[Federal Register Volume 71, Number 237 (Monday, December 11, 2006)]
[Notices]
[Pages 71600-71605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20965]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54873; File No. SR-NASD-2006-123]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 Regarding Guidance for Adjudicating 
Clearly Erroneous Transactions Under NASD Rule 11890

December 5, 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 November 7, 2006, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), 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 Nasdaq. On November 30, 
2006, Nasdaq filed Amendment No. 1.\3\ Nasdaq filed the proposal as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A) of 
the Act,\4\ and Rule 19b-4(f)(6) thereunder,\5\ 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced the text of the original filing in 
its entirety in order to make several clarifying edits to the rule 
text and the description thereof.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is providing guidance regarding factors it generally 
considers in adjudicating clearly erroneous transactions under NASD 
Rule 11890.
    The text of the proposed rule change is below. Proposed new 
language is in italics.
* * * * *

IM-11890-4. Clearly Erroneous Transaction Guidance for Filings Under 
Rule 11890(a) and Single Stock Events Under Rule 11890(b)(1)

    Nasdaq is providing the following guidance on how it generally 
considers:
     All complaints filed by market participants under Rule 
11890(a); and

[[Page 71601]]

     Many events involving a single security considered on 
Nasdaq's own motion pursuant to Rule 11890(b)(1).
    Nasdaq generally considers a transaction to be clearly erroneous 
when the print is substantially inconsistent with the market price at 
the time of execution. In making such a determination, Nasdaq takes 
into account the circumstances at the time of the transaction, the 
maintenance of a fair and orderly market, and the protection of 
investors and the public interest. Participants in Nasdaq are 
responsible for ensuring that the appropriate price and type of order 
are entered into Nasdaq's systems. Simple assertion by a firm that it 
made a mistake in entering an order or a quote, or that it failed to 
pay attention or to update a quote, may not be sufficient to establish 
that a transaction was clearly erroneous.

Numerical Factors for Review

    Nasdaq primarily considers the execution price of a trade in 
determining whether it is clearly erroneous.

------------------------------------------------------------------------
            Execution price              Range away from reference price
------------------------------------------------------------------------
$1.75 and under........................  Equal to or greater than the
                                          minimum threshold required for
                                          adjudication under Rule
                                          11890(a)(2)(C)(ii).
Over $1.75 and up to $25...............  10%.
Over $25 and up to $50.................  5%.
Over $50...............................  3%.
------------------------------------------------------------------------

    Nasdaq uses different Reference Prices based on the time of the 
trade of the security in order to establish an appropriate comparison 
point. These Reference Prices are detailed below. In unusual 
circumstances, however, Nasdaq may use a different Reference Price.

------------------------------------------------------------------------
             Time of trade                       Reference price
------------------------------------------------------------------------
Non-Nasdaq-listed securities for trades  The national BBO at the time of
 executed between 9:30 am and 4 pm        execution of first share of
 Eastern Time (``Regular Session'') and   the disputed order.
 after primary market has posted first
 two-sided quote.
Non-Nasdaq-listed securities for trades  The national BBO at the time of
 executed during Regular Session and      execution of first share of
 before primary market has posted first   the disputed order. If
 two-sided quote.                         national BBO does not appear
                                          substantially related to
                                          market, Nasdaq may consider
                                          other Reference Prices
                                          including the opening trade,
                                          indication of interest and
                                          first two-sided quote in the
                                          primary market (which may
                                          occur after the execution) and
                                          the closing price for the
                                          prior Regular Session for the
                                          security's primary market.
Non-Nasdaq-listed securities for trades  Closing price of security for
 executed after 4 pm and before 9:30 am   the last Regular Session on
 Eastern Time.                            the security's primary market.
------------------------------------------------------------------------

Additional Factors

    In occasional circumstances, Nasdaq may consider additional factors 
in determining whether a transaction is clearly erroneous. These 
include:
     Material news released for the security
     Suspicious trading activity
     System malfunctions or disruptions
     Locked or crossed markets
     Trading in the security was recently halted/resumed
     The security is an initial public offering
     Volume and volatility for the security
     Stock-split, reorganization or other corporate action
     Validity of consolidated tape trades and quotes and Nasdaq 
BBO comparison to national BBO
     General volatility of market conditions
     Reason for the error

Additional Information Concerning Rule 11890(b)(1)

    Nasdaq may on its own motion review transactions in any security in 
the event of:
     A disruption or malfunction in the use or operation of any 
quotation, execution, communication, or trade reporting system owned or 
operated by Nasdaq and approved by the SEC;
     Extraordinary market conditions or other circumstances in 
which the nullification or modification of transactions may be 
necessary for the maintenance of a fair and orderly market or the 
protection of investors and the public interest.
    Consequently, Rule 11890(b)(1) is focused on systemic problems that 
involve large numbers of parties or trades, or market conditions where 
it would not be in the best interests of the market to proceed under 
the processes set forth in Rule 11890(a). Sometimes events involving a 
single security will meet the standards of Rule 11890(b)(1). However, 
market participants should not assume that Rule 11890(b)(1) will be 
available where, for example, they failed to file a complaint within 
the time periods specified in Rule 11890(a). The rule could be 
available, however, in cases where a trade not eligible for 
adjudication under Rule 11890(a) nevertheless could present systemic 
risks if permitted to stand.
    The guidance set forth in IM-11890-4 applies to many events 
involving a single security adjudicated pursuant to Rule 11890(b)(1). 
However, Nasdaq may apply the guidance set forth in IM-11890-5 to some 
events involving a single security, such as some situations where 
trading activity occurs in multiple market centers and Nasdaq is acting 
in consultation with other markets.
    IM-11890-4 applies solely to transactions in non-Nasdaq exchange 
listed securities with respect to which Nasdaq exercises regulatory 
authority on behalf of NASD. Accordingly, IM-11890-4 will expire when 
Nasdaq is no longer exercising such regulatory authority.

IM-11890-5. Clearly Erroneous Transaction Guidance for Multi-Stock 
Events Under Rule 11890(b)(1)

    Nasdaq is providing the following guidance on how it generally 
considers multi-stock events adjudicated on Nasdaq's own motion 
pursuant to Rule 11890(b)(1).

[[Page 71602]]

    Nasdaq generally considers a transaction to be clearly erroneous 
when the print is substantially inconsistent with the market price at 
the time of execution. In making such a determination, Nasdaq takes 
into account the circumstances at the time of the transaction, the 
maintenance of a fair and orderly market, and the protection of 
investors and the public interest. Participants in Nasdaq are 
responsible for ensuring that the appropriate price and type of order 
are entered into Nasdaq's systems. Simple assertion by a firm that it 
made a mistake in entering an order or a quote, or that it failed to 
pay attention or to update a quote, may not be sufficient to establish 
that a transaction was clearly erroneous.
    Nasdaq may on its own motion review transactions in any security in 
the event of:
     A disruption or malfunction in the use or operation of any 
quotation, execution, communication, or trade reporting system owned or 
operated by Nasdaq and approved by the SEC; or
     Extraordinary market conditions or other circumstances in 
which the nullification or modification of transactions may be 
necessary for the maintenance of a fair and orderly market or the 
protection of investors and the public interest.
    Consequently, Rule 11890(b)(1) is focused on systemic problems that 
involve large numbers of parties or trades, or market conditions where 
it would not be in the best interests of the market to proceed under 
the processes set forth in Rule 11890(a). Even in cases involving 
multiple securities, however, market participants should not assume 
that Rule 11890(b)(1) will be available where, for example, they failed 
to file a complaint within the time periods specified in Rule 11890(a). 
The rule could be available, however, in cases where a trade not 
eligible for adjudication under Rule 11890(a) nevertheless could 
present systemic risks if permitted to stand.
    The determination of whether to adjudicate an event under Rule 
11890(b)(1) is made by Nasdaq in its sole discretion pursuant to the 
terms of the rule.

Numerical Factors for Review

    Nasdaq primarily considers the execution prices of the trades in 
question in determining whether trades should be nullified in a multi-
stock event pursuant to Rule 11890(b)(1). Generally all trades more 
than 10% away from the Reference Price would be clearly erroneous.
    NASDAQ uses different Reference Prices based on time of the trade 
in order to establish an appropriate comparison point. These Reference 
Prices are detailed below. In unusual circumstances, however, Nasdaq 
may use a different Reference Price.

------------------------------------------------------------------------
             Time of trade                       Reference price
------------------------------------------------------------------------
All trades executed after the opening    The national BBO at the time of
 of trading during regular market hours   execution of first share of
 and until the end of regular market      the disputed order.
 hours.
All securities for trades executed:      The closing price of the
 after 4:00 p.m., Eastern Time    security for regular market
 (ET)..                                   hours on the security's
 before 9:30 a.m., ET..........   primary market.
 during the market opening
 process for regular market hours..
------------------------------------------------------------------------

    In occasional circumstances, Nasdaq may consider additional factors 
in determining whether the transactions are clearly erroneous. These 
include:
     Material news released for individual securities
     Suspicious trading activity
    Nasdaq may also apply the guidance set forth in IM-11890-5 to some 
events involving a single security, such as some situations where 
trading activity occurs in multiple market centers and Nasdaq is acting 
in consultation with markets.
    IM-11890-5 applies solely to transactions in non-Nasdaq exchange 
listed securities with respect to which Nasdaq exercises regulatory 
authority on behalf of NASD. Accordingly, IM-11890-5 will expire when 
Nasdaq is no longer exercising such regulatory authority.
* * * * *

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 is adopting Interpretive Material under NASD Rule 11890 to 
provide guidance with regard to its consideration of transactions that 
may be clearly erroneous. Paragraph (a) of NASD Rule 11890 allows 
market participants to petition Nasdaq to nullify or modify trades in 
non-Nasdaq exchange-listed securities that they allege to be clearly 
erroneous. Paragraph (b)(1) allows Nasdaq to nullify or modify trades 
on its own motion in the event of a disruption or malfunction in the 
use or operation of Nasdaq systems or extraordinary market conditions 
or other circumstances in which the nullification or modification of 
transactions may be necessary for the maintenance of a fair and orderly 
market or the protection of investors and the public interest. Nasdaq 
is providing one set of Interpretive Material relating to NASD Rule 
11890(a) and many events involving a single stock under NASD Rule 
11890(b)(1), and a second set of Interpretive Material relating to 
events involving multiple stocks under NASD Rule 11890(b)(1). In each 
case, the Interpretive Material is intended to provide market 
participants with insights into the factors generally considered by 
Nasdaq in determining whether to nullify or modify trades under the 
rule.\6\
---------------------------------------------------------------------------

    \6\ The Interpretive Material relates solely to trades in non-
Nasdaq exchange-listed securities, with respect to which Nasdaq 
continues to exercise regulatory authority on behalf of NASD. Thus, 
the trades subject to Nasdaq's authority under Rule 11890(a) include 
transactions executed through the ITS/CAES System and Nasdaq's Inet 
facility (``System Trades''), and trades subject to Nasdaq's 
authority under Rule 11890(b)(1) include both System Trades and 
over-the-counter trades in non-Nasdaq exchange-listed securities 
reported to the ACT System operated by Nasdaq. By its terms, the 
Interpretive Material will expire when Nasdaq is no longer 
exercising regulatory authority on behalf of NASD. The NASDAQ Stock 
Market LLC is also filing a version of the Interpretive Material as 
a Nasdaq Exchange Rule. See SR-NASDAQ-2006-046 (November 7, 2006).
---------------------------------------------------------------------------

    At its basic level, NASD Rule 11890 is intended to allow Nasdaq to 
adjudicate disputes between firms as to the status of a trade, with a 
goal of

[[Page 71603]]

preventing unjust enrichment of one market participant at the expense 
of another in circumstances where the terms of a trade are clearly out 
of line with objective market conditions for a security. Thus, NASD 
Rule 11890(a) allows the party that believes it made a significant 
error to petition for an adjudication, and in appropriate 
circumstances, to be relieved of the obligation to settle the trade. 
The rule may not be used as an insurance policy against trades that 
merely lose money, however. Accordingly, the rule was amended in 2005 
\7\ to establish a conclusive presumption that a trade is not eligible 
for review under NASD Rule 11890(a) unless its price deviates from the 
inside market for the security by an amount in excess of certain 
bright-line numerical thresholds. This aspect of the rule reflects the 
view that it is preferable to promote market certainty and 
accountability by market participants by allowing all trades close to 
the inside market to stand, even if a particular trade may arguably 
have been caused by a market participant error.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 52141 (July 27, 2005), 
70 FR 44709 (August 3, 2005) (SR-NASD-2004-009).
---------------------------------------------------------------------------

    Nevertheless, in an environment of continual increases in the scope 
and speed of electronic trading, NASD Rule 11890(b)(1) provides an 
important safeguard against market disruptions caused by trader errors 
or system malfunctions that result in executions affecting multiple 
market participants and/or securities. Thus, NASD Rule 11890(b)(1) 
mitigates systemic risk by providing a mechanism to break erroneous 
trades that may have a serious detrimental effect on one or more market 
participants. NASD Rule 11890(b)(1) has been used both with respect to 
events affecting a single stock, as where an erroneous order causes a 
large number of trades involving multiple market participants to 
execute, and events affecting multiple stocks, as where a system 
malfunction results in a more widespread problem. Because of its focus 
on system malfunctions and overall market integrity, market 
participants should not assume that NASD Rule 11890(b)(1) will be used 
where, for example, they failed to file a complaint within the time 
periods specified in NASD Rule 11890(a). However, the rule could be 
available in cases where a trade not eligible for adjudication under 
NASD Rule 11890(a) nevertheless could present systemic risks if 
permitted to stand. Thus, for example, if a firm's erroneous trades had 
the potential to cause a firm's insolvency but its petition was 
untimely, Nasdaq might consider using NASD Rule 11890(b)(1)(ii) to 
prevent the insolvency.\8\
---------------------------------------------------------------------------

    \8\ As is the case in all instances where a firm's erroneous 
trades raise questions as to the adequacy of its internal controls, 
Nasdaq would also refer the firm for investigation by the NASD.
---------------------------------------------------------------------------

    Thus, under both parts of the rule, Nasdaq strives to strike a 
balance between certainty and flexibility, to ensure that (i) Similar 
situations are addressed in a similar manner, (ii) market participants 
do not attempt to use the rule to attain unfair advantage, and (iii) 
the rule is not written or construed in a way that may prevent action 
necessary to protect market quality or prevent systemic problems and 
thereby maintain a fair and orderly market and protect investors and 
the public interest. With these considerations in mind, Nasdaq believes 
that the Interpretive Material allows market participants to achieve a 
better understanding of Nasdaq's application of the rule without 
limiting its adaptability. In effect, the Interpretive Material 
describes Nasdaq's understanding of the precedents that have emerged 
through years of adjudications under the rule; as with judicial 
precedents, they serve as a guide to future cases without constricting 
adaptability to new or unique fact patterns.
    Both sets of Interpretive Material reflect that Nasdaq generally 
considers a transaction to be clearly erroneous when the print is 
substantially inconsistent with the market price at the time of 
execution. In making such a determination, Nasdaq takes into account 
the circumstances at the time of the transaction, the maintenance of a 
fair and orderly market, and the protection of investors and the public 
interest. The Interpretive Material also stresses that participants in 
Nasdaq are responsible for ensuring that the appropriate price and type 
of order are entered into Nasdaq's systems. Simple assertion by a firm 
that it made a mistake in entering an order or a quote, or that it 
failed to pay attention or to update a quote, may not be sufficient to 
establish that a transaction was clearly erroneous.
    IM-11890-4 concerns all complaints filed by market participants 
under NASD Rule 11890(a), as well as many events involving a single 
security considered on Nasdaq's own motion pursuant to NASD Rule 
11890(b)(1). Nasdaq primarily considers the execution price of a trade 
in determining whether it is clearly erroneous. Specifically, Nasdaq 
generally uses the following guidelines:

------------------------------------------------------------------------
            Execution price              Range away from reference price
------------------------------------------------------------------------
$1.75 and under........................  Equal to or greater than the
                                          minimum threshold required for
                                          adjudication under Rule
                                          11890(a)(2)(C)(ii).
Over $1.75 and up to $25...............  10%.
Over $25 and up to $50.................  5%.
Over $50...............................  3%.
------------------------------------------------------------------------

    Thus, the degree of deviation from a specified reference price 
needed for a trade to be declared clearly erroneous depends on the 
execution price: securities trading at lower prices require a higher 
percentage deviation before they will be considered clearly erroneous, 
since the normal daily trading ranges for these securities generally 
involve larger percentage movements. In the case of securities priced 
at $1.75 or below, a trade will generally be considered clearly 
erroneous if it is eligible for adjudication at all under the minimum 
thresholds under NASD Rule 11890(a)(2)(C)(ii), since these thresholds 
require significant percentage deviation before a low-priced trade is 
eligible. Thus, in all cases, the threshold under which a trade will 
generally be considered clearly erroneous is equal to or greater than 
the eligibility threshold under Rule 11890(a)(2)(C)(ii).
    Nasdaq uses different Reference Prices based on time of the trade 
of the security in order to establish an appropriate comparison point. 
These Reference Prices are detailed below. In unusual circumstances, 
however, Nasdaq may use a Reference Price not specifically described in 
the Interpretive Material. For example, in a case where material news 
about a security was released after market close for the security and a 
trade occurring after 4

[[Page 71604]]

p.m. and before 9:30 a.m. is at issue, it may be more appropriate to 
use a Reference Price derived from after-hours trading activity than to 
use the closing price of the security. Similarly, in the case of 
several large orders that execute at multiple prices, a Reference Price 
based on a weighted average of the BBO at relevant times may be more 
appropriate than a Reference Price based solely on the BBO immediately 
prior to the execution of the first share of the order.

------------------------------------------------------------------------
             Time of trade                       Reference price
------------------------------------------------------------------------
Non-Nasdaq-listed securities for trades  The national BBO at the time of
 executed between 9:30 a.m. and 4 p.m.    execution of first share of
 Eastern Time (``Regular Session'') and   the disputed order.
 after primary market has posted first
 two-sided quote.
Non-Nasdaq-listed securities for trades  The national BBO at the time of
 executed during Regular Session and      execution of first share of
 before primary market has posted first   the disputed order. If
 two-sided quote.                         national BBO does not appear
                                          substantially related to
                                          market, Nasdaq may consider
                                          other Reference Prices
                                          including the opening trade,
                                          indication of interest and
                                          first two-sided quote in the
                                          primary market (which may
                                          occur after the execution) and
                                          the closing price for the
                                          prior Regular Session for the
                                          security's primary market.
Non-Nasdaq-listed securities for trades  Closing price of security for
 executed after 4 p.m. and before 9:30    the last Regular Session on
 a.m. Eastern Time..                      the security's primary market.
------------------------------------------------------------------------

    In occasional circumstances, Nasdaq may consider additional factors 
in determining whether a transaction is clearly erroneous. These 
include:
     Material news released for the security
     Suspicious trading activity
     System malfunctions or disruptions
     Locked or crossed markets
     Trading in the security was recently halted/resumed
     The security is an initial public offering
     Volume and volatility for the security
     Stock-split, reorganization or other corporate action
     Validity of consolidated tape trades and quotes and Nasdaq 
BBO comparison to national BBO
     General volatility of market conditions
     Reason for the error
    IM-11890-5 concerns multi-stock events adjudicated on Nasdaq's own 
motion pursuant to NASD Rule 11890(b)(1). In such cases, Nasdaq 
primarily considers the numerical factors of the execution prices in 
determining whether trades should be nullified. Generally all trades 
more than 10% away from the Reference Price would be clearly 
erroneous.\9\
---------------------------------------------------------------------------

    \9\ Nasdaq generally uses 10% threshold in these cases, in 
contrast to the sliding scale of percentages described in IM-11890-
4, because multi-stock events adjudicated under Rule 11890(b) 
generally require coordination with other venues trading the stock 
in order to ensure consistent treatment of trades across all venues 
affected by the event. Nasdaq has found that the 10% threshold is 
generally used by other venues and therefore facilitates a 
coordinated and timely response.
---------------------------------------------------------------------------

    Nasdaq uses different Reference Prices based on time of the trade 
in order to establish an appropriate comparison point. These Reference 
Prices are detailed below. In unusual circumstances, however, Nasdaq 
may use a different Reference Price.

------------------------------------------------------------------------
             Time of trade                       Reference price
------------------------------------------------------------------------
All trades executed after the opening    The national BBO at the time of
 of trading during regular market hours   execution of first share of
 and until the end of regular market      the disputed order.
 hours.
All securities for trades executed:      The closing price of the
 after 4 p.m., Eastern Time       security for regular market
 (ET)..                                   hours on the security's
 before 9:30 a.m., ET..........   primary market.
 during the market opening
 process for regular market hours..
------------------------------------------------------------------------

    In occasional circumstances, Nasdaq may consider additional factors 
in determining whether the transactions in a multi-stock event are 
clearly erroneous, including material news released for individual 
securities or suspicious trading activity.
    The guidance set forth in IM-11890-4 will apply to many events 
involving a single security adjudicated pursuant to NASD Rule 
11890(b)(1). However, Nasdaq may apply the guidance set forth in IM-
11890-5 to some events involving a single security, such as some 
situations where trading activity occurs in multiple market centers and 
Nasdaq is acting in consultation with other markets.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\10\ in general, and with 
Section 15A(b)(6) of the Act,\11\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. The Interpretive Material 
will promote market participants' understanding of Nasdaq's application 
of NASD Rule 11890, thereby promoting greater certainty and 
accountability.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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 were neither solicited nor received.

[[Page 71605]]

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

    The foregoing proposed rule change is subject to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder \13\ 
because the proposal: (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 
prior to 30 days after the date of filing or such shorter time as the 
Commission may designate if consistent with the protection of investors 
and the public interest; provided that the self-regulatory organization 
has given the Commission 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.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Nasdaq provided the Commission with written notice of its intent to 
file this proposed rule change at least five business days prior to the 
date of filing the proposed rule change. Nasdaq has requested that the 
Commission waive the 30-day operative delay. The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest because the filing 
promotes market participants' understanding of Nasdaq's application of 
NASD Rule 11890, thereby promoting greater certainty with regard to the 
administration of the rule. For these reasons, the Commission 
designates the proposal to be effective upon filing with the 
Commission.\14\
---------------------------------------------------------------------------

    \14\ For purposes only of waiving the operative delay for this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    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.\15\
---------------------------------------------------------------------------

    \15\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). 
For purposes of calculating the 60-day abrogation period, the 
Commission considers the proposed rule change, as amended, to have 
been filed on November 30, 2006, when Amendment No. 1 was filed.
---------------------------------------------------------------------------

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-2006-123 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2006-123. 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 the 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-2006-123 and should be submitted on or before 
January 2, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E6-20965 Filed 12-8-06; 8:45 am]
BILLING CODE 8011-01-P