[Federal Register Volume 71, Number 79 (Tuesday, April 25, 2006)]
[Notices]
[Pages 23975-23977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-6126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53675; File No. SR-NASD-2006-049]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Regarding Brut's Routing Order Process

April 18, 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 April 13, 2006, the National Association of Securities Dealers, 
Inc., through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``SEC'' or the ``Commission'') the proposed rule change as described 
in Items I, II and III below, which items have been prepared by Nasdaq. 
Nasdaq 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

    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

4714. Routing--Nasdaq-Listed Securities

    (a)-(b)--No Change

[[Page 23976]]

    (c) In the event an order becomes non-marketable while it is in the 
execution queue, or the order is not marketable upon return to Nasdaq, 
the order shall be included in the Nasdaq Market Center book (if 
consistent with the order's time in force condition) in accordance with 
the time priority established by the time-stamp assigned to the order 
when it was initially submitted to the Nasdaq Market Center. Once an 
order is placed in the Nasdaq Market Center book it shall not be routed 
outside the Nasdaq Market Center unless otherwise instructed.
    (d)-(f) No Change
* * * * *

4905. Order Processing

    (a) Brut Book Order Process--No Change
    (b) Brut Order Routing Process
    (1) No Change
    (2) With the exception of Thru Brut and Directed Cross Orders that 
specifically direct to which market center an order is to be routed, 
[orders routed out of the Brut System to other market centers for 
potential execution are generally delivered to other market centers in 
price/size priority. If the routed order is smaller in size than the 
total combined displayed share amounts of accessible market centers at 
the best price level, the Brut System delivers the routed order to the 
available market centers in price/size priority. If the routed order is 
larger than the total combined displayed share amounts of accessible 
market centers at the best price level, the Brut System delivers over-
sized orders to each displayed market center's quote in proportion to 
the individual market's center share of that total displayed share 
amount.] if an order for a security is not executed in its entirety in 
the Brut System and such order is designated for routing, the order (or 
the unfilled portion thereof--referred to hereinafter as an ``order'') 
shall be processed as follows:
    (A) The order shall be routed to other markets accessible through 
the Brut System router at a price better than the Orders available in 
the Brut System as a limit order. Routed orders shall be executed 
pursuant to the rules and regulations of the destination market.
    (B) In the event an order routed from the Brut System to another 
market is not executed in its entirety, the remaining portion of the 
order shall be returned to the Brut System and shall be eligible for 
execution, or re-routing, if marketable. A market order that is 
converted to a limit order for routing will become a market order again 
upon return to the Brut System.
    (C) In the event an order becomes non-marketable while it is in the 
execution queue, or the order is not marketable upon return to the Brut 
System, the order shall be included in the Brut System book (if 
consistent with the order's time in force condition) in accordance with 
the time priority established by the time-stamp assigned to the order 
when it is returned to the Brut System. Once an order is placed in the 
Brut System book it shall not be routed outside the Brut System unless 
otherwise instructed.
    (D) An order that has been routed to another market shall have no 
time standing in the Brut System execution queue relative to other 
orders in the Brut System. A request from a Brut Participant to cancel 
an order while it is outside the Brut System shall be processed subject 
to the applicable rules of the market to which the order has been 
routed.
    [(3) In the event an order routed to another market center is not 
executed in its entirety, the remaining portion of the order shall be 
returned to the System and, if upon return the order is marketable 
against a System order then priced at the NBBO, it will be subjected to 
Brut Book Process prior to any further routing.
    (4) An order that has been routed to another market shall have no 
time standing in the System execution queue relative to other orders in 
the System. A request from a Participant to cancel an order while it is 
outside the System shall be processed subject to the applicable rules 
of the market center to which the order has been routed.]
* * * * *

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.

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

1. Purpose
    Nasdaq represents that the purpose of the proposed rule change is 
to modify the rule language pertaining to routing to external venues 
through the Brut service to conform more closely with the rule language 
pertaining to routing to external venues through the Nasdaq Market 
Center.\4\ The one corresponding change to Nasdaq's routing language is 
necessary for clarification purposes so as to more accurately reflect 
the current routing process and does not indicate an actual system 
change.\5\ Currently, Brut's rules describe the algorithm used for 
determining to which routing destination and for how many shares Brut 
will send orders. Nasdaq believes that this limits Brut's ability to 
adjust its routing algorithm to achieve optimal routing results.
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    \4\ See NASD Rule 4714.
    \5\ See NASD Rule 4706.
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    By adopting language more consistent with Nasdaq's routing rules, 
Nasdaq represents that Brut will have more flexibility to adjust its 
routing algorithm based on a number of factors, including: speed, 
certainty of execution, potential of reserve shares, and cost. As such, 
Nasdaq believes that the proposed rule change would promote uniformity 
between Nasdaq-operated trading systems and provide the capacity to 
adopt the same routing logic in anticipation of the eventual 
integration of these systems into a single trading platform.
    The rule differs slightly from Nasdaq's routing rules, however, in 
that the Brut system uses the timestamp of an order when it is returned 
to the Brut system for ranking the order on the book, whereas the 
Nasdaq Market Center uses the order's original timestamp. Nasdaq 
believes that this difference is not significant and that it would be 
too costly to conform this feature in the Brut system in light of the 
imminent integration of the systems.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\6\ in general and with 
Section 15A(b)(6) of the Act,\7\ 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. Nasdaq believes the 
proposal is consistent with this obligation because it is designed to 
improve the routing process by making it more efficient and offering 
subscribers more routing options.
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    \6\ 15 U.S.C. 78o-3.
    \7\ 15 U.S.C. 78o-3(6).

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[[Page 23977]]

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, 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.

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

    Nasdaq has designated the foregoing rule change as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\8\ and Rule 19b-4(f)(6) thereunder \9\ 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.
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6).
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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-2006-049 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-2006-049. 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 should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-NASD-2006-049 and should be submitted on or before May 16, 2006.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-6126 Filed 4-24-06; 8:45 am]
BILLING CODE 8010-01-P