

[Federal Register: January 4, 2006 (Volume 71, Number 2)]
[Notices]               
[Page 377-379]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04ja06-98]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53026; File No. SR-NASD-2005-152]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Extending the Pilot Relating to Manning Price-Improvement 
Standards for Decimals

December 27, 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 December 23, 2005, the National Association of Securities Dealers, 
Inc. (``NASD'') filed

[[Page 378]]

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 NASD. NASD filed this proposal pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
therefore making the proposed rule change effective immediately upon 
filing. NASD intends for this rule change to become operative on 
January 1, 2006. 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 Substance 
of the Proposed Rule Change

    NASD is proposing to extend through June 30, 2006, the current 
pilot price-improvement standards for decimalized securities contained 
in NASD Interpretive Material 2110-2--Trading Ahead of Customer Limit 
Order (``Manning Rule'' or ``Manning''). There are no proposed changes 
to the rule text.

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
    NASD's Manning Rule requires NASD member firms to provide a minimum 
level of price improvement to incoming orders in NMS and SmallCap 
securities if the firm chooses to trade as principal with those 
incoming orders at prices superior to customer limit orders they 
currently hold. If a firm fails to provide the minimum level of price 
improvement to the incoming order, the firm must execute its held 
customer limit orders. Generally, if a firm fails to provide the 
requisite amount of price improvement and also fails to execute its 
held customer limit orders, it is in violation of the Manning Rule.
    On April 6, 2001,\5\ the Commission approved, on a pilot basis, 
price-improvement standards for decimalized securities contained in 
Manning, which added the following language to IM-2110-2:
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    \5\ See Securities Exchange Act Release No. 44165 (April 6, 
2001), 66 FR 19268 (April 13, 2001).

    For Nasdaq securities authorized for trading in decimals 
pursuant to the Decimals Implementation Plan For the Equities and 
Options Markets, the minimum amount of price improvement necessary 
in order for a market maker to execute an incoming order on a 
proprietary basis in a security trading in decimals when holding an 
unexecuted limit order in that same security, and not be required to 
execute the held limit order, is as follows:
    (1) For customer limit orders priced at or inside the best 
inside market displayed in Nasdaq, the minimum amount of price 
improvement required is $0.01; and
    (2) For customer limit orders priced outside the best inside 
market displayed in Nasdaq, the market maker must price improve the 
incoming order by executing the incoming order at a price at least 
equal to the next superior minimum quotation increment in Nasdaq 
(currently $0.01).\6\
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    \6\ Pursuant to the terms of the Decimals Implementation Plan 
for the Equities and Options Markets, the minimum quotation 
increment for Nasdaq securities (both National Market and SmallCap) 
at the outset of decimal pricing is $0.01. As such, Nasdaq displays 
priced quotations to two places beyond the decimal point (to the 
penny). Quotations submitted to Nasdaq that do not meet this 
standard are rounded to the nearest minimum quotation increment 
(namely, $0.01), specifically, rounded down for buy orders and 
rounded up for sell orders. See Securities Exchange Act Release No. 
43876 (January 23, 2001), 66 FR 8251 (January 30, 2001).

    Since approval, these standards continue to operate on a pilot 
basis which terminates on December 31, 2005.\7\ After consultation with 
Commission staff, NASD has determined to seek an extension of its 
current Manning pilot until June 30, 2006. NASD believes that such an 
extension provides for an appropriate continuation of the current 
Manning price-improvement standard while the Commission continues to 
analyze the issues related to customer limit order protection in a 
decimalized environment. NASD is not proposing any other changes to the 
pilot at this time. NASD proposes to make the proposed rule change 
operative on January 1, 2006.
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    \7\ See Securities Exchange Act Release No. 51953 (June 30, 
2005), 70 FR 39839 (July 11, 2005).
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2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A of the Act,\8\ in general, and with Section 
15A(b)(6) of the Act,\9\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest. NASD believes that the proposed rule 
change will improve treatment of customer limit orders and enhance the 
integrity of the market.
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    \8\ 15 U.S.C. 78o-3.
    \9\ 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 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

    This proposal has become effective pursuant to Section 19(b)(3)(A) 
of the Act \10\ and subparagraph (f)(6) of Rule 19b-4 thereunder \11\ 
because the proposal: (1) Does not significantly affect the protection 
of investors or the public interest, (2) does not impose any 
significant burden on competition, and (3) by its terms does not become 
operative for 30 days after the date of this filing, or such shorter 
time as the Commission may designate, if consistent with the protection 
of investors and the public interest.\12\ NASD has requested that the 
Commission waive the 30-day operative delay and designate the proposed 
rule change effective immediately. NASD intends for the rule to become 
operative on January 1, 2006.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ Pursuant to Rule 19b-4(f)(6)(iii) of the Act, a proposed 
rule change does not become operative for 30 days after the date of 
its 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 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. NASD complied with the five day pre-filing requirement.
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    The Commission hereby grants the request.\13\ The Commission 
believes that such waiver is consistent with the

[[Page 379]]

protection of investors and the public interest because it will allow 
the protection of customer limit orders provided by the pilot to 
continue without interruption.
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    \13\ For purposes only of accelerating the operative date of the 
proposal, 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 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 rule-comments@sec.gov. Please include 

File Number SR-NASD-2005-152 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 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-152. 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 the File 
Number SR-NASD-2005-152 and should be submitted on or before January 
25, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E5-8229 Filed 1-3-06; 8:45 am]

BILLING CODE 8010-01-P
