[Federal Register Volume 69, Number 249 (Wednesday, December 29, 2004)]
[Notices]
[Pages 78078-78079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-28443]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50893; File No. SR-NASD-2004-176)


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Extend an Existing Pilot Relating to 
Manning Price-Improvement Standards

December 20, 2004.
    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 December 2, 2004, 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. NASD has filed 
this proposed 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. 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 June 30, 2005, the current 
pilot price-improvement standards for decimalized securities contained 
in NASD Interpretive Material 2110-2, ``Trading Ahead of Customer Limit 
Order'' (``Manning Interpretation'' or ``Manning''). Without such an 
extension, these standards will expire on December 31, 2004. NASD 
proposes to extend the pilot's expiration date to June 30, 2005,\5\ 
NASD does not propose to make any substantive changes to the pilot. The 
text of the proposed rule change is available at the NASD's Office and 
at the Commission's Public Reference Room.
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    \5\ NASD understands that the Commission's proposed Regulation 
NMS may have an impact on this pilot program. Accordingly, NASD has 
represented that it will undertake to work with the Commission to 
ensure that the pilot program would be consistent with the rules and 
regulations contained in Regulation NMS, if and when it is adopted. 
Telephone Conversation between Andrea Orr, Assistant General 
Counsel, NASD, and Ronesha A. Butler, Special Counsel, Division of 
Market Regulation, Commission, on December 20, 2004.
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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 Interpretation requires an NASD member firm to 
provide a minimum level of price improvement to an incoming order in an 
NMS or SmallCap security if the firm chooses to trade as principal with 
the incoming order at a price superior to a customer limit order that 
it currently holds. If the firm fails to provide the minimum level of 
price improvement to the incoming order, the firm must execute the held 
customer limit order. Generally, if a firm fails to provide the 
requisite amount of price improvement and also fails to execute the 
held

[[Page 78079]]

customer limit order, it is in violation of the Manning Interpretation.
    On April 6, 2001, the Commission approved, on a pilot basis, price-
improvement standards for decimalized securities contained in 
Manning.\6\ Since approval, these standards continue to operate on a 
pilot basis which terminates on December 31, 2004.\7\ NASD has 
determined to seek an extension of its current Manning pilot until June 
30, 2005. NASD believes that such an extension provides for an 
appropriate continuation of the current Manning price-improvement 
standard 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.
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    \6\ See Securities Exchange Act Release No. 34-44165 (April 6, 
2001), 66 FR 19268 (April 13, 2001).
    \7\ See Securities Exchange Act Release No. 34-48876 (December 
4, 2003), 68 FR 69103 (December 11, 2003).
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2. Statutory Basis
    NASD 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)(6) of the Act,\9\ in particular, 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.
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    \8\ 15 U.S.C. 78o-3
    \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, 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 by NASD.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    NASD asserts that the proposed rule change is immediately effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder \11\ because it: (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 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ In addition, to submit a filing pursuant to Rule 19b-
4(f)(6) under the Act, paragraph (f)(6)(iii) thereof also requires 
the Exchange to give 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. NASD complied with this 
requirement.
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    NASD proposes to make the proposed rule change operative on January 
1, 2005, and requests that the Commission waive the 30-day operative 
date. The Commission hereby grants this request.\13\ The Commission 
believes that waiving the 30-day pre-operative period is consistent 
with the protection of investors and the public interest because it 
will allow the benefits of investors resulting from the pilot to 
continue uninterrupted. At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such 
proposed 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.
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    \13\ For purposes only of accelerating the operative date of 
this proposal, 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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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 [email protected]. Please include 
File Number SR-NASD-2004-176 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2004-176. 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principle 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 the File Number SR-NASD-2004-
176 and should be submitted on or before January 19, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-28443 Filed 12-28-04; 8:45 am]
BILLING CODE 8010-01-M