[Federal Register Volume 70, Number 131 (Monday, July 11, 2005)]
[Notices]
[Pages 39839-39840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3624]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51953; File No. SR-NASD-2005-085]


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 Decimals

June 30, 2005.
    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 29, 2005, 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 filed this 
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

    NASD is proposing to extend through December 31, 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''). There are no 
proposed changes to the rule text of the Manning Interpretation.

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 III 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 a 
Nasdaq National Market or SmallCap security if the firm chooses to 
trade as principal with an incoming order at a price superior to that 
of the 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 customer limit order, it is in 
violation of the Manning Interpretation. The Commission originally 
approved, on a pilot basis, price-improvement standards for decimalized 
securities contained in the Manning Interpretation on April 6, 2001.\5\ 
At that time, NASD added the following language to IM-2110-2:

    \5\ See Securities Exchange Act Release No. 44165 (April 6, 
2001), 66 FR 19268 (April 13, 2001).
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    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).\6\

    \6\ Pursuant to the terms of the Decimals Implementation Plan 
for the Equities and Options Markets, the minimum quotation 
increment for Nasdaq securities (both National Market and SmallCap) 
at the outset of decimal pricing is $0.01. As such, Nasdaq displays 
priced quotations to two places beyond the decimal point (to the 
penny). Quotations submitted to Nasdaq that do not meet this 
standard are rounded to the nearest minimum quotation increment 
(namely, $0.01), specifically, rounded down for buy orders and 
rounded up for sell orders. See Securities Exchange Act Release No. 
43876 (January 23, 2001), 66 FR 8251 (January 30, 2001) (SR-NASD-01-
07).

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[[Page 39840]]

    Since approval, these standards continue to operate on a pilot 
basis which terminates on June 30, 2005.\7\ NASD has determined to seek 
an extension of its current pilot until December 31, 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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    \7\ See Securities Act Release No. 50893 (December 20, 2004), 69 
FR 78078 (December 29, 2004).
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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 require, 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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    \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.

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

    NASD asserts that the foregoing rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder \11\ because the rule change does not:
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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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    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; nor
    (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.\12\ NASD has requested that the Commission waive the 30-day 
operative delay and designate the proposed rule change effective 
immediately so that the pilot can continue uninterrupted.
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    \12\ In addition, Rule 19b-4(f)(6)(iii) states that NASD must 
provide the Commission with written notice of its intent to file the 
proposed rule change at least five days prior to the date of filing 
of the proposed rule change. NASD satisfied this requirement.
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    The Commission hereby grants the request.\13\ The Commission 
believes that such waiver is consistent with the protection of 
investors and the public interest because it will allow the protection 
of customer limit orders provided by the pilot to continue without 
interruption and designates the proposed rule change to be operative 
upon filing with the Commission.
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    \13\ For purposes only of accelerating the operative date of the 
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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    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.

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-2005-085 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-085. 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 at the principal office of NASD and at the Commission's 
Public Reference Room. 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-2005-085 and should be submitted on or before August 1, 
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. E5-3624 Filed 7-8-05; 8:45 am]
BILLING CODE 8010-01-P