[Federal Register Volume 71, Number 248 (Wednesday, December 27, 2006)]
[Notices]
[Pages 77839-77841]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22081]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54968; File No. SR-NASDAQ-2006-058]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Permit Orders to Peg to the Midpoint of the Best Bid and Best Offer

December 19, 2006.
    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ The 
NASDAQ Stock Market LLC (``Nasdaq'') is filing with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been substantially 
prepared by Nasdaq. The Exchange filed the proposed rule change 
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 the 
Substance of the Proposed Rule Change

    Nasdaq is proposing to enable orders to peg to the midpoint between 
the best bid and best offer (``Midpoint Peg''). The text of the 
proposed rule change is available on the Exchange's Web site (http://www.nasdaq.complinet.com), at the Exchange's Office of the Secretary, 
and at the Commission's Public Reference Room.

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 proposes to modify the rule language pertaining to pegged 
orders (``Pegged Orders'') to enable orders to peg to the midpoint of 
the best bid and best offer. Nasdaq currently offers pegged 
functionality, adjusting the price of the order based upon changes in 
the best bid and offer in the national market system (``National Market 
System'').
    A market participant entering a Pegged Order currently can specify 
that its price will equal the inside quote on

[[Page 77840]]

the same side of the market (``Primary Peg'') or the opposite side of 
the market (``Market Peg''). The Primary Peg and Market Peg Orders may 
establish their pricing relative to the appropriate bids or offers by 
the selection of one or more offset amounts that will adjust the price 
of the order by the offset amount selected. Additionally, a new 
timestamp is created for the order each time it is automatically 
adjusted.
    The proposed rule change is in accordance with Rule 612 of 
Regulation NMS,\5\ which governs sub-penny quoting of National Market 
System stocks \6\ (the ``Sub-Penny Rule''). The proposed rule change 
would not result in the display, rank, or acceptance of a bid or offer, 
an order, quotation, or indication of interest in any NMS stock that is 
priced in an increment smaller than $0.01 per share, unless the price 
of the bid or offer, order, indication of interest is priced less than 
$1.00 per share.\7\
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    \5\ 17 CFR 242.600 et seq. See also Securities Exchange Act 
Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) 
(``Regulation NMS Adopting Release'').
    \6\ An NMS stock is any non-option security for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan. See 17 CFR 
242.600(b)(46) and (47).
    \7\ If the bid or offer, order, or indication of interest is 
priced less than $1.00 per share, the minimum allowable increment is 
$0.0001 per share. See 17 CFR 242.612(b).
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    The following examples illustrate how the proposed rule change 
would operate (note that the price of the order updates in response to 
changes in the best bid and best offer, excluding the order's own 
impact on the best bid or best offer):

Example 1

    The best bid is $20.00 and the best offer is $20.06.
    The Midpoint Peg Order to buy will be priced at $20.03.
    The best offer updates to $20.08.
    The price of the Midpoint Peg Order will update to $20.04.

Example 2

    The best bid is $20.00 and the best offer is $20.03.
    The price of the Midpoint Peg Order to buy will be $20.01. The true 
midpoint would be $20.015, but to avoid pricing the order in a sub-
penny increment the bid is rounded down. However, if the order instead 
was a sell order the offer would be rounded up.
    The best offer updates to $20.08.
    The price of the Midpoint Peg Order will be $20.04.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general, and with Section 
6(b)(5) of the Act,\9\ in particular, in that the proposal is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, 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.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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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 were neither solicited nor received.

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

    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\ in 
that it: (i) Does not significantly affect the protection of investors 
or the public interest; (ii) does not impose any significant burden on 
competition; and (iii) by its terms, does not become operative for 30 
days after the date of the filing.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ As required by Rule 19b-4(f)(6)(iii), on November 28, 2006, 
Nasdaq provided 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.
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    A proposed rule changed filed under Rule 19b-4(f)(6) normally may 
not become operative prior to 30 days after the date of filing.\13\ 
However, Rule 19b-4(f)(6)(iii) \14\ permits the Commission to designate 
a shorter time if such action is consistent with the protection of 
investors and the public interest. Nasdaq has requested that the 
Commission waive the 30-day operative delay, which would make the rule 
change operative immediately. The Commission believes that waiving the 
30-day operative delay is consistent with the protection of investors 
and the public interest because the proposed rule change provides a 
potentially useful enhancement for investors to utilize in executing 
their trades.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ Id.
    \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 a rule change pursuant 
to Section 19(b)(3)(A) of the Act, 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-NASDAQ-2006-058 in 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-NASDAQ-2006-058. 
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

[[Page 77841]]

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 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-NASDAQ-2006-058 and should 
be submitted on or before January 17, 2007.

    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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 Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-22081 Filed 12-26-06; 8:45 am]
BILLING CODE 8011-01-P