[Federal Register: October 17, 2008 (Volume 73, Number 202)]
[Notices]
[Page 61919]
[DOCID:fr17oc08-152]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Second Meeting, Special Committee 213/EUROCAE: Enhanced Flight
Vision Systems/Synthetic Vision Systems (EFVS/SVS), EUROCAE Working
Group 79 (WG-79).

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of RTCA Special Committee 213/EUROCAE, Enhanced Flight
Vision Systems/Synthetic Vision Systems (EFVS/SVS), EUROCAE Working
Group 79 (WG-79).

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SUMMARY: The FAA is issuing this notice to advise the public of a first
meeting of RTCA Special Committee 213, Standards for Air Traffic Data
Communication Services.

DATES: The meeting will be held November 6-7, 2008 from 9 a.m.-5 p.m.

ADDRESSES: The meeting will be held at RTCA, Inc., 1828 L Street NW.,
Suite 805, Washington, DC 20036.

FOR FURTHER INFORMATION CONTACT: (1) RTCA Secretariat, 1828 L Street,
NW., Suite 805, Washington, DC, 20036; telephone<PHONE_NUMBER>; fax
(202) 833-9434; Web site http://www.rtca.org.

SUPPLEMENTARY INFORMATION: Pursuant to section 10(a) (2) of the Federal
Advisory Committee Act (Pub. L. 92-463, 5 U.S.C., Appendix 2), notice
is hereby given for a Special Committee 213 meeting. The agenda will
include:

November 6

     Opening Plenary Session (Welcome, Introductions, and
Agenda Review)
     Approval 1st Common Meeting SC-213/WG-79 Summary
     Resolve final review and comment (FRAC) comments and
approve SC-213/WG-79 draft MASPS for EVS, SVS, CVS and EFVS

November 7

     Continue resolution of FRAC comments on the draft MASPS,
as required
     Approve document for consideration by the PMC on December
16, 2008
     Closing Plenary Session (Other Business, Date and Place of
Next Meeting, Meeting Evaluation, Adjourn)
    Attendance is open to the interested public but limited to space
availability. With the approval of the chairmen, members of the public
may present oral statements at the meeting. Persons wishing to present
statements or obtain information should contact the person listed in
the FOR FURTHER INFORMATION CONTACT section. Members of the public may
present a written statement to the committee at any time.

    Issued in Washington, DC, on October 10, 2008.
James H. Williams,
Director, Systems in Engineering and Safety, RTCA Advisory Committee
(Acting).
[FR Doc. E8-24764 Filed 10-16-08; 8:45 am]

BILLING CODE 4910-13-P


[Federal Register Volume 85, Number 79 (Thursday, April 23, 2020)]
[Notices]
[Pages 22775-22777]
[FR Doc No: 2020-08595]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88681; File No. SR-ISE-2020-17]

Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Extend the Pilot
Period for the Exchange's Nonstandard Expirations Pilot Program

April 17, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 13, 2020, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') 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 the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to extend the pilot period for the Exchange's
nonstandard expirations pilot program, currently set to expire on May
4, 2020.
    The Exchange requests that the Commission waive the 30-day
operative delay period contained in Exchange Act Rule 19b-
4(f)(6)(iii).\3\
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's
website at http://ise.cchwallstreet.com/, at the principal office of
the Exchange, 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, the Exchange 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. The Exchange 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
    ISE filed a proposed rule change for the listing and trading on the
Exchange, on a twelve month pilot basis, of p.m.-settled options on
broad-based indexes with nonstandard expirations dates.\4\ The pilot
program permits both Weekly Expirations and End of Month (``EOM'')
expirations similar to those of the a.m.-settled broad-based index
options, except that the exercise settlement value of the options
subject to the pilot are based on the index value derived from the
closing prices of component stocks. This pilot was extended various
times with the last extension through May 4, 2020.\5\
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    \4\ See Securities Exchange Act Release No. 82612 (February 1,
2018), 83 FR 5470 (February 7, 2018) (approving SR-ISE-2017-111)
(Order Approving a Proposed Rule Change To Establish a Nonstandard
Expirations Pilot Program).
    \5\ See Securities Exchange Act Release Nos. 85030 (February 1,
2019), 84 FR 2633 (February 7, 2019) (SR-ISE-2019-01); 85672 (April
17, 2019), 84 FR 16899 (April 23, 2019) (SR-ISE-2019-11); and 87380
(October 22, 2019), 84 FR 57786 (October 28, 2019) (SR-ISE-2019-28).
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    Supplementary Material .07(a) to Options 4A, Section 12 provides
that the Exchange may open for trading Weekly Expirations on any broad-
based index eligible for standard options trading to expire on any
Monday, Wednesday, or Friday (other than the third Friday-of-the-month
or days that coincide with an EOM expiration). Weekly Expirations are
subject to all provisions of Options 4A, Section 12 and are treated the
same as options on the same underlying index that expire on the third
Friday of the expiration month. Unlike the standard monthly options,
however, Weekly Expirations are p.m.-settled.
    Pursuant to Supplementary Material .07(b) to Options 4A, Section 12
the Exchange may open for trading EOM expirations on any broad-based
index eligible for standard options trading to expire on the last
trading day of the month. EOM expirations are subject to all provisions
of Options 4A, Section 12 and treated the same as options on the same
underlying index that expire on the third Friday of the expiration
month. However, the EOM expirations are p.m.-settled.
    The Exchange now proposes to amend Supplementary Material .07(c) to
Options 4A, Section 12 so that the duration of the pilot program for
these nonstandard expirations will be through November 2, 2020. The
Exchange continues to have sufficient systems capacity to handle p.m.-
settled options on broad-based indexes with nonstandard expirations
dates and has not encountered any issues or adverse market effects as a
result of listing them. Additionally, there is continued investor
interest in these products. The Exchange will continue to make public
on its website any data and analysis it submits to the Commission under
the pilot program.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\6\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\7\ in particular, in that it is designed 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.
The Exchange believes the proposed rule change will protect investors
and the public interest by providing the Exchange, the Commission and
investors the benefit of additional time to analyze nonstandard
expiration options. By extending the pilot program, investors may
continue to benefit from a wider array of investment opportunities.
Additionally, both the Exchange and the Commission may continue to
monitor the potential for adverse market effects of p.m.-settlement on
the market, including the underlying cash equities market, at the
expiration of these options.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Options with nonstandard
expirations would be available for trading to all market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the proposed rule change does not: (i) Significantly affect
the protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative for 30
days from the date on which it was filed, or such shorter time as the
Commission may designate, it has become effective pursuant to Section
19(b)(3)(A) of the Act \8\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii)
requires a self-regulatory organization to give 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.
The Exchange has satisfied this requirement.

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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \10\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \11\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
investors may continue to trade nonstandard expiration options listed
by the Exchange as part of the pilot program on an uninterrupted basis.
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest as
it will allow the pilot program to continue uninterrupted, thereby
avoiding investor confusion that could result from a temporary
interruption in the pilot program. Accordingly, the Commission hereby
waives the operative delay and designates the proposed rule change
operative upon filing.\12\
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    \10\ 17 CFR 240.19b-4(f)(6).
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ For purposes only of waiving the 30-day operative delay,
the Commission also 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 summarily may temporarily suspend 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.

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 email to<EMAIL_ADDRESS>Please include
File Number SR-ISE-2020-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2020-17. This file
number should be included on the subject line if email 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-ISE-2020-17, and should be submitted on
or before May 14, 2020.
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    \13\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-08595 Filed 4-22-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: November 9, 2006 (Volume 71, Number 217)]
[Notices]
[Page 65863-65867]
[DOCID:fr09no06-150]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54705; File No. SR-NASD-2005-146]

Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendments
No. 1 and 2 Thereto To Expand the Scope of IM-2110-2 Relating To
Trading Ahead of Customer Limit Orders To Apply to All OTC Equity
Securities

November 3, 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 December 9, 2005, the National Association of Securities Dealers,
Inc. (``NASD'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described below
in Items I, II, and III, which Items have been prepared by NASD. On
September 26, 2006, NASD filed Amendment No. 1 to the proposed rule
change,\3\ and on October 19, 2006, NASD filed Amendment No. 2 to the
proposed rule change.\4\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original rule
filing in its entirety.
    \4\ Amendment No. 2 replaced and superseded the amended rule
filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASD is proposing to expand the scope of its Interpretive Material
2110-2 relating to trading ahead of customer limit orders to apply to
all over-the-counter (``OTC'') equity securities. Below is the text of
the proposed rule change. Proposed new language is in italics; proposed
deletions are in brackets.

IM-2110-2. Trading Ahead of Customer Limit Order

(a) General Application

    To continue to ensure investor protection and enhance market
quality, NASD's Board of Governors is issuing an interpretation to NASD
Rules dealing with member firms' treatment of their customer limit
orders in NMS stocks and OTC equity [exchange-listed] securities. This
interpretation, which is applicable from 9:30 a.m. to 6:30 p.m. Eastern
Time, will require members to

handle their customer limit orders with all due care so that members do
not ``trade ahead'' of those limit orders. Thus, members that handle
customer limit orders, whether received from their own customers or
from another member, are prohibited from trading at prices equal or
superior to that of the limit order without executing the limit order.
In the interests of investor protection, NASD is eliminating the so-
called disclosure ``safe harbor'' previously established for members
that fully disclosed to their customers the practice of trading ahead
of a customer limit order by a market-making firm.[dagger] For purposes
of this interpretation, (1) ``NMS stock'' shall have the meaning set
forth in SEC Rule 600(b)(47) of Regulation NMS and (2) ``OTC equity
security'' shall have the meaning set forth in Rule 6610(d).
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    [dagger] For purposes of the operation of certain [Nasdaq]
transaction and quotation reporting systems and facilities during
the period from 4 p.m. to 6:30 p.m. Eastern Time, members may
generally limit the life of a customer limit order to the period of
9:30 a.m. to 4 p.m. Eastern Time. If a customer does not formally
assent (``opt-in'') to processing of the customer's limit order(s)
during the extended hourse period commencing after the normal close
of the [Nasdaq] market, limit order proteciton will not apply to
that customer's order(s).
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    Rule 2110 states that:
    A member, in the conduct of his business, shall observe high
standards of commercial honor and just and equitable principles of
trade.
    Rule 2320, the Best Execution Rule, states that:
    In any transaction for or with a customer, a member and persons
associated with a member shall use reasonable diligence to ascertain
the best inter-dealer market for the subject security and buy or sell
in such a market so that the resultant price to the customer is as
favorable as possible to the customer under prevailing market
conditions.
Interpretation
    The following interpretation of Rule 2110 has been approved by the
Board:
    A member firm that accepts and holds an unexecuted limit order from
its customer (whether its own customer or a customer of another member)
in an NMS stock or OTC equity[exchange-listed] security and that
continues to trade the subject security for its own account at prices
that would satisfy the customer's limit order, without executing that
limit order, shall be deemed to have acted in a manner inconsistent
with just and equitable principles of trade, in violation of Rule 2110,
provided that a member firm may negotiate specific terms and conditions
applicable to the acceptance of limit orders only with respect to limit
orders that are: (a) for customer accounts that meet the definition of
an ``institutional account'' as that term is defined in Rule
3110(c)(4); or (b) 10,000 shares or more, unless such orders are less
than $100,000 in value. In the event that a member trades ahead of an
unexecuted customer limit order at a price that is better than the
unexecuted limit order, such member is required to execute the limit
order at the price received by the member or better. Nothing in this
interpretation, however, requires members to accept limit orders from
any customer.
    By rescinding the safe harbor position and adopting this
interpretation, NASD wishes to emphasize that members may not trade
ahead of their customer limit orders even if the member had in the past
fully disclosed the practice to its customers prior to accepting limit
orders. NASD believes that, pursuant to Rule 2110, members accepting
and holding unexecuted customer limit orders owe certain duties to
their customers and the customers of other member firms that may not be
overcome or cured with disclosure of trading practices that include
trading ahead of the customer's order. The terms and conditions under
which institutional account or appropriately sized customer limit
orders are accepted must be made clear to customers at the time the
order is accepted by the firm so that trading ahead in the firm's
market-making capacity does not occur.
    [As outlined in NASD Notice to Members 97-57, the minimum amount of
price improvement necessary in order for a member to execute an
incoming order on a proprietary basis when holding an unexecuted limit
order for a Nasdaq security trading in fractions, and not be required
to execute the held limit order, is as follows:]
     [If actual spread is greater than \1/16\ of a point, a
firm must price improve an incoming order by at least a \1/16\. For
stocks priced under $10 (which are quoted in \1/32\ increments), the
firm must price improve by at least \1/64\.]
     [If actual spread is the minimum quotation increment, a
firm must price improve an incoming order by one-half the minimum
quotation increment.]
    [For Nasdaq securities authorized for trading in decimals pursuant
to the Decimals Implementation Plan For the Equities and Options
Markets, t]The minimum amount of price improvement necessary in order
for a member 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 greater than or equal to $1.00
that are 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 less than $1.00 that are at or
inside the best inside market, the minimum amount of price improvement
required is the lesser of $0.01 or one-half (\1/2\) of the current
inside spread;
    (3) For customer limit orders priced outside the best inside market
[displayed in Nasdaq], the member must price improve the incoming order
by executing the incoming order at a price at or inside the best inside
market for the security; and [at least equal to the next superior
minimum quotation increment in Nasdaq (currently $0.01)]
    (4) For customer limit orders in securities for which there is no
published inside market, the minimum amount of price improvement
required is $0.01.
    NASD also wishes to emphasize that all members accepting customer
limit orders owe those customers duties of ``best execution''
regardless of whether the orders are executed through the member or
sent to another member for execution. As set out above, the Best
Execution Rule requires members to use reasonable diligence to
ascertain the best inter-dealer market for the security and buy or sell
in such a market so that the price to the customer is as favorable as
possible under prevailing market conditions. NASD emphasizes that order
entry firms should continue to monitor routinely the handling of their
customers' limit orders regarding the quality of the execution
received.
    (b) through (c) No change.
* * * * *
    6541. [Limit Order Protection] Reserved.
    [(a) Members shall be prohibited from ``trading ahead'' of customer
limit orders that a member accepts in securities quoted on the OTCBB.
Members handling customer limit orders, whether received from their own
customers or from another member, are prohibited from trading at prices
equal or superior to that of the customer limit order without executing
the limit order. Members are under no obligation to accept limit orders
from any customer.]
    [(b) Members may avoid the obligation specified in paragraph (a)
through the provision of price improvement. If a customer limit order
is priced at or inside the current inside spread, however, the price
improvement

must be for a minimum of the lesser of $0.01 or one-half (\1/2\) of the
current inside spread. For purposes of this rule, the inside spread
shall be defined as the difference between the best reasonably
available bid and offer in the subject security.]
    [(c) Notwithstanding subparagraph (a) of this rule, a member may
negotiate specific terms and conditions applicable to the acceptance of
limit orders only with respect to such orders that are:]
    [(1) for customer accounts that meet the definition of an
``institutional account'' as that term is defined in Rule 3110(c)(4);
or]
    [(2) for 10,000 shares or more, and greater than $20,000 in value.]
    [(d) Contemporaneous trades]
    [A member that trades through a held limit order must execute such
limit order contemporaneously, or as soon as practicable, but in no
case later than five minutes after the member has traded at a price
more favorable than the customer's price.]
    [(e) Application]
    [(1) This rule shall apply, regardless of whether the subject
security is additionally quoted in a separate quotation medium.]
    [(2) This rule shall apply from 9:30 a.m. to 4 p.m. Eastern Time.]
* * * * *

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 Interpretive Material (IM) 2110-2, Trading Ahead of Customer
Limit Order (``IM-2110-2'') (commonly referred to as the ``Manning
Rule'') generally prohibits a NASD member from trading for its own
account in an exchange-listed security at a price that is equal to or
better than an unexecuted customer limit order in that security, unless
the member immediately thereafter executes the customer limit order at
the price at which it traded for its own account or better. The legal
underpinnings for the Manning Rule are a member's basic fiduciary
obligations and the requirement that a member must, in the conduct of
its business, ``observe high standards of commercial honor and just and
equitable principles of trade.'' \5\
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    \5\ See NASD Rule 2110.
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    IM-2110-2 currently applies to exchange-listed securities,\6\ but
does not apply to OTC equity securities. NASD Rule 6541, however,
extends the general principles of the Manning Rule to a subset of OTC
equity securities, those that are quoted on the OTC Bulletin Board
(``OTCBB''), but differs from IM-2110-2 in several respects, which are
described in more detail below.
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    \6\ On June 30, 2006, the Commission approved SR-NASD-2005-087,
which amended certain NASD rules to reflect separation of The Nasdaq
Stock Market, Inc. from NASD upon the operation of the Nasdaq Stock
Market LLC as a national securities exchange. See Securities
Exchange Act Release No. 54084 (June 30, 2006), 71 FR 38935 (July
10, 2006) (File No. SR-NASD-2005-087). SR-NASD-2005-087 became
effective on August 1, 2006, the date upon which Nasdaq began
operation as an exchange for Nasdaq-listed securities. As part of
SR-NASD-2005-087, the Commission approved amendments to IM-2110-2 to
reflect Nasdaq's approval and operation as a national securities
exchange.
    The Commission approved further amendments to IM-2110-2 to
codify NASD's existing position that IM-2110-2 applies to all
members, whether acting as a market maker or not. These amendments
became effective on April 14, 2006. See Securities Exchange Act
Release No. 53653 (April 14, 2006), 71 FR 20429 (April 20, 2006)
(File No. SR-NASD-2006-35).
    The Commission also approved the expansion of IM-2110-2, which
previously applied to Nasdaq securities, to exchange-listed
securities. See Securities Exchange Act Release No. 52210 (August 4,
2005), 70 FR 46897 (August 11, 2005) (File No. SR-NASD-2004-089).
See also NASD Notice to Members 05-64 (October 2005) (announcing
Commission approval of the amendments to IM-2110-2, which became
effective on January 2, 2006).
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    NASD is proposing to expand the scope of IM-2110-2 and any
interpretive guidance thereunder to include OTC equity securities.\7\
NASD believes that customer limit orders in OTC equity securities
should be subject to the same order handling and customer protection
requirements under the Manning Rule as exchange-listed securities.
Given this proposed expansion of IM-2110-2 to OTC equity securities,
NASD also is proposing to repeal NASD Rule 6541. As noted above,
although NASD Rule 6541 is substantially similar to the Manning Rule,
it differs in its application in several ways. NASD believes that these
distinctions in application no longer make sense and that having
uniform limit order protection requirements across market sectors is
appropriate. The most significant differences between IM-2110-2 and
NASD Rule 6541 and any related proposed changes to IM-2110-2 are
summarized below.
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    \7\ NASD states that the term ``OTC equity securities'' does not
include options. See NASD Rule 6610(d) (defining ``OTC Equity
Security'' as any non-exchange-listed security and certain exchange-
listed securities that do not otherwise qualify for real-time trade
reporting).
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    First, both IM-2110-2 and NASD Rule 6541 provide that a member is
not deemed to have traded ahead of a customer limit order if the member
provides a contemporaneous execution of the customer's order. For the
purposes of IM-2110-2, contemporaneous has been interpreted to require
execution as soon as possible, but absent reasonable and documented
justification, within one minute.\8\ In contrast, NASD Rule 6541(d)
provides a longer maximum time limit of five minutes, within which an
execution of a customer order will be deemed to be contemporaneous with
an execution for a member firm's account. The five-minute standard was
intended to be an outside limit, absent extraordinary circumstances,
and not a normal practice.\9\ NASD believes that most customer limit
orders are filled within a period shorter than five minutes following a
proprietary trade that triggers the obligation, and despite the more
manual nature of the unlisted market, one minute is not an unreasonably
short time to fill a customer order.
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    \8\ See NASD Notices to Members 95-67 (August 1995) and 98-78
(September 1998).
    \9\ See NASD Notice to Members 01-46 (July 2001).
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    Second, both IM-2110-2 and NASD Rule 6541 permit members to
negotiate terms and conditions on the acceptance of certain large-sized
limit orders. Such terms and conditions would permit the member to
continue to trade alongside of, or ahead of, the limit order, if the
customer agrees. NASD Rule 6541 applies a lower threshold requirement
on the types of orders for which a member can negotiate such terms and
conditions. Specifically, NASD Rule 6541(c) only requires that an order
be 10,000 shares or more and greater than $20,000 in value, while IM-
2110-2 requires that an order be 10,000 shares or more and greater than
$100,000 in value. This lower threshold for OTCBB securities was
established due to the lower average dollar amount of trades in OTCBB
securities relative to trades in exchange-listed securities.
    NASD believes the higher value threshold requirement under IM-2110-
2 should be applied to all securities uniformly. The value threshold of
an order is intended to be an objective criteria upon which an
assumption can

be made that the order involves a best-efforts commitment and the
commitment of substantial capital on the part of the member, and
therefore, it is appropriate for the member to be able to place terms
and conditions on the acceptance of that order. As such, NASD believes
that it is the value and size of the customer order that is of
significance in making this determination, not the average price of
securities in a particular market sector.
    Third, IM-2110-2 excludes limit orders that are marketable at the
time of receipt (marketable limit orders), whereas the requirements
under NASD Rule 6541 apply to such orders. This exclusion to IM-2110-2
for marketable limit orders recognizes that marketable limit orders and
market orders are functionally equivalent and, thus, customers placing
marketable limit orders should not have an unwarranted advantage over
market orders. If marketable limit orders were not excluded from the
Manning Rule, the Rule's operation could have the unintended
consequence of providing marketable limit orders with execution
priority over market orders placed at the same time or prior to the
marketable limit orders (commonly referred to as ``jumping the
queue'').\10\ As such, consistent with the current application of IM-
2110-2, NASD staff believes that continuing to exclude marketable limit
orders from the application of the Manning Rule is appropriate.\11\
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    \10\ See Securities Exchange Act Release No. 41990 (October 7,
1999), 64 FR 5600 (October 15, 1999) (File No. SR-NASD-99-44).
    \11\ Recently-approved NASD Rule 2111 governs trading ahead of
marketable limit orders in Nasdaq and exchange-listed securities.
Although NASD Rule 2111 does not apply to OTC equity securities, it
is consistent with a member's best execution obligations to execute
marketable limit orders fully and promptly. NASD Rule 2111 became
effective on January 9, 2006. See Securities Exchange Act Release
No. 52226 (August 9, 2005), 70 FR 48219 (August 16, 2005) (File No.
SR-NASD-2004-045). See also NASD Notice to Members 05-69 (October
2005).
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    Fourth, both IM-2110-2 and NASD Rule 6541 apply only during certain
specified time periods. Specifically, IM-2110-2 is applicable from 9:30
a.m. to 6:30 p.m. Eastern Time,\12\ whereas NASD Rule 6541 applies only
during normal market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. This
difference in application for OTCBB securities was established due to
the fact that, although the OTCBB service is available from 7:30 a.m.
to 6:30 p.m., prices on the OTCBB are required to be firm only during
the normal market hours.\13\ Given that in some OTC equity securities,
quoting of the security may not exist at a given time, NASD believes
that linking this requirement to whether quotes in the security are
required to be firm is not appropriate. As such, NASD believes the time
period under the Manning Rule should be applied to all securities
uniformly.
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    \12\ A member may generally limit the life of a customer limit
order to the period of 9:30 a.m. to 4 p.m. Eastern Time. If a
customer does not formally assent to processing of the customer's
limit order(s) during the extended hours period commencing after the
normal close of the market, limit order protection will not apply to
that customer's order. See IM-2110-2 (footnote 1).
    \13\ See NASD Notice to Members 01-46 (July 2001).
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    Lastly, both IM-2110-2 and NASD Rule 6541 prescribe a minimum level
of price-improvement that a member must provide to trade ahead of an
unexecuted customer limit order. Specifically, the price-improvement
standard currently set forth in IM-2110-2 provides that, where a member
is holding a customer limit order priced at or inside the best inside
market displayed in Nasdaq, the member may execute an incoming order on
a proprietary basis without being obligated to execute the customer
limit order if the member executes the incoming order at least $0.01
better than the price of the customer limit order. Further, if the
customer limit order is priced outside the best inside market displayed
in Nasdaq, then the member must execute the incoming order at the next
superior minimum quotation increment permitted by Nasdaq (currently
$0.01). In contrast, NASD Rule 6541 provides that if the customer limit
order is priced at or inside the current inside spread,\14\ the price
improvement is a minimum of the lesser of $0.01 or one-half (1/2) of
the current inside spread.
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    \14\ For purposes of NASD Rule 6541, the inside spread is
defined as the difference between the best reasonably available bid
and offer in the subject security. The determination of what is
``reasonably available'' is largely factual and best determined on a
case-by-case basis. See NASD Notice to Members 01-46 (July 2001).
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    On June 9, 2005, the Commission adopted Regulation NMS that, among
other things, established a minimum price variation (``MPV'') standard
for NMS stocks.\15\ Specifically, Rule 612 of Regulation NMS \16\
generally prohibits market participants from accepting, ranking, or
displaying orders, quotations, or indications of interest in a pricing
increment smaller than a penny, except for orders, quotations, or
indications of interest that are priced at less than $1.00 per share.
If the order, quotation, or indication of interest is priced less than
$1.00 per share, the minimum pricing increment is $0.0001.
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    \15\ Given that Regulation NMS only applies to national market
system (``NMS'') securities and NASD believes that the same
potential harms associated with sub-penny quoting that exist in NMS
securities also exist in OTC equity securities, NASD filed a
proposed rule change that would prohibit members from displaying,
ranking, or accepting a bid or offer, an order, or an indication of
interest in any OTC equity securities in any quotation medium priced
in an increment smaller than $0.01 if such bid or offer, order, or
indication of interest is priced equal to or greater than $1.00 per
share. Members also would be prohibited from displaying, ranking, or
accepting a bid, offer, an order, or an indication of interest in
any OTC equity security priced in an increment smaller than $0.0001
if such bid or offer, order, or indication of interest is priced
equal to or greater than $0.01 per share and less than $1.00 per
share. See Securities Exchange Act Release Nos. 52280 (August 17,
2005), 70 FR 49959 (August 25, 2005) (File No. SR-NASD-2005-095);
and 53024 (December 27, 2005), 71 FR 159 (January 3, 2006) (File No.
SR-NASD-2005-095).
    \16\ 17 CFR 242.612.
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    Given the implementation of Rule 612 of Regulation NMS,\17\ NASD is
proposing to amend the price-improvement provisions in IM-2110-2 to
revise and make uniform for all equity securities the minimum price-
improvement standards as follows. For customer limit orders priced
greater than or equal to $1.00 that are at or inside the best inside
market, the minimum amount of price improvement required would be
$0.01. For customer limit orders priced less than $1.00 that are at or
inside the best inside market, the minimum amount of price improvement
required would be the lesser of $0.01 or one-half (\1/2\) of the
current inside spread. For customer limit orders priced outside the
best inside market, the member would be required to execute the
incoming order at a price at or inside the best inside market for the
security. Lastly, for customer limit orders in securities for which
there is no published inside market, the minimum amount of price
improvement required is $0.01. NASD believes these amendments are
necessary to support the new pricing formats and to have uniform price
improvement standards across market sectors.
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    \17\ The compliance date for Rule 612 of Regulation NMS was
January 31, 2006. See Securities Exchange Act Release No. 52196
(August 2, 2005), 70 FR 45529 (August 8, 2005) (File No. S7-10-04)
(extending the compliance date for Rule 612 of Regulation NMS).
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    In addition, given that the definition of an ``NMS stock''
effectively covers stocks listed on a national securities exchange,
NASD is proposing to replace the term ``exchange-listed security'' with
the term ``NMS stock.'' \18\
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    \18\ The term ``NMS stock'' is defined in Rule 600(b)(47) of
Regulation NMS as any NMS security other than an option. See 17 CFR
242.600(b)(47). The term ``NMS security'' is defined in Rule
600(b)(46) of Regulation NMS as any security or class of securities
for which transaction reports are collected, processed, and made
available pursuant to an effective transaction reporting plan, or an
effective national market system plan for reporting transactions in
listed options. See 17 CFR 242.600(b)(46). As such, the term ``NMS
stock,'' for purposes of IM-2110-2, would include, among other
things, exchange traded funds (ETFs).

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    Finally, IM-2110-2 currently contains provisions that prescribe the
minimum level of price-improvement for securities trading in non-
decimalized fractions. Given that equities no longer trade in
fractions, NASD proposes to delete such fractional references as part
of this proposed rule change.
    As a result of the proposed changes described above, NASD is
proposing to apply limit order protection requirements uniformly to all
equity securities by extending the scope of the Manning Rule to OTC
equity securities.\19\ In doing so, NASD also is proposing to repeal
NASD Rule 6541, as those requirements would be subsumed in the proposed
expansion of the Manning Rule.
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    \19\ In addition to the differences between IM-2110-2 and NASD
Rule 6541 described above, the Commission also approved amendments
to IM-2110-2 that generally require a member that has traded ahead
of a customer limit order at a price that is more favorable than the
customer limit order price, to pass along that price improvement to
the customer limit order. This requirement currently does not apply
under NASD Rule 6541. See Securities Exchange Act Release No. 52210
(August 4, 2005), 70 FR 46897 (August 11, 2005) (File No. SR-NASD-
2004-089). See also NASD Notice to Members 05-64 (October 2005).
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    NASD intends to announce the effective date of the proposed rule
change in a Notice to Members to be published no later than 60 days
following Commission approval. In recognition of the technological and
systems changes the proposed rule change may require, NASD proposed to
set the effective date at 90 days following publication of the Notice
to Members announcing Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\20\ which requires, among
other things, that NASD rules must be 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 promote investor
protection.
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    \20\ 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 by NASD.

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which NASD consents, the Commission will:
    (A) by order approve such proposed rule change, as amended, or
    (B) institute proceedings to determine whether the proposed rule
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act.
    At the NASD's request, the Commission also is seeking comment on
whether 90 days from the publication of NASD's Notice to Members
provides adequate time for implementation of the proposal or whether
additional implementation time may be needed and the reasons therefor.
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_ADDRESS>Please include

File Number SR-NASD-2005-146 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-2005-146. 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-2005-146 and should be submitted on or before November 30,
2006.
    For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).

Nancy M. Morris,
Secretary.
 [FR Doc. E6-18977 Filed 11-8-06; 8:45 am]

BILLING CODE 8011-01-P