[Federal Register: June 19, 2006 (Volume 71, Number 117)]
[Notices]
[Page 35315-35317]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jn06-97]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53972; File No. SR-NASD-2006-069]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Extending the Pilot Relating To Manning Price-Improvement
Standards for Decimalized Securities
June 12, 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 June 1, 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 NASD. NASD has designated
the proposal as constituting a ``non-controversial'' proposed rule
change under section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6)
thereunder,\4\ which renders it 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
NASD is proposing to extend through December 31, 2006, the current
pilot price-improvement standards for decimalized securities contained
in NASD Interpretive Material (``IM'') 2110-2--Trading Ahead of
Customer Limit Order (``Manning Rule''). There are no proposed changes
to rule text.
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's Manning Rule requires an NASD member firm to provide a
minimum level of price improvement to incoming orders in Nasdaq and
exchange-listed securities if the firm chooses to trade as principal
with those incoming orders at prices equal to or better than customer
limit orders the firm currently holds.\5\ If a firm fails to provide
the minimum level of price improvement to the incoming order, the firm
must execute its held customer limit orders at the price at which the
firm traded for its own account or better. Generally, if a firm fails
to provide the requisite amount of price improvement and also fails to
execute its held
[[Page 35316]]
customer limit orders, it is in violation of the Manning Rule.
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\5\ The Commission recently approved amendments to the Manning
Rule to require members to provide price improvement to customer
limit orders in certain circumstances and expand the application of
the Manning Rule to exchange-listed securities. See Securities
Exchange Act Release No. 52210 (August 4, 2005), 70 FR 46897 (August
11, 2005) (SR-NASD-2004-089). These amendments became effective
January 2, 2006. See NASD Notice to Members 05-64.
The Commission also recently approved further amendments to the
Manning Rule to codify NASD's existing position that the Manning
Rule applies to all members, whether acting as a market maker or
not. These amendments became effective April 14, 2006. See
Securities Exchange Act Release No. 53653 (April 14, 2006), 71 FR
20429 (April 20, 2006) (SR-NASD-2006-035).
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On April 6, 2001,\6\ the Commission approved, on a pilot basis,
price improvement standards for decimalized securities contained in the
Manning Rule, which added the following language to IM-2110-2:
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\6\ See Securities Exchange Act Release No. 44165 (April 6,
2001), 66 FR 19268 (April 13, 2001) (SR-NASD-2001-27).
For Nasdaq securities authorized for trading in decimals
pursuant to the Decimals Implementation Plan For the Equities and
Options Markets, the minimum amount of price improvement necessary
in order for a market maker to execute an incoming order on a
proprietary basis in a security trading in decimals when holding an
unexecuted limit order in that same security, and not be required to
execute the held limit order, is as follows:
(1) For customer limit orders priced at or inside the best
inside market displayed in Nasdaq, the minimum amount of price
improvement required is $0.01; and
(2) For customer limit orders priced outside the best inside
market displayed in Nasdaq, the market maker must price improve the
incoming order by executing the incoming order at a price at least
equal to the next superior minimum quotation increment in Nasdaq
(currently $0.01).\7\
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\7\ Pursuant to the terms of the Decimals Implementation Plan
for the Equities and Options Markets, the minimum quotation
increment for Nasdaq securities at the outset of decimal pricing is
$0.01. On June 9, 2005, the Commission adopted Rule 612 of
Regulation NMS which establishes minimum pricing increments for NMS
stocks (e.g., Nasdaq and exchange-listed securities). Rule 612 of
Regulation NMS prohibits market participants from displaying,
ranking, or accepting quotations, orders, or indications of interest
in any NMS stock priced in an increment smaller than $0.01 if the
quotation, order, or indication of interest is priced equal to or
greater than $1.00 per share. If the quotation, order, or indication
of interest is priced less than $1.00 per share, the minimum pricing
increment is $0.0001. See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04).
Rule 612 of Regulation NMS became effective on January 31, 2006. See
Securities Exchange Act Release No. 52196 (August 2, 2005), 70 FR
45529 (August 8, 2005).
Given the adoption and implementation of Rule 612 of Regulation
NMS, Nasdaq, among other market centers, implemented changes to its
trading systems to accept, rank, execute and disseminate priced
quotations in accordance with Rule 612 of Regulation NMS. Quotations
submitted to Nasdaq that are not in compliance with Rule 612 of
Regulation NMS are rejected.
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Since approval, these standards continue to operate on a pilot
basis that terminates on June 30, 2006.\8\ NASD has determined to seek
an extension of its current Manning Rule pilot until December 31, 2006.
NASD believes that such an extension provides for an appropriate
continuation of the current Manning Rule price improvement standards
while the Commission continues to analyze the issues related to
customer limit order protection in a decimalized environment. NASD is
not proposing any other changes to the pilot at this time. NASD
proposes to make the proposed rule change operative on July 1, 2006.
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\8\ See Securities Exchange Act Release No. 53026 (December 27,
2005), 71 FR 377 (January 4, 2006) (SR-NASD-2005-152).
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2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of section 15A(b)(6) of the Act,\9\ 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 will
improve treatment of customer limit orders and enhance the integrity of
the market.
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\9\ 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 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 by NASD.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
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, provided that NASD
has given the Commission written notice of its intent to file 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,\10\ the proposed rule change has become effective
pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)
thereunder.
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\10\ Rule 19b-4(f)(6)(iii) under the Act requires that a self-
regulatory organization submit to the Commission written 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. The
NASD provided notice to the Commission four business days prior to
filing the proposed rule change, and the Commission has determined
to waive the five business day pre-filing notice requirement.
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At any time within 60 days of the filing of the 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.\11\
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\11\ See 15 U.S.C. 78s(b)(3)(C).
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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 Number SR-NASD-2006-069 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-2006-069. 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
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should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NASD-2006-069
and should be submitted on or before July 10, 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. E6-9530 Filed 6-16-06; 8:45 am]
BILLING CODE 8010-01-P