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Notice

Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Short Sale Processing in Nasdaq's INET Facility

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Start Preamble February 15, 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”), filed 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. Nasdaq filed the proposed rule change as a “non-controversial” rule change under Rule 19b-4(f)(6) under the Act,[3] which rendered 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.

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

Nasdaq proposes to clarify the method by which its INET facility processes orders to comply with short selling restrictions. Nasdaq would like to implement the proposed rule change immediately. The text of the proposed rule change is available on the NASD's Web site, http://www.nasd.com, at the NASD'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

According to the Exchange, Nasdaq's INET System currently provides users the option of having the INET System price adjust and/or cancel short sale orders so as to comply with rules governing short selling. Under the proposal, Nasdaq is proposing to more fully explain the INET System's short sale compliance method and to apply it to all short sale orders entered into its System that are subject to short selling restrictions. As such, all orders to sell short that are subject to a short selling restriction would be processed as follows:

For Nasdaq-listed securities, if an order to sell short is entered on a down bid that, if executed upon entry, would violate NASD Rule 3350, the INET System will automatically re-price the Start Printed Page 9402order to $0.01 above the current national best bid and enter the order on the book. The INET System would thereafter monitor the order and if the order market becomes marketable, but executing the order would result in a violation of NASD Rule 3350, the INET System would cancel the order off of the book.

For non-Nasdaq securities, if an order to sell short is entered that, if executed upon entry, would violate Rule 10a-1 under the Act,[4] the INET System would re-price the order to the next whole minimum price variation above the “last sale” on the consolidated tape and enter the order on the book. The INET System would thereafter monitor the order and if the order becomes marketable, but executing the order would result in a violation of Rule 10a-1 under the Act,[5] the INET System would cancel the order off of the book.

The INET System would not cancel or adjust prices for orders to sell short in securities that are not subject to any short selling restriction (e.g., securities exempted from short selling restrictions by Regulation SHO or any other applicable exemption). Nasdaq notes that the INET System currently provides the short sale price adjustment and/or cancellation process clarified here. Therefore, the NASD believes that adoption of the proposal would ensure that the INET System continues not to execute orders in violation of any applicable short selling restriction.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the Section 15A of the Act,[6] in general, and Section 15A(b)(6) of the Act,[7] 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 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.

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq does not believe that the proposed rule change will impose 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

Nasdaq has neither solicited nor received written comments on the proposed rule change.

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

Because the proposed rule change: (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 this 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 [8] and subparagraph (f)(6) of Rule 19b-4 thereunder.[9]

Nasdaq has requested that the Commission waive the 30-day operative delay period for “non-controversial” proposals and make the proposed rule change effective and operative upon filing. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest, because the proposed rule change is intended to clarify a process that is already in place, which is intended to ensure that the INET System continues only to execute orders that do not violate any applicable short selling restrictions. For this reason, the Commission designates the proposal to be effective and operative upon filing with the Commission.[10]

At any time within 60 days of the filing of a 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

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-2006-017. 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-2006-017 and should be submitted on or before March 16, 2006.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11

J. Lynn Taylor,

Assistant Secretary.

End Signature End Preamble

Footnotes

5.  See id.

Back to Citation

10.  For the purpose only of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition and capital formation. See 15 U.S.C. 78c(f).

Back to Citation

[FR Doc. E6-2529 Filed 2-22-06; 8:45 am]

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