[Federal Register: November 9, 2006 (Volume 71, Number 217)]
[Notices]
[Page 65860-65862]
[DOCID:fr09no06-148]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54702; File No. SR-NASD-2006-121]

Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Amend NASD Rule 11890(b)(2) To Allow NASD To Designate
Officers To Take Action Under the Rule With Respect to Clearly
Erroneous Transactions

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 October 30, 2006, the National Association of Securities Dealers,
Inc. (``NASD'') 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 NASD. NASD has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under 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.

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

    NASD is proposing to amend NASD Rule 11890 (Clearly Erroneous
Transactions) to allow any NASD officer designated by an Executive Vice
President of NASD's Market Regulation Department or an Executive Vice
President of NASD's Transparency Services Department to, on his or her
own motion, review any transaction in a Nasdaq-listed security or an
OTC equity security, as defined in NASD Rule 6610, arising out of or
reported through any quotation, communication, or trade reporting
system owned or operated by NASD or its subsidiaries. The text of the
proposed rule change is available on 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, 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
    Currently, NASD Rule 11890(b)(2) provides that, in the event of (1)
a disruption or malfunction in the use or operation of any quotation,
communication, or trade reporting system owned or operated by NASD or
its subsidiaries and approved by the Commission, or (2) extraordinary
market conditions 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, an
Executive Vice President of NASD's Market Regulation Department or an
Executive Vice President of NASD's Transparency Services Department
may, on his or her own motion, review any transaction in a Nasdaq-
listed security or an OTC equity security, as defined in NASD Rule
6610, arising out of or reported through any such quotation,

communication, or trade reporting system.\5\
    On October 1, 2005, NASD assumed direct authority for OTC equities
operations, in place of a prior delegation to Nasdaq.\6\ At that time,
NASD amended NASD Rule 11890(b)(2) to provide NASD (rather than Nasdaq)
with the authority to declare, on its own motion, clearly erroneous
transactions in OTC equity securities (e.g., OTCBB and Pink Sheets
securities) in the event of a disruption or malfunction in the use of
an NASD system or due to extraordinary market conditions. Additionally,
NASD amended NASD Rule 11890(b)(2) to provide NASD with similar clearly
erroneous authority with respect to all transactions in Nasdaq-listed
securities reported to NASD.\7\ Thus, NASD Rule 11890(b)(2) also
provides NASD with the authority to declare, on its own motion, clearly
erroneous transactions in Nasdaq-listed securities reported to NASD's
Alternative Display Facility or an NASD Trade Reporting Facility \8\ in
the event of a disruption or malfunction in the use of an NASD system
or due to extraordinary market conditions.
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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).
    \5\ NASD has filed a proposed rule change that would (1)
renumber NASD Rule 11890(b)(2) as Rule 11890(a) and rename it as
``Procedures for Reviewing Transactions on NASD's Own Motion;'' and
(2) expand the scope of the rule to transactions in all securities
by deleting the reference to Nasdaq-listed and OTC equity
securities. See Securities Exchange Act Release No. 54451 (September
15, 2006), 71 FR 55243 (September 21, 2006) (notice of filing of SR-
NASD-2006-104).
    \6\ See Securities Exchange Act Release No. 52508 (September 26,
2005), 70 FR 57346 (September 30, 2005) (order approving SR-NASD-
2005-089).
    \7\ See Securities Exchange Act Release No. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006) (order approving SR-NASD-2005-
087). Prior to these amendments, such authority was delegated to
Nasdaq with respect to trades reported through Nasdaq's Automated
Confirmation Transaction (ACT) Service and there was no such
authority with respect to trades reported to NASD's Alternative
Display Facility.
    \8\ See Securities Exchange Act Release Nos. 54084 (June 30,
2006), 71 FR 38935 (July 10, 2006) (order approving SR-NASD-2005-087
relating to the NASD/Nasdaq Trade Reporting Facility); 54479
(September 21, 2006), 71 FR 56573 (September 27, 2006) (notice of
filing of SR-NASD-2006-108 relating to the proposed NASD/National
Stock Exchange Trade Reporting Facility); and 54591 (October 12,
2006), 71 FR 61519 (October 18, 2006) (notice of filing of SR-NASD-
2006-115 relating to the proposed NASD/Boston Stock Exchange Trade
Reporting Facility).
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    By its terms, NASD Rule 11890(b)(2) authorizes an Executive Vice
President of NASD's Market Regulation Department or an Executive Vice
President of NASD's Transparency Services Department to take action
with respect to clearly erroneous transactions. Currently, NASD has one
Executive Vice President of Market Regulation, and one Executive Vice
President of Transparency Services. NASD is proposing to amend NASD
Rule 11890(b)(2) to provide that an Executive Vice President of NASD's
Market Regulation Department or an Executive Vice President of NASD's
Transparency Services Department may also designate any NASD officer
(i.e., an NASD employee with the title of Vice President or above) to
take action under this Rule. NASD believes that such designation is
consistent with current NASD Rules 11890(a)(1) and (b)(1), which
authorize officers of Nasdaq designated by its President, or any
Executive Vice President of Nasdaq designated by its President,
respectively, to act under the Rule.
    NASD applies this authority in only very limited circumstances, for
example, where there is an extraordinary event and multiple self-
regulatory organizations are canceling or modifying trades. However,
since implementation of the aforementioned rule changes, it has become
apparent to NASD that having just two NASD officers authorized to act
under the Rule is insufficient to review and consider promptly
potential clearly erroneous transactions as they arise. For example, if
the Executive Vice President of Market Regulation and Executive Vice
President of Transparency Services are unreachable at the same time
because they are in meetings or on travel or out of the office for any
other reason, potential clearly erroneous transactions cannot be
reviewed in a timely manner. NASD staff believes that delays in
reviewing these transactions should be avoided and the proposed rule
change will allow NASD to take prompt and effective action with respect
to clearly erroneous trades.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\9\ which requires, among
other things, that NASD rules 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
lessen the impact of clearly erroneous transactions on the market and
the public by allowing NASD to empower designated NASD officers with
the authority to take prompt action with respect to such transactions.
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    \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 by NASD.

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

    Because the foregoing 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 and Rule 19b-
4(f)(6) thereunder.\10\ In accordance with Rule 19b-4(f)(6)(iii),\11\
NASD provided the Commission with 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6),
respectively.
    \11\ 17 CFR 240.19b-4(f)(6)(iii).
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    A proposed rule change filed under Rule 19b-4(f)(6) normally may
not become operative for 30 days after the date of its filing. However,
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. NASD has requested that the Commission waive the
30-day operative delay based upon a representation that the requested
waiver is necessary to enable NASD to take prompt and effective action
with respect to clearly erroneous transactions as they arise. NASD
noted that there have been instances where the review of potential
clearly erroneous transactions has been delayed because both Executive
Vice Presidents authorized under the Rule have been unreachable. NASD
wishes to remedy this situation as quickly as possible. In light of the
foregoing, the Commission believes that such waiver is consistent with
the protection of investors and the public interest. Accordingly, the
Commission designates the proposal to be effective

and operative upon filing with the Commission.\12\
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    \12\ For purposes only of waiving the 30-day operative delay 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).
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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<EMAIL_ADDRESS>Please include

File Number SR-NASD-2006-121 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-2006-121. 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-2006-121 and should be submitted on or before November 30,
2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-18957 Filed 11-8-06; 8:45 am]

BILLING CODE 8011-01-P