in NASD Rule 7010(c)(2)
(currently 50%) and applying such percentage to the estimated value of
the member's trading activity. Nasdaq will, however, hold back a
percentage of the estimated credit until Nasdaq receives payment for
its share of market data revenue for the quarter, in order to ensure
that it does not provide credits to market participants in excess of
its actual obligations. The held-back percentages would be credited
through a true-up calculation after Nasdaq receives its share of market
data revenue for the quarter. Nasdaq expects the holdback percentage to
be about 10%, but may vary it from month to month as needed to ensure
that estimated payments do not exceed actual obligations. In accordance
with Nasdaq's credit policies, all credits will be applied to
outstanding balances due to Nasdaq from members before any direct
payments are made.
As an example, assume a firm is liquidity provider for 100,000
trades during each month of a quarter. If Nasdaq estimates that each
trade will generate $1.00 in market data revenue under the CTA Plan,
the firm's estimate for each month of the quarter would be $50,000
(100,000 x $1.00 x 0.50), from which Nasdaq would hold back $5,000
($50,000 x 0.10). Therefore, the firm would be credited $45,000 each
month. Assume that after the end of the quarter, the payments received
from the plan amount to $0.95 per trade. At that time, Nasdaq would
determine that the firm's actual credit for each month of the quarter
was $47,500 (100,000 x $0.95 x 0.50) and Nasdaq would provide a true-up
credit of $2,500 for each month (the actual of $47,500 less the
estimated credit of $45,000) for a total quarterly true-up of $7,500.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of section 15A of the Act,\8\ in general, and with
section 15A(b)(5) of the Act,\9\ in particular, in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which the NASD operates or controls. The proposed rule change
allows all NASD members eligible to receive transaction credits for
providing liquidity to support executions in Tape B securities to
receive credits on an estimated monthly basis.
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\8\ 15 U.S.C. 78o-3.
\9\ 15 U.S.C. 78o-3(b)(5).
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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.
[[Page 36370]]
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
\10\ and Rule 19b-4(f)(6) thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 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 30-day operative
delay contained in Rule 19b-4(f)(6)(iii) under the Act.\12\ The
Commission believes such waiver is consistent with the protection of
investors and the public interest, for it will allow Nasdaq to modify
the methodology for distributing transaction credits under NASD Rule
7010(c)(2) in such a way as to remain competitive within the
marketplace. For these reasons, the Commission designates the proposal
to be effective and operative upon filing with the Commission.\13\
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\12\ 17 CFR 240.19b-4(f)(6)(iii).
\13\ 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-2006-067 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-2006-067. 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-2006-067 and should be submitted on or before July 17, 2006.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
[FR Doc. E6-9983 Filed 6-23-06; 8:45 am]
BILLING CODE 8010-01-P