[Federal Register Volume 70, Number 146 (Monday, August 1, 2005)]
[Notices]
[Pages 44133-44135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-4087]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52122; File No. SR-NASD-2005-092]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change to Extend Operation of NASD's Alternative Display Facility 
as a Temporary Pilot

July 25, 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 July 20, 2005, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission (``SEC'' 
or the ``Commission'') the proposed rule change as described in Items I 
and II below, which items have been prepared by NASD. NASD has 
designated the proposed rule change as a ``non-controversial'' rule 
change pursuant to Rule 19b-4(f)(6) under the Act,\3\ 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\ 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 for nine months, to April 26, 2006, the 
operation of NASD's Alternative Display Facility (``ADF'') on a pilot 
basis. The ADF pilot program, as approved by the SEC on July 24, 2002, 
and extended on April 17, 2003, January 26, 2004, and October 26, 2004, 
will expire on July 26, 2005. The pilot permits members to quote and 
trade only Nasdaq-listed securities on or through the ADF. The text of 
the proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in [brackets].
* * * * *

4000A. NASD ALTERNATIVE DISPLAY FACILITY

4100A. General
    NASD Alternative Display Facility (``ADF'') is the facility to be 
operated by NASD on a nine-month pilot basis for members that choose to 
quote or effect trades in Nasdaq securities (``ADF-eligible 
securities'') otherwise than on Nasdaq or on an exchange. The ADF will 
collect and disseminate quotations, compare trades, and collect and 
disseminate trade reports. Those NASD members that utilize ADF systems 
for quotation or trading activities must comply with the Rule 4000A, 
Rule 5400 and Rule 6000A Series, as well as all other applicable NASD 
Rules. The ADF pilot will expire on [July 26, 2005] April 26, 2006.
* * * * *

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
    On July 24, 2002, the Commission approved SR-NASD-2002-97,\4\ which 
authorizes NASD to operate the ADF on a pilot basis for nine months. 
NASD subsequently filed for immediate effectiveness proposed rule 
changes SR-NASD-2003-067 to extend the pilot until January 26, 2004; 
\5\ SR-NASD-2004-012 to extend the pilot until October 26, 2004; \6\ 
and SR-NASD-2004-160 to extend the pilot until July 26, 2005.\7\ As 
described in detail in SR-NASD-2001-90, the ADF is a quotation 
collection, trade comparison, and trade reporting facility developed by 
NASD in accordance with the Commission's SuperMontage Approval Order 
\8\ and in conjunction with Nasdaq's anticipated registration as a 
national securities exchange.\9\ In addition, since the Commission gave 
its initial approval to the ADF pilot, NASD has filed several other 
ADF-related rule change proposals

[[Page 44134]]

that have been incorporated into the operation and administration of 
the pilot.\10\
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    \4\ Securities Exchange Act Release No. 46249 (July 24, 2002), 
67 FR 49822 (July 31, 2002).
    \5\ Securities Exchange Act Release No. 47633 (April 10, 2003), 
68 FR 19043 (April 17, 2003).
    \6\ Securities Exchange Act Release No. 49131 (January 27, 
2004), 69 FR 5229 (February 3, 2004).
    \7\ Securities Exchange Act Release No. 50601 (October 28, 
2004), 69 FR 64611 (November 5, 2004).
    \8\ Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001).
    \9\ Securities Exchange Act Release No. 44396 (June 7, 2001), 66 
FR 31952 (June 13, 2001).
    \10\ On January 30, 2003, NASD filed proposed rule change SR-
NASD-2003-009 to revise the transaction and quotation-related fees 
applicable to ADF activity during the pilot program. The rule change 
proposal became effective upon filing, with an implementation date 
of February 17, 2003. On January 6, 2004, the Commission granted 
accelerated approval to SR-NASD-2003-145, a proposal to amend the 
ADF pilot rules to give jurisdiction to a three-member subcommittee 
of NASD's Market Regulation Committee to review system outage 
determinations under NASD Rule 4300A(f) and excused withdrawal 
denials under NASD Rule 4619A. The rule change proposal became 
effective contemporaneous with the Commission's approval. On 
December 4, 2003, NASD filed for immediate effectiveness a proposed 
rule change to amend NASD Rule 4613A(c) to clarify that NASD may 
suspend quotations in the ADF displayed by any market participant, 
including an ECN, that are no longer reasonably related to the 
prevailing market.
    Additionally, NASD filed with the Commission three other rule 
change proposals. On March 12, 2004, the Commission approved SR-
NASD-2003-175, a proposal to repeal NASD Rule 4613A(e)(1), which 
requires members that display priced quotations for a Nasdaq 
security in two or more market centers to display the same priced 
quotations for that security in each market center. On August 18, 
2004, the Commission approved SR-NASD-2004-002, a proposed rule 
change to amend NASD Rule 4300A to require an ADF Market Participant 
to provide advance written notice to NASD's ADF Market Operations 
before denying electronic access to its ADF quote to any NASD member 
in the limited circumstances where a broker-dealer fails to pay 
contractually obligated costs for access to the Market Participant's 
quotations. On March 10, 2005, the Commission approved SR-NASD-2004-
159, a proposed rule change to establish NASD Rule 4400A, which 
gives NASD authority to receive and review complaints against ADF 
Market Participants that allege denial of direct or indirect access 
pursuant to NASD Rule 4300A. Telephone conversation between Philip 
Shaikun, Associate General Counsel, NASD, and Leah Mesfin, Special 
Counsel, Division of Market Regulation, Commission, on July 23, 
2005.
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    The ADF ultimately should provide market participants the ability 
to quote and trade Nasdaq and exchange-listed securities. The current 
ADF pilot program, however, permits operation of the ADF with respect 
to Nasdaq securities only. This is because several regulatory issues 
relating to the trading of exchange-listed securities on the ADF have 
not been resolved.
    The ADF has been operating successfully during the pilot period. In 
the SuperMontage approval order, the Commission stated that the ADF met 
the conditions set forth in that order to provide an alternative 
quotation collection, trade comparison, and trade reporting facility. 
NASD believes that the ADF has since continued to honor those 
conditions. Meanwhile, the issues related to trading exchange-listed 
securities--and by extension, approval of the operation of ADF on a 
permanent basis--remain unresolved. Accordingly, NASD believes it is 
appropriate to extend the pilot period for ADF trading in Nasdaq 
securities for the shorter of nine months or until approval or until 
approval of the ADF on a permanent basis.
    The proposed rule change will become effective upon filing, will be 
implemented on July 26, 2005, and will expire on April 26, 2006.
2. Statutory Basis
    NASD believes that the rule proposal is consistent with Section 
15A(b)(6) of the Act,\11\ which requires that NASD rules must be 
designed to prevent fraudulent and manipulative acts and practices; to 
promote just and equitable principles of trade; to foster cooperation 
and coordination among persons engaged in regulating, clearing, 
settling, processing information and facilitating transactions in 
securities; to remove impediments to and perfect the mechanism of a 
free and open market and a national market system; and, in general, to 
protect investors and the public interest. In addition, this rule 
proposal is consistent with Section 15A(b)(6) of the Act because it 
does not permit unfair discrimination between customers, issuers, 
brokers, or dealers; fix minimum profits; impose any schedule or fix 
rates of commissions, allowances, discounts, or other fees to be 
charged by members; or regulate matters not related to the purposes of 
the Act or the administration of NASD.
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    \11\ 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 would impose 
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 \12\ and Rule 19b-4(f)(6) 
thereunder \13\ because the rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; or (iii) become operative for 30 
days from the day 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.\14\ NASD has requested that the Commission 
waive the requirement that the rule change not become operative for 30 
days after the date of the filing. The Commission finds good cause for 
the proposed rule change to become operative prior to the 30th day 
after the date of publication of the notice of filing thereof and 
designates it to be operative immediately because the proposed rule 
change will prevent the benefits provided by the current ADF pilot 
program from lapsing.\15\
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    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ In addition, Rule 19b-4(f)(6) requires a self-regulatory 
organization to 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 
Commission has waived that requirement in this case.
    \15\ 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. 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 the 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-2005-092 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-2005-092. 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.

[[Page 44135]]

 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-2005-092 and should be 
submitted on or before August 22, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-4087 Filed 7-29-05; 8:45 am]
BILLING CODE 8010-01-P