[Federal Register Volume 71, Number 32 (Thursday, February 16, 2006)]
[Notices]
[Pages 8326-8328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-2215]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53269; File No. SR-NASD-2006-018]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Thereto To Modify the Routing Sequence 
for Directed Cross Orders

February 10, 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 February 2, 2006, the National Association of Securities Dealers, 
Inc. (''NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), submitted to 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 filed the 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act\3\ 
which renders it effective upon filing with the Commission. On February 
9, 2006, Nasdaq filed Amendment No. 1 to the proposed rule change.\4\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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\ Amendment No. 1 made clarifying changes to the rule text and 
Section I of this notice.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change is intended to explicitly add INET to the 
routing sequence for Directed Cross Orders in exchange-listed 
securities directed to the NYSE and to allow subscribers to determine 
whether they wish to route to market centers in addition to Brut, 
Nasdaq, and INET prior to the NYSE when the NYSE is the final 
destination of the order.\5\ The text of the proposed rule change is 
below. Proposed new language is in italics; deletions are in 
[brackets].\6\
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    \5\ See Amendment No. 1.
    \6\ Changes are marked to the rule text that appears in the 
electronic NASD Manual found at www.nasd.com. Prior to the date when 
The NASDAQ Stock Market LLC (``NASDAQ LLC'') commences operations, 
NASDAQ LLC will file a conforming change to the rules of NASDAQ LLC 
approved in Securities Exchange Act Release No. 53128 (January 13, 
2006).
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* * * * *
4903. Order Entry Parameters
    (a) To Brut Orders--No Change
    (b) Brut Cross Orders--
    (1) No Change
    (A)-(C) No Change
    (D) A Brut Cross Order may also be designated as a Directed Cross 
Order. A Directed Cross Order is an order that is entered into the 
System during market hours and is executable against marketable contra-
side orders in the System. The order also is eligible for routing to 
other market centers. After being processed in the Brut System and 
exhausting available liquidity in the Brut System, the order is 
automatically routed by Brut to the specific market center selected by 
the entering party for potential execution. Any portion of the Directed 
Cross Order that remains unfilled after being routed to the selected 
market center will be returned to the entering party. For Directed 
Cross Orders in exchange-listed securities directed to the New York 
Stock Exchange if, after being processed in the Brut System and 
exhausting available liquidity in the Brut System, such orders will be 
automatically routed to the Nasdaq Market Center and INET for potential 
execution and thereafter, if instructed by the entering party, to other 
market centers that provide automated electronic executions before 
being sent to the New York Stock Exchange. Directed Cross Orders in 
exchange-listed securities directed to the New York Stock Exchange 
shall remain at the New York Stock E[e]xchange\7\ until executed or 
cancelled by the entering party.
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    \7\ See Amendment No. 1.
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    (1)(E)-(F) No Change
    (c)-(f) No Change
* * * * *

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.

[[Page 8327]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Use of the Brut Directed Cross Order is purely voluntary. Brut 
processes the orders sent to it based on the order type selected by the 
entering party. In turn, the selection of a particular order type 
directs the Brut system as to how the user wants the order handled. 
This ability to choose among multiple order execution methods is 
consistent with today's open and competitive electronic market 
structure. In this structure, market participants, not markets, select 
the combination of order types and execution venues that best suit 
their trading goals.
    Currently, the Directed Cross Order directed to the NYSE as the 
final destination checks for liquidity in INET, although INET is not 
specifically mentioned in the rule. The proposed rule change simply 
modifies the routing sequence to explicitly state that the order 
automatically routes to INET, as well as to Nasdaq, for potential 
execution.
    Brut, Nasdaq, and INET are market centers that provide fast 
response times to orders, even by electronic standards. Nasdaq believes 
that the order type is widely used and benefits investors because the 
order is exposed to additional pools of liquidity for execution at the 
best price in the National Market System prior to reaching its final 
destination.
    In addition, the proposed rule change would allow an entering party 
to determine whether it wants a Directed Order to check destinations in 
addition to Brut, Nasdaq, and INET. If the entering party opts not to 
allow additional routing, the order would route to NYSE after checking 
Brut, Nasdaq, and INET. Alternatively, the order would, upon 
instruction from an entering party, route to additional market centers 
prior to the NYSE when the NYSE is the final destination of the order. 
An entering party, in making the determination whether to check 
additional market centers, may take into consideration fees for 
removing liquidity and speed of execution. The new order will service 
best execution responsibilities of brokers who believe that other 
market centers may offer enough liquidity to justify the time and cost 
to attempt to access that liquidity.
2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with Section 15A of the Act,\8\ in general, and furthers the 
objectives of Section 15A(b)(6) of the Act,\9\ in particular, in that 
it is designed to foster coordination and cooperation with persons 
engaged in regulating, clearing, settling, processing information with 
respect to, and facilitating transactions in securities.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(6).
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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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments on the proposed rule change were neither solicited 
nor received.

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

    Nasdaq has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act\10\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\11\ Because the foregoing proposed 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 of filing, 
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 
and Rule 19b-4(f)(6) thereunder. As required under Rule 19b-
4(f)(6)(iii), Nasdaq provided the Commission with written notice of its 
intent to file the proposed rule change at least five business days 
prior to filing the proposal with the Commission or such shorter period 
as designated by the Commission. Nasdaq has requested that the 
Commission waive 30-day delayed operational date provisions contained 
in the above rule, based upon a representation that the proposed rule 
filing would benefit investors and permit them to select the 
combination of order types and execution venues that best suit their 
trading goals, and should, therefore, be provided to investors as soon 
as possible. For this reason, the Commission designates the proposal to 
be effective and operative upon filing with the Commission.
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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.\12\
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    \12\ The effective date of the original proposed rule change is 
February 2, 2006 and the effective date of Amendment No. 1 is 
February 9, 2006. For purposes of calculating the 60-day period 
within which the Commission may summarily abrogate the proposed rule 
change, as amended, under section 19(b)(3)(C) of the Act, the 
Commission considers the period to commence on February 9, 2006, the 
date on which Nasdaq submitted Amendment No. 1. 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, as amended, 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-2006-018 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-2006-018. 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

[[Page 8328]]

the Commission's Public Reference Room. Copies of such filing also will 
be available for inspection and copying at the principal office of 
Nasdaq. 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-2006-018 and should be submitted on or before March 9, 2006.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
Nancy M. Morris,
Secretary.
[FR Doc. E6-2215 Filed 2-15-06; 8:45 am]
BILLING CODE 8010-01-P