Notices. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 7590-01-P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549. Extension: Rules 17h-1T and 17h-2T, SEC File No. 270-359, OMB Control No. 3235-0410. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ) the Securities and Exchange Commission (“Commission”) has submitted to the Office of Management and Budget requests for extension of the previously approved collections of information discussed below.

The Code of Federal Regulation citations to this collection of information are the following rules: 17 CFR 240.17h-1T and 17 CFR 240.17h-2T under the Securities Exchange Act of 1934 (17 U.S.C. 78a *et seq.* ) (the “Act”). Rule 17h-1T requires a broker-dealer to maintain and preserve records and other information concerning certain entities that are associated with the broker-dealer. This requirement extends to the financial and securities activities of the holding company, affiliates and subsidiaries of the broker-dealer that are reasonably likely to have a material impact on the financial or operational condition of the broker-dealer.

Rule 17h-2T requires a broker-dealer to file with the Commission quarterly reports and a cumulative year-end report concerning the information required to be maintained and preserved under Rule 17h-1T. The collection of information required by Rules 17h-1T and 17h-2T is necessary to enable the Commission to monitor the activities of a broker-dealer affiliate whose business activities is reasonably likely to have a material impact on the financial and operational condition of the broker-dealer.

Without this information, the Commission would be unable to assess the potentially damaging impact of the affiliate's activities on the broker-dealer. There are currently 200 respondents that must comply with Rules 17h-1T and 17h-2T. Each of these 200 respondents require approximately 10 hours per year, or 2.5 hours per quarter, to maintain the records required under Rule 17h-1T, for an aggregate annual burden of 2,000 hours (200 respondents × 10 hours). In addition, each of these 200 respondents must make five annual responses under Rule 17h-2T.

These five responses require approximately 14 hours per respondent per year, or 3.5 hours per quarter, for an aggregate annual burden of 2,800 hours (200 respondents × 14 hours). In addition, there are approximately five new respondents per year that must draft an organizational chart required under Rule 17h-1T and establish a system for complying with the Rules. The staff estimates that drafting the required organizational chart requires one hour and establishing a system for complying with the Rules requires three hours, thus requiring an aggregate of 20 hours (5 new respondents × 4 hours).

Thus, the total compliance burden per year is approximately 4,820 burden hours (2,000 + 2,800 + 20). Written comments are invited on:

(a)Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(b)the accuracy of the agency's estimate of the burden of the collection of information;

(c)ways to enhance the quality, utility, and clarity of the information collected; and

(d)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Comments should be directed to: R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312 or send an e-mail to: *PRA_Mailbox@sec.gov* . Comments must be submitted to OMB within 60 days of this notice. Dated: July 11, 2006. J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11494 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION Proposed Collections; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549. Extensions: Form 18, OMB Control No. 3235-0121, SEC File No. 270-105, Form F-80, OMB Control No. 3235-0404, SEC File No. 270-357. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ) the Securities and Exchange Commission (“Commission”) is soliciting comments on the collections of information summarized below. The Commission plans to submit these existing collections of information to the Office of Management Budget for extension and approval. Form 18 (17 CFR 249.218) is used for the registration of securities of any foreign government or political subdivision on a U.S. exchange. The information collected is intended to ensure that the information required to be filed by the Commission permits verification of compliance with securities law requirements and assures the public availability of the information. Form 18 takes approximately 8 hours per response and is filed by approximately 5 respondents for a total of 40 annual burden hours. It is estimated that 100% of the total reporting burden is prepared by the company. Form F-80 (17 CFR 239.41) is used by large publicly traded Canadian foreign private issuers registering securities offered in business combinations and exchange offers. The information collected is intended to ensure that the information required to be filed by the Commission permits verification of compliance with securities law requirements and assures the public availability of the information. Form F-80 takes approximately 2 hours per response and is filed by 4 issuers for a total annual burden of 8 hours. The estimated burden of 2 hours per response was based upon the amount of time necessary to compile the registration statement using the existing Canadian prospectus plus any additional information required by the Commission. Written comments are invited on:

(a)Whether these proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(b)the accuracy of the agency's estimate of the burden imposed by the collections of information;

(c)ways to enhance the quality, utility, and clarity of the information collected; and

(d)ways to minimize the burden of the collections of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312; or send an e-mail to: *PRA_Mailbox@sec.gov* . Dated: June 28, 2006. J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11495 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P \ SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549. *Extension:* Form SB-1; OMB Control No. 3235-0423; SEC File No. 270-374. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ) the Securities and Exchange Commission (“Commission”) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Small business issuers use Form SB-1 (17 CFR 239.9), as defined in Rule 405 (17 CFR 230.405) of the Securities Act of 1933 (“Securities Act”) (15 U.S.C. 77a *et seq.* ), to register up to $10 million of securities to be sold for cash, if they have not registered more than $10 million in securities offerings in any continuous 12-month period, including the transaction being registered. The information to be collected is intended to ensure the adequacy of information available to investors in the registration of securities and assures public availability of the information. Approximately 17 respondents file Form SB-1 annually at an estimated 708 hours per response for a total of 12,036 annual burden hours. We further estimate that 25% of the total burden (3,009 hours) is prepared by the company and the remaining 75% of the total burden hours is prepared by outside counsel retained by the company. Written comments are invited on:

(a)Whether this proposed collections of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

(b)the accuracy of the agency's estimate of the burden of the collection of information collection information;

(c)ways to enhance the quality, utility, and clarity of the information collected; and

(1)Adopt rules that create a reporting and disclosure system to collect specific information; and

(2)disseminate such information to the public. Rule 13f-1 3 under the Exchange Act requires institutional investment managers that exercise investment discretion over accounts—having in the aggregate a fair market value of at least $100,000,000 of exchange-traded or NASDAQ-quoted equity securities—to file quarterly reports with the Commission on Form 13F. 4 1 15 U.S.C. 78m(f). 2 15 U.S.C. 78a *et seq.* 3 17 CFR 240.13f-1. 4 17 CFR 249.325. The information collection requirements apply to institutional investment managers that meet the $100 million reporting threshold. Section 13(f)(5) of the Exchange Act defines an “institutional investment manager” as any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person. Form 13F under the Exchange Act defines “investment discretion” for purposes of Form 13F reporting. The reporting system required by Section 13(f) of the Exchange Act is intended, among other things, to create in the Commission a central repository of historical and current data about the investment activities of institutional investment managers, and to improve the body of factual data available to regulators and the public. The Commission staff estimates that 3,378 respondents make approximately 13,512 responses under the rule each year. The staff estimates that on average, Form 13F filers spend 98.8 hours/year to prepare and submit the report. In addition, the staff estimates that 336 respondents file approximately 1,344 amendments each year. The staff estimates that on average, Form 13F filers spend 4 hours/year to prepare and submit amendments to Form 13F. The total annual burden of the rule's requirements for all respondents therefore is estimated to be 335,090 hours ((3,378 filers × 98.8 hours) + (336 filers × 4 hours)). The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act. The estimate is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Written comments are invited on:

(a)Whether the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information has practical utility;

(b)the accuracy of the Commission's estimate of the burdens of the collections of information;

(c)ways to enhance the quality, utility, and clarity of the information collected; and

(d)ways to minimize the burdens of the collections of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson 6432 General Green Way, Alexandria, Virginia 22312; or send an e-mail to: *PRA_Mailbox@sec.gov.* Dated: June 20, 2006. J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11497 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549. *Extension:* Rule 17Ac2-2; SEC File No. 270-298; OMB Control No. 3235-0337; Form TA-2; SEC File No. 270-298; OMB Control No. 3235-0337. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ), the Securities and Exchange Commission (“Commission”) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information discussed below. Rule 17Ac2-2 and Form TA-2; OMB Control No. 3235-0337; SEC File No. 270-298 Rule 17Ac2-2 (17 CFR 240.17Ac2-2) and Form TA-2 (15 CFR 249b.102) under the Securities Exchange Act of 1934 (17 U.S.C. 78a *et seq.* ) require transfer agents to file an annual report of their business activities with the Commission. The amount of time needed to comply with the requirements of Rule 17Ac2-2 and Form TA-2 varies. From the total 786 registered transfer agents, approximately 197 registrants would be required to complete only Questions 1 through 4 and the signature section of amended Form TA-2, which we estimate would take each registrant about 30 minutes, for a total burden of 99 hours (197 × .5 hours). Approximately 262 registrants would be required to answer Questions 1 through 5, 10, and 11 and the signature section, which we estimate would take about 1 hour and 30 minutes, for a total of 393 hours (262 × 1.5 hours). The remaining registrants, approximately 327, would be required to complete the entire Form TA-2, which we estimate would take about 6 hours, for a total of 1,962 hours (327 × 6 hours). We estimate that the total burden would be 2,454 hours (99 hours + 393 hours + 1,962 hours). We estimate that the total cost of reviewing and entering the information reported on the Forms TA-2 for respondents is $31.50 per hour. The Commission estimates that the total cost would be $77,301.00 annually ($31.50 × 2,454). Rule 17Ac2-2 does not involve the collection of confidential information. Please note that an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. General comments regarding the estimated burden hours should be directed to the following persons:

(i)David Rostker, Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503 or by sending an e-mail to: *David_Rostker@omb.eop.gov* ; and

(ii)R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312; or by sending an e-mail to: *PRA_Mailbox@sec.gov.* Comments must be submitted to OMB within 30 days of this notice. Dated: June 29, 2006 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11498 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION Submission for OMB Review, Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission Office of Filings and Information Services, Washington, DC 20549. *Extension:* Rule 17a-8; SEC File No. 270-53; OMB Control No. 3235-0092. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ), the Securities and Exchange Commission (“Commission”) has submitted to the Office of Management and Budget requests for extension of the previously approved collection of information discussed below. Rule 17a-8—Financial Recordkeeping and Reporting of Currency and Foreign Transactions Rule 17a-8 (17 CFR 240.17a-8) under the Securities Exchange Act of 1934 (15 U.S.C. 78a *et seq.* ) (the “Act”) requires brokers and dealers to make and keep certain reports and records concerning their currency and monetary instrument transactions. The requirements allow the Commission to ensure that brokers and dealers are in compliance with the Currency and Foreign Transactions Reporting Act of 1970 (“Bank Secrecy Act”) and with the Department of the Treasury regulations under that Act. The reports and records required under this rule initially are required under Department of the Treasury regulations, and additional burden hours and costs are not imposed by this rule. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Comments should be directed to

(1)Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC, 20503 or by sending an e-mail to: *David_Rostker@omb.eop.gov;* and

(2)R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson, 6432 General Green Way, Alexandria, Virginia 22312 or send an e-mail to: *PRA_Mailbox@sec.gov.* Comments must be submitted to OMB within 30 days of this notice. Dated: June 29, 2006. J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11499 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54137; File No. SR-Amex-2006-67] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit the Listing and Trading of Quarterly Options Series July 12, 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 July 11, 2006, the American Stock Exchange LLC (“Exchange” or “Amex”) 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 the Exchange. The Exchange has designated this proposal as non-controversial under Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules to permit the listing and trading of quarterly options series. 5 The text of the proposed rule change is set forth below. Proposed new language is in *italics;* language proposed to be deleted is in [brackets]. 5 This proposal is substantially identical to a recently approved proposal by the International Securities Exchange (“ISE”) to list Quarterly Options Series on a pilot basis. *See* Securities Exchange Act Releases No. 53857 (May 24, 2006), 71 FR 31246 (June 1, 2006) (notice of filing); and 54113 (July 7, 2006) (approval order). Rule 900—Applicability, Definitions and References

(a)No change.

(b)Definitions—The following terms as used in the Rules in this Chapter shall, unless the context otherwise indicates, have the meanings herein specified: (1)-(44) No change. *(45) Quarterly Options Series—The term “Quarterly Options Series” means a series in an options class that is approved for listing and trading on the Exchange in which the series is opened for trading on any business day and that expires at the close of business on the last business day of a calendar quarter:* (c)-(d) No change. * * * Commentary .01 No change. Rule 903—Series of Options Open for Trading

(a)After a particular class of options (call option contracts or put option contracts relating to a specific underlying security or calculated index) has been approved for listing and trading on the Exchange, the Exchange shall from time to time open for trading series of options therein. Prior to the opening of trading in any series of options, the Exchange shall fix the expiration month, expiration year (if the options series has more than one year remaining to expiration), and exercise price of option contracts included in each such series. For Short Term Options Series, the Exchange will fix a specific expiration date and exercise price, as provided in paragraph (h). *For Quarterly Options Series, the Exchange will fix a specific expiration date and exercise price, as provided in Commentary .09.* (b)-(h) No change. * * * Commentary .01-.08 No change. *.09 Quarterly Options Series Pilot Program: For a pilot period, the Exchange may list and trade options series that expire at the close of business on the last business day of a calendar quarter (“Quarterly Options Series”). The Exchange may list Quarterly Options Series for up to five

(5)currently listed options classes that are either Stock Index Options or options on exchange traded funds. In addition, the Exchange may also list Quarterly Options Series on any options classes that are selected by other securities exchanges that employ a similar pilot program under their respective rules. The pilot will commence the day the Exchange first initiates trading in a Quarterly Options Series, which shall be no later than August 10, 2006 and will expire on July 10, 2007.* *(a) The Exchange will list series that expire at the end of the next consecutive four

(4)calendar quarters, as well as the fourth quarter of the next calendar year. For example, if the Exchange is trading Quarterly Options Series in the month of May 2006, it will list series that expire at the end of the second, third and fourth quarters of 2006, as well as the first and fourth quarters of 2007. Following the second quarter 2006 expiration, the Exchange will add series that expire at the end of the second quarter of 2007.* *(b) The Exchange will not list a Short Term Options Series on an options class whose expiration coincides with that of a Quarterly Options Series on that same options class.* *(c) The strike price of each Quarterly Options Series will be fixed at a price per share, with at least two strike prices above and two strike prices below the value of the underlying security at about the time that a Quarterly Options Series is opened for trading on the Exchange. The Exchange shall list strike prices for a Quarterly Options Series that are within $5 from the closing price of the underlying on the preceding day. Additional Quarterly Options Series of the same class may be opened for trading on the Exchange when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the market price of the underlying security moves substantially from the initial exercise price or prices. To the extent that any additional strike prices are listed by the Exchange, such additional strike prices shall be within $5 from the closing price of the underlying on the preceding day. The opening of new Quarterly Options Series shall not affect the series of options of the same class previously opened.* *(d) The interval between strike prices on Quarterly Options Series shall be the same as the interval for strike prices for series in that same options class that expire in accordance with the normal monthly expiration cycle.* Rule 900C—Applicability and Definitions

(a)No change.

(b)Definitions—The following terms as used in the Rules in this Section shall, unless the context otherwise indicates, have the meanings herein specified: (1)-(25) No change.

(26)Quarterly [Index Expiration] Option *s Series* —The term “quarterly [index expiration] option *s series* ” means [an option contract on a stock index group that expires on the first business day of the month following the end of a calendar quarter] *, for the purposes of this Section 14, a series in an index options class that is approved for listing and trading on the Exchange in which the series is opened for trading on any business day and that expires at the close of business on the last business day of a calendar quarter.*

(27)No change. Rule 903C—Series of Stock Index Options

(a)No change. (i)-(iii) No change.

(iv)[Quarterly Index Expiration Option Series—The Exchange may list options on the Major Market (“XMI”), Institutional (“XII”) and S&P MidCap 400 (“MID”) stock indices that expire on the first business day of the month following the end of a calendar quarter. For such options, the Exchange may list up to eight consecutive quarterly expirations with an index multiplier no greater than 500. All other contract terms for such options will conform to the terms of the XMI, XII and MID options listed pursuant to the provisions of Rule 903C(a)(i) and

(ii)above.] *Quarterly Options Series Pilot Program: For a pilot period, the Exchange may list and trade options series that expire at the close of business on the last business day of a calendar quarter (“Quarterly Options Series”). The Exchange may list Quarterly Options Series for up to five

(5)currently listed options classes that are either Stock Index Options or options on exchange traded funds. In addition, the Exchange may also list Quarterly Options Series on any options classes that are selected by other securities exchanges that employ a similar pilot program under their respective rules. The pilot will commence the day the Exchange first initiates trading in a Quarterly Options Series, which shall be no later than August 10, 2006 and will expire on July 10, 2007.* *1. The Exchange will list series that expire at the end of the next consecutive four

(4)calendar quarters, as well as the fourth quarter of the next calendar year. For example if the Exchange is trading Quarterly Options Series in the month of May 2006, it will list series that expire at the end of the second, third and fourth quarters of 2006, as well as the first and fourth quarters of 2007. Following the second quarter 2006 expiration, the Exchange will add series that expire at the end of the second quarter of 2007.* *2. The Exchange will not list a Short Term Option Series on an options class whose expiration coincides with that of a Quarterly Options Series on that same options class.* *3. Quarterly Options Series shall be P.M. settled.* * 4. The strike price of each Quarterly Options Series will be fixed at a price per share, with at least two strike prices above and two strike prices below the value of the underlying security at about the time that a Quarterly Options Series is opened for trading on the Exchange. The Exchange shall list strike prices for a Quarterly Options Series that are within $5 from the closing price of the underlying on the preceding day. The Exchange may open for trading additional Quarterly Options Series of the same class if the current index value of the underlying index moves substantially from the exercise price of those Quarterly Options Series that already have been opened for trading on the Exchange. The exercise price of each Quarterly Options Series opened for trading on the Exchange shall be reasonably related to the current index value of the underlying index to which such series relates at or about the time such series of options is first opened for trading on the Exchange. The term “reasonably related to the current index value of the underlying index” means that the exercise price is within thirty percent (30%) of the current index value. The Exchange may also open for trading additional Quarterly Options Series that are more than thirty percent (30%) away from the current index value, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate, or individual customers or their brokers. Market-makers trading for their own account shall not be considered when determining customer interest under this provision. * *5. The interval between strike prices on Quarterly Options Series shall be the same as the interval for strike prices for series in that same options class that expire in accordance with the normal monthly expiration cycle.*

(v)No change. (b)-(c) No change. * * * Commentary .01-.04 No change. Rule 904C—Position Limits

(a)No change.

(b)Broad Stock Index Groups. No change. —Full Size Nasdaq 100 Index Options

(NDX)through Eurotop 100 Index Options—No change. —Positions in Short Term Option Series *and Quarterly Options Series* shall be aggregated with positions in options contracts on the same index. —Russell 1000 Index Options, etc.—No change.

(c)Stock Index Industry Groups.

(i)Subject to the procedures specified in sub-paragraph

(iii)of this paragraph (c), the Exchange shall establish a position limit with respect to options on the Pauzeé Tombstone Common Stock Index of 6,000 contracts and for each underlying stock index industry group at a level no greater than: —18,000 contracts if the Exchange determines, at the time of a review conducted pursuant to subparagraph

(ii)of this paragraph (c), that any single stock in the group accounted, on average, for 30% or more of the numerical index value during the 30-day period immediately preceding the review; or —24,000 contracts if the Exchange determines, at the time of a review conducted pursuant to subparagraph

(ii)of this paragraph (c), that any single stock in the group accounted, on average, for 20% or more of the numerical index value or that any five stocks in the group together accounted, on average, for more than 50% of the numerical index value, but that no single stock in the group accounted, on average, for 30% or more of the numerical index value, during the 30-day period immediately preceding the review; or —31,500 contracts if the Exchange determines that the conditions specified above which would require the establishment of a lower limit have not occurred. —Positions in Short Terms Option Series *and Quarterly Options Series* shall be aggregated with positions in options contracts on the same index. (ii)-(iii) No change.

(d)No change. 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 The Exchange proposes to amend its rules to accommodate the listing of options series that would expire at the close of business on the last business day of a calendar quarter (“Quarterly Options Series”). 6 Quarterly Options Series could be opened on any approved options class 7 on a business day (“Quarterly Options Opening Date”) and would expire at the close of business on the last business day of a calendar quarter (“Quarterly Options Expiration Date”). The Exchange would list series that expire at the end of the next four consecutive calendar quarters, as well as the fourth quarter of the next calendar year. For example, if the Exchange were trading Quarterly Options Series in the month of May 2006, it would list series that expire at the end of the second, third, and fourth quarters of 2006, as well as the first and fourth quarters of 2007. Following the second quarter 2006 expiration, the Exchange would add series that expire at the end of the second quarter of 2007. 6 In 1993, the Exchange was granted SEC approval to list and trade broad-based index options that expire at the end of each quarter. *See* Securities Exchange Act Release No. 31844 (February 9, 1993); 58 FR 8796 (February 17, 1993). The Exchange listed and traded these options on the Major Market Index (XMI), Institutional Index

(XII)and S&P Midcap Index (MID). These quarterly-style options proved to be of limited use to investors and did not trade particularly well, largely because they were A.M.-settled options. 7 Quarterly Options Series may be opened in options on indexes or options on Exchange Traded Fund (“ETFs”) that satisfy the applicable listing criteria under Amex rules. Quarterly Options Series listed on currently approved options classes would be P.M.-settled and, in all other respects, would settle in the same manner as do the monthly expiration series in the same options class. The proposed rule change would allow the Exchange to open up to five currently listed options classes that are either index options or options on ETFs. The strike price for each series would be fixed at a price per share, with at least two strike prices above and two strike prices below the approximate value of the underlying security at about the time that a Quarterly Options Series is opened for trading on the Exchange. The Exchange may list strike prices for a Quarterly Options Series that are within $5 from the closing price of the underlying security on the preceding trading day. The proposal would permit the Exchange to open for trading additional Quarterly Options Series of the same class when the Exchange deems it necessary to maintain an orderly market, to meet customer demand, or when the current market price of the underlying security moves substantially from the exercise prices of those Quarterly Options Series that already have been opened for trading on the Exchange. In addition, the exercise price of each Quarterly Options Series on an underlying index would be required to be reasonably related to the current index value of the index at or about the time such series of options were first opened for trading on the Exchange. The term “reasonably related to the current index value of the underlying index” means that the exercise price is within thirty percent of the current index value. The Exchange would also be permitted to open for trading additional Quarterly Options Series on an underlying index that are more than thirty percent away from the current index value, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate, or individual customers or their brokers. Market-Makers trading for their own account shall not be considered when determining customer interest under this provision. Because monthly options series expire on the third Friday of their expiration month, a Quarterly Options Series, which would expire on the last business day of the quarter, could never expire in the same week in which a monthly options series in the same class expires. The same, however, is not the case for Short Term Option Series. Quarterly Options Series and Short Term Option Series on the same options class could potentially expire concurrently under the proposal. 8 Therefore, to avoid any confusion in the marketplace, the proposal stipulates that the Exchange may not list a Short Term Option Series that expires at the end of the day on the same day as a Quarterly Options Series in the same class expires. In other words, the proposed rules would not permit the Exchange to list a P.M.-settled Short Term Option Series on an ETF or an index that would expire on a Friday that is the last business day of a calendar quarter if a Quarterly Options Series on that ETF or index were scheduled to expire on that day. 8 The Exchange currently does not have any Short Term Option Series listed for trading. However, the proposed rules would permit the Exchange to list as A.M.-settled Short Term Option Series and a P.M.-settled Quarterly Options Series in the same options class that both expire on the same day ( *i.e.* , on a Friday that is the last business day of the calendar quarter). The Exchange believes that the concurrent listing of an A.M.-settled Short Term Option Series and a P.M.-settled Quarterly Options Series on the same underlying ETF or index that expire on the same day would not tend to cause the same confusion as would P.M.-settled short term and quarterly series in the same options class, and would provide investors with an additional hedging mechanism. Finally, the interval between strike prices on Quarterly Options Series would be the same as the interval for strike prices for series in the same options class that expires in accordance with the normal monthly expiration cycles. The Exchange believes that Quarterly Options Series would provide investors with a flexible and valuable tool to manage risk exposure, minimize capital outlays, and be more responsive to the timing of events affecting the securities that underlie option contracts. At the same time, the Exchange is cognizant of the need to be cautious in introducing a product that can increase the number of outstanding strike prices. For that reason, the Exchange intends to employ a limited pilot program (“Pilot Program”) for Quarterly Options Series. Under the terms of the Pilot Program, the Exchange could select up to five option classes on which Quarterly Options Series may be opened on any Quarterly Options Opening Date. The Exchange would also be allowed to list those Quarterly Options Series on any options class that is selected by another securities exchange with a similar Pilot Program under its rules. The Exchange believes that limiting the number of options classes in which Quarterly Options Series may be opened would help to ensure that the addition of the new series through this Pilot Program will have only a negligible impact on the Exchange's and the Option Price Reporting Authority's (“OPRA”) quoting capacity. Also, limiting the term of the Pilot Program to a period of approximately one year will allow the Exchange and the Commission to determine whether the program should be extended, expanded, and/or made permanent. If the Exchange were to propose an extension or an expansion of the program, or were the Exchange to propose to make the Pilot Program permanent, the Exchange would submit, along with any filing proposing such amendments to the Pilot Program, a Pilot Program report (“Report”) that will provide an analysis of the Pilot Program covering the entire period during which the Pilot Program was in effect. The Report would include, at a minimum:

(1)Data and written analysis on the open interest and trading volume in the classes for which Quarterly Option Series were opened;

(2)an assessment of the appropriateness of the options classes selected for the Pilot Program;

(3)an assessment of the impact of the Pilot Program on the capacity of the Amex, OPRA, and on market data vendors (to the extent data from market data vendors is available);

(4)any capacity problems or other problems that arose during the operation of the Pilot Program and how the Amex addressed such problems;

(5)any complaints that the Amex received during the operation of the Pilot Program and how the Amex addressed them; and

(6)any additional information that would assist in assessing the operation of the Pilot Program. The Report must be submitted to the Commission at least sixty days prior to the expiration date of the Pilot Program. Alternatively, at the end of the Pilot Program, if the Exchange determines not to propose an extension or an expansion of the Pilot Program, or if the Commission determines not to extend or expand the Pilot Program, the Exchange would no longer list any additional Quarterly Options Series and would limit all existing open interest in Quarterly Options Series to closing transactions only. Finally, the Exchange represents that it has the necessary systems capacity to support new options series that will result from the introduction of Quarterly Options Series. 2. Statutory Basis The Exchange believes that the introduction of Quarterly Options Series will satisfy institutional demand for such options and provide additional flexibility and additional risk management tools to investors. For these reasons, the Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act 9 in general and furthers the objectives of Section 6(b)(5) of the Act 10 in particular in that it is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). 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 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 No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 11 and subparagraph (f)(6) of Rule 19b-4 thereunder. 12 Because the foregoing 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)does not become operative for 30 days from the date on which it was filed, 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 and Rule 19b-4(f)(6)(iii) thereunder. 13 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(6). 13 Rule 19b-4(f)(6)(iii) requires the Exchange to give written notice to the Commission of its intent to file the proposed rule change five business days prior to filing. The Commission has determined to waive the five-day pre-filing requirement for this proposal. A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative for 30 days after the date of filing. However, Rule 19b-4(f)(6)(iii) permits the Commission to waive the operative delay if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the operative delay to permit the Pilot Program extension to become effective prior to the 30th day after filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest. The Commission notes that the proposal is substantially identical to the ISE's Quarterly Option Series Pilot Program, previously published for comment and approved by the Commission, 14 and thus the Exchange's proposal raises no new issues of regulatory concern. Moreover, waiving the operative delay will allow the Exchange to immediately compete with other exchanges that list and trade quarterly options under similar programs, and consequently will benefit the public. Therefore, the Commission has determined to waive the 30-day delay and allow the proposed rule change to become operative immediately. 15 14 *See supra* note 5. 15 For purposes only of waiving the operative delay of this proposal, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 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 No. SR-Amex-2006-67 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-Amex-2006-67. 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 Commissions 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 Exchange. 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-Amex-2006-67 and should be submitted on or before August 10, 2006. 16 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11489 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54135; File No. SR-CBOE-2005-65] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Relating to the Processing of Complex Orders in the Hybrid Trading System July 12, 2006. I. Introduction On August 24, 2005, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to, among other things, establish an automated Request for Responses (“RFR”) auction process for eligible complex orders (a “COA” process) traded on the CBOE's Hybrid Trading System (“Hybrid System”) and to revise certain CBOE rules governing complex orders. The proposed rule change, as amended by Amendment Nos. 1 and 2, was published for comment in the **Federal Register** on June 7, 2006. 3 The Commission received no comments regarding the proposal, as amended. This order approves the proposal, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 53909 (May 31, 2006), 71 FR 33011 (“Notice”). II. Description of the Proposal A. COA Process for Complex Orders CBOE Rule 6.53C, “Complex Orders on the Hybrid System,” sets forth the procedures for trading complex orders on the CBOE's Hybrid System. Among other things, CBOE Rule 6.53C addresses whether a complex order will be routed to a PAR workstation, for manual handling, or to the complex order book (“COB”), for automated handling, and, once in the COB, the manner in which a complex order will execute against orders or quotes in the EBook, orders resting in the COB, and orders submitted to trade against interest in the COB. The CBOE proposes to introduce the COA, 4 a new functionality designed to give eligible complex orders an opportunity for price improvement before being booked in the COB or once on PAR. The CBOE believes that the COA process will facilitate more automated handling of complex orders. 4 *See* CBOE Rule 6.53C(d). Under the COA process, when a COA is initiated for a COA-eligible order, 5 the CBOE will send an RFR message to all members who have elected to receive RFR messages. 6 Market Makers with an appointment in the relevant options class and members acting as agent for orders resting at the top of the COB in the relevant options series may submit responses to the RFR message (“RFR Responses”) during the Response Time Interval. 7 RFR Responses, which will not be displayed to the market, may be expressed on a net price basis in a multiple of the minimum increment or in one-cent increments, as determined by the appropriate CBOE committee on a class-by-class basis. 8 The legs of a COA-eligible order may be executed in one-cent increments, regardless of the minimum quoting increments that otherwise would apply to the individual legs of the order. 9 5 The appropriate CBOE committee will determine, on a class-by-class basis, the complex orders that are eligible for a COA based on the order's marketability (defined as a number of ticks away from the current market), size, and complex order type. *See* CBOE Rule 6.53C(d)(i)(2). 6 The RFR message will identify the component series, the size of the COA-eligible order and any contingencies, if applicable, but will not identify the side of the market. *See* CBOE Rule 6.53C(d)(ii). 7 The Response Time Interval is the period of time during which responses to the RFR may be entered. The appropriate CBOE committee will determine the Response Time Interval, which will not exceed three seconds, on a class-by-class basis. *See* CBOE Rule 6.53C(d)(iii)(2). 8 *See* CBOE Rule 6.53C(d)(iii)(1). 9 *See* CBOE Rule 6.53C(d)(v). At the conclusion of the Response Time Interval, a COA-eligible order will trade first based on the best net price(s) available. 10 At the same net price, the COA-eligible order will trade, first, against individual orders and quotes in the EBook, provided the COA-eligible order can be executed in full or in a permissible ratio by orders and quotes in the EBook; second, against public customer complex orders resting in the COB before, or that are received during, the Response Time Interval, and public customer RFR Responses; third, against non-public customer orders resting in the COB before the Response Time Interval; and fourth, against non-public customer orders resting in the COB that are received during the Response Time Interval and non-public customer RFR Responses. 11 A COA-eligible order that cannot be filled in whole or in a permissible ratio will route to the COB or back to PAR, as applicable. 12 10 *See* CBOE Rule 6.53C(d)(v). 11 *See* CBOE Rule 6.53C(d)(v)(1)-(4). 12 *See* CBOE Rule 6.53C(d)(vi). The COA provisions also address the handling of unrelated complex orders that the CBOE receives prior to the expiration of the Response Time Interval. 13 A pattern or practice of submitting orders that cause a COA to conclude early will be deemed conduct inconsistent with just and equitable principles of trade and a violation of CBOE Rule 4.1, “Just and Equitable Principles of Trade.” 14 Similarly, the dissemination of information regarding COA-eligible orders to third parties will be deemed conduct inconsistent with just and equitable principles of trade and a violation of CBOE Rule 4.1 and other CBOE Rules. 15 13 An incoming COA-eligible order on the opposite side of the market that is marketable against the starting price of the original COA-eligible order will end the original COA; an incoming COA-eligible order on the same side of the market, at the same price or worse than the original COA-eligible order and better than or equal to the starting price, will join the original COA; and an incoming COA-eligible order on the same side of the market at a better price than the original COA-eligible order will join the original COA, cause the original COA to end, and cause a new COA to begin for any remaining balance on the incoming COA-eligible order. *See* CBOE Rule 6.53C(d)(viii). CBOE Rule 6.53C(d)(viii) also describes the processing of orders when an unrelated complex order arrives prior to the expiration of the Response Time Interval. 14 *See* CBOE Rule 6.53C, Interpretation and Policy .04. 15 *See* CBOE Rule 6.53C, Interpretation and Policy .05. The CBOE states that the COA process may not be used to trade a COA-eligible order against a facilitated or solicited order. 16 In this regard, the CBOE notes that facilitations and solicitations of complex orders, including COA-eligible orders, will continue to be subject to the limitations on facilitations and solicitations provided in Interpretations and Policies .01 and .02 to CBOE Rule 6.45A, “Priority and Allocation of Equity Option Trades on the CBOE Hybrid System,” and in Interpretations and Policies .01 and .02 to CBOE Rule 6.45B, “Priority and Allocation of Trades in Index Options and Options on ETFs on the CBOE Hybrid System.” 17 16 *See* Notice *supra* note 3, at 33015 n.12. 17 Regarding principal transactions, Interpretation and Policy .01 of CBOE Rules 6.45A and 6.45B prohibit an order entry firm from executing as principal against an order it represents as agent unless:

(1)The agency order is first exposed on the Hybrid System for at least three seconds;

(2)the order entry firm has been bidding or offering for at least three seconds prior to receiving an agency order that is executable against such bid or offer; or

(3)the order entry firm proceeds in accordance with the crossing rules in CBOE Rule 6.74. Regarding solicitation orders, Interpretation and Policy .02 of CBOE Rules 6.45A and 6.45B require an order entry firm to expose for at least three seconds an order it represents as agent before the order may be executed electronically via the electronic execution mechanism of the Hybrid System, in whole or in part, against orders solicited from members and non-member broker-dealers to transact with the order. B. Revisions to the COB The CBOE also proposes to revise its rules governing the COB 18 to:

(1)Allow the appropriate CBOE committee to determine, on a class-by-class basis, whether complex orders routed to or resting in the COB may be expressed on a net price basis in multiples of the minimum increment or in one-cent increments;

(2)provide that the legs of a complex order may be executed in one-cent increments, regardless of the minimum quoting increments otherwise applicable to the individual legs of the order;

(3)provide that a complex order in the COB may execute against quotes, as well as orders, in the EBook, and that market participants, as defined in CBOE Rule 6.45A or 6.45B, as applicable, may submit quotes, as well as orders, to trade against orders in the COB;

(4)provide that the allocation of complex orders within the COB will be pursuant to the rules of trading priority otherwise applicable to incoming orders in the individual component legs; and

(5)provide that the allocation of complex orders among market participants will be made pursuant to CBOE Rule 6.45A(c) or 6.45B(c), as applicable. 18 *See* CBOE Rule 6.53C(c). C. Changes to the Minimum Trading Increment for Complex Orders CBOE Rule 6.42(3) currently provides that bids and offers in spread, straddle, and combination orders, as defined in CBOE Rule 6.53, may be expressed in any increment, regardless of the minimum increments otherwise appropriate to the individual legs of the order. The proposal revises CBOE Rule 6.42(3) to include the other complex orders defined in CBOE Rule 6.53C in addition to the complex orders currently enumerated CBOE Rule 6.42(3). 19 19 The complex orders defined in CBOE Rule 6.53C(a) are: Spread order; straddle order; strangle order; combination order as defined in CBOE Rule 6.53(e); ratio order; butterfly spread order; box/roll spread order; collar orders and risk reversals; and conversions and reversals. CBOE Rule 6.42(3) also provides that bids and offers for spread, straddle, or combination orders in S&P 500 Index options, other than box spreads, must be expressed in decimal increments no smaller than $.05. The CBOE proposes to apply this provision to S&P 100 Index options. The CBOE believes that this change is appropriate in light of the complexity of complex orders and the size of the underlying S&P 100 Index. In addition, the proposal revises CBOE Rule 6.42(3) to state that the legs of complex orders may be executed in one-cent increments. CBOE Rule 6.42(3) will continue to require complex orders to be expressed in net price increments that are multiples of the minimum increment to be entitled to priority under CBOE Rule 6.45, “Priority of Bids and Offers—Allocation of Trades.” D. Additional Changes The CBOE proposes to revise CBOE Rules 6.45; 6.45A; 6.45B; Interpretation and Policy .03 to CBOE Rule 6.74, “Crossing Orders;” and CBOE Rule 6.9, “Solicited Transactions,” to include the complex orders defined in CBOE Rule 6.53C in addition to the complex orders currently specified in the rules. III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with Section 6(b)(5) of the Act, 20 which requires, among other things, that the rules of a national securities exchange be 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. 21 20 15 U.S.C. 78f(b)(5). 21 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). The new COA functionality will provide an electronic auction for eligible complex orders. Under the COA auction process, Market Makers with an appointment in the relevant options class and members acting as agent for orders resting at the top of the COB in the relevant options series will be able to submit RFR Responses. At the conclusion of the COA auction, the auctioned order will execute against the interest available in the EBook, the COB, and/or RFR Responses submitted during the COA. 22 By providing an electronic auction for eligible complex orders, the Commission believes that the COA process could facilitate the execution of eligible complex orders and provide them with an opportunity for price improvement. 22 *See* notes 10-12, *supra* , and accompanying text. The Commission notes that, at the same price, public customer orders in the COB and public customer RFR Responses will trade against a COA-eligible order before non-public customer orders in the COB and non-public customer RFR Responses. *See* CBOE Rule 6.53C(d)(v)(2)-(4). The Commission notes that the CBOE's rules provide that a pattern or practice of submitting orders that cause a COA to conclude early will be deemed conduct inconsistent with just and equitable principles of trade and a violation of CBOE Rule 4.1, 23 and that the dissemination of information regarding COA-eligible orders to third parties will be deemed conduct inconsistent with just and equitable principles of trade and a violation of CBOE Rule 4.1 and other CBOE rules. 24 These provisions will require the CBOE to surveil for, and should help to deter, potential abuses of the COA process. 23 *See* CBOE Rule 6.53C, Interpretation and Policy .04. 24 *See* CBOE Rule 6.53C, Interpretation and Policy .05. In addition, the Commission notes that the COA system cannot be used to trade a COA-eligible order against a facilitated or solicited order. COA-eligible orders, like other orders on the Hybrid System, will be subject to CBOE Rule 6.45A, Interpretation and Policies .01 and .02, and CBOE Rule 6.45B, Interpretation and Policies .01 and .02. Accordingly, a CBOE member seeking to trade with its customer's COA-eligible order would be required to comply with Interpretation and Policy .01 of CBOE Rule 6.45A or 6.45B, as applicable, and a CBOE member seeking to cross its customer's COA-eligible order with a solicited order would be required to comply with Interpretation and Policy .02 of CBOE Rule 6.45A or 6.45B, as applicable. The Commission believes that the changes to the COB should facilitate the execution of complex orders. In this regard, the proposal revises CBOE Rule 6.53C(c) to provide that quotes in the EBook, as well as orders in the EBook, may execute against a complex order in the COB, and that market participants, as defined in CBOE Rule 6.45A or 6.45B, as applicable, may submit quotes, as well as orders, to trade against orders in the COB. In addition, the proposal revises CBOE Rule 6.53C(c) to allow complex orders routed to or resting in the COB to be expressed and executed in one-cent increments, thereby providing additional price points at which complex orders could be executed. 25 The proposal also clarifies the operation of the COB by providing that complex orders in the COB will be allocated pursuant to the rules of trading priority otherwise applicable to incoming electronic orders in the individual component legs, 26 and that complex orders will be allocated among market participants pursuant to CBOE Rule 6.45A or 6.45B, as applicable. 27 25 The appropriate CBOE committee will determine, on a class-by-class basis, whether complex orders routed to or resting in the COB may be expressed in a multiple of the minimum increment or in one-cent increments. *See* CBOE Rule 6.53C(c)(ii). 26 *See* CBOE Rule 6.53C(c)(ii)(2). 27 *See* CBOE Rule 6.53C(c)(ii)(3). The CBOE proposes to revise CBOE Rule 6.42(3) to allow the legs of a complex order to be executed in one-cent increments, which, according to the CBOE, will allow members to execute complex order transactions more easily. Accordingly, the Commission believes that this change could facilitate the execution of complex orders. The Commission notes that CBOE Rule 6.42(3) will continue to require complex orders to be expressed in multiplies of the minimum increment to be entitled to priority under CBOE Rule 6.45. CBOE Rule 6.42(3) currently requires bids and offers in complex orders in S&P 500 Index options, other than box spreads, to be expressed in increments no smaller than $0.05. The CBOE proposes to apply this provision to S&P 100 Index options. The Commission believes that this change is consistent with the Act because of the similarities between the S&P 500 Index and the S&P 100 Index. Finally, the Commission believes that the proposal to revise CBOE Rules 6.45, 6.45A, 6.45B, 6.9, and 7.4 to include the complex orders defined in CBOE Rule 6.53C is consistent with the Act because it should provide consistent treatment for different types of complex orders under the CBOE's rules. IV. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 28 that the proposed rule change (SR-CBOE-2005-65), as amended, is approved. 28 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 29 29 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11491 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54141; File No. SR-MSRB-2006-05] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Revisions to the Series 53 Examination Program July 13, 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 June 27, 2006, the Municipal Securities Rulemaking Board (“MSRB” or “Board”), filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the MSRB. The MSRB has designated the proposed rule change as constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the self-regulatory organization pursuant to Section 19(b)(3)(A)(i) of the Act, 3 and Rule 19b-4(f)(1) 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. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(i). 4 17 CFR 240.19b-4(f)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The MSRB is filing with the Commission revisions to the study outline and selection specifications for the Municipal Securities Principal Qualification Examination (Series 53) program. 5 The proposed revisions update the material to reflect changes to the rules and regulations covered in the examination, as well as modify the content of the examination program to track more closely the job responsibilities of a municipal securities principal. The MSRB is not proposing any textual changes to the rules of the MSRB. 5 The MSRB is also proposing corresponding revisions to the Series 53 question bank, but based upon instructions from the Commission staff, the MSRB is submitting SR-MSRB-2006-05 for immediate effectiveness pursuant to Seciton 19(b)(3)(A)(i) of the Act and Rule 19b-4(f)(1) thereunder, and is not filing the question bank for Commission review. *See* letter to Diane G. Klinke, General Counsel, MSRB, from Belinda Blaine, Associate Director, Division of Market Regulation, SEC, dated July 24, 2000. The question bank is available for Commission review. The revised study outline is available on the MSRB's Web site ( *http://www.msrb.org* ), at the MSRB's principal office, and at the Commission's Public Reference Room. The MSRB has omitted the Series 53 selection specifications from this filing and has submitted the specifications under separate cover to the Commission with a request for confidential treatment pursuant to Rule 24b-2 under the Act. 6 6 17 CFR 240.24b-2. 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 MSRB 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 MSRB 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 Section 15B(b)(2)(A) of the Act 7 authorizes the MSRB to prescribe standards of training, experience, competence, and such other qualifications as the Board finds necessary or appropriate in the public interest or for the protection of investors. The MSRB has developed examinations that are designed to establish that persons associated with brokers, dealers and municipal securities dealers that effect transactions in municipal securities have attained specified levels of competence and knowledge. The MSRB periodically reviews the content of the examinations to determine whether revisions are necessary or appropriate in view of changes pertaining to the subject matter covered by the examinations. 7 15 U.S.C. 78o-4(b)(2)(A). MSRB Rule G-3(b) states that a municipal securities principal has responsibility to oversee the municipal securities activities of a broker, dealer or municipal securities dealer. In this capacity, a municipal securities principal manages, directs or supervises one or more of the following activities associated with the conduct of municipal securities business: Underwriting; trading; buying or selling municipal securities to or from customers; rendering financial advisory or consultant services to issuers of municipal securities; communications to customers about any municipal securities activities; processing, clearing, and (in the case of securities firms) safekeeping of municipal securities; and training of principals and representatives. The only examination that qualifies a municipal securities principal is the Municipal Securities Principal Qualification Examination (Series 53). A committee of industry members and MSRB staff recently completed a review of the job requirements for a municipal securities principal and the Series 53 examination program. As a result of this review, the MSRB is updating the content of the examination to cover certain rules or provisions of rules that were promulgated since the last revision of the outline. Areas added to the study outline include: • Definition of municipal fund security. • Qualification and numerical requirements for municipal fund securities limited principals. • Records concerning compliance with Rule G-20, on gifts, gratuities and non-cash compensation. • SEC requirements for retention of information on associated persons. • New Rule G-38, on solicitation of municipal securities business. • Requirements regarding municipal fund securities advertisements. • Remarketing activities under Rule G-23, on activities of financial advisors. • Definitions regarding the Real-Time Transaction Reporting System. • Minimum denominations. • Forwarding official communications. The MSRB has deleted from the study outline rules or rule provisions that are obsolete or do not have direct impact on the daily work of a municipal securities principal. These deletions include: • Rule G-35, on arbitration. • Requirements regarding the retaking of qualification examinations and the waiver of qualification requirements. • Old Rule G-38, on consultants. • References to the scope and notice of Rule G-12(a). • SEC requirements regarding lost and stolen securities. Technical changes have been made to correct the citations for various rules that have been amended. In addition, as part of an ongoing effort to align the examination more closely to the supervisory duties of a municipal securities principal, the MSRB is modifying the content of the examination to track the functional workflow of a municipal securities principal. As a result of the revisions noted above, the MSRB is modifying the number of questions on each section of the Series 53 study outline as follows: Part One—Federal Regulations, four questions; Part Two—General Supervision, 21 questions; Part Three—Sales Supervision, 29 questions; Part Four—Origination and Syndication, 22 questions; and Part Six—Operations, 16 questions. Coverage on Part Five—Trading remains unchanged with eight questions. The revised examination continues to cover areas of knowledge required for effective supervision of municipal securities activities. The MSRB is proposing these changes to the entire content of the Series 53 examination, including the selection specifications and question bank. The number of questions on the Series 53 examination will remain at 100, and candidates will continue to be allowed three and one-half hours for each testing session. Also, each question will continue to count one point, and each candidate must correctly answer 70 percent of the questions in order to receive a passing grade. 2. Statutory Basis The MSRB believes that the proposed revisions to the Series 53 examination program are consistent with the provisions of Section 15B(b)(2)(A) of the Act, 8 which authorizes the MSRB to prescribe standards of training, experience, competence, and such other qualifications as the Board finds necessary or appropriate in the public interest or for the protection of investors. Section 15B(b)(2)(A) of the Act also provides that the Board may appropriately classify municipal securities brokers and municipal securities dealers and their associated personnel and require persons in any such class to pass tests prescribed by the Board. 8 15 U.S.C. 78o-4(b)(2)(A). B. Self-Regulatory Organization's Statement on Burden on Competition The MSRB 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, as amended. 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 proposed rule change has become effective pursuant to Section 19(b)(3)(A)(i) of the Act 9 and Rule 19b-4(f)(1) thereunder, 10 in that the proposed rule change constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the self-regulatory organization. MSRB proposes to implement the revised Series 53 examination program on August 1, 2006. 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. 11 9 15 U.S.C. 78s(b)(3)(A)(i). 10 17 CFR 240.19b-4(f)(1). 11 *See* Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C). 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-MSRB-2006-05 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-MSRB-2006-05. 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 MSRB. 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-MSRB-2006-05 and should be submitted on or before August 10, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E6-11492 Filed 7-19-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54155; File No. SR-NASDAQ-2006-001] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment Nos. 2 and 3 Thereto Relating to the Nasdaq Market Center July 14, 2006. I. Introduction On February 7, 2006, The NASDAQ Stock Market LLC (“Nasdaq” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to integrate the operations of the existing Nasdaq Market Center, along with Nasdaq's Brut and INET facilities. On March 29, 2006, Nasdaq submitted Amendment No. 1 to the proposed rule change (“Amendment No. 1”). The proposed rule change, as amended by Amendment No. 1, was published for comment in the **Federal Register** on April 14, 2006. 3 The Commission received twelve comments regarding the proposal. 4 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 53583 (March 31, 2006), 71 FR 19573 (“Single Book Proposal”). 4 *See* letter from Kim Bang, Chief Executive Officer, Bloomberg Tradebook LLC (“Bloomberg”) (“Kim Bang”) to Brian G. Cartwright, General Counsel, Commission, dated March 6, 2006 (“Bloomberg Comment Letter I”); letter from Kim Bang, David Cummings, Chief Executive Officer, BATS Trading, Inc. (“BATS”) (“David Cummings”), Ronald Pasternak, President, Direct Edge ECN LLC, and Martin Kaye, Chief Executive Officer, Track ECN (“Track”) (“Martin Kaye”) to Robert L.D. Colby, Acting Director, Division of Market Regulation (“Davision”), Commission, dated March 21, 2006 (“ECN Comment Letter”); letter from Kim Bang to Jonathan G. Katz, Secretary, Commission (“Jonathan Katz”), dated May 5, 2006 (“Bloomberg Comment Letter II”); letter from David Cummings to Christopher Cox, Chairman, Commission (“Chairman Cox”), dated May 5, 2006 (“BATS Comment Letter”); letter from Martin Kaye to Chairman Cox, dated May 5, 2006 (“Track Comment Letter I”); letter from Leonard J. Amoruso, Senior Managing Director and Chief Compliance Officer, Knight Capital Group, Inc. (“Knight”) to Nancy M. Morris, Secretary, Commission (“Nancy Morris”); dated May 5, 2006 (“Knight Comment Letter”); letter from C. Thomas Richardson, Managing Director, Citigroup Global Markets Inc. (“Citigroup”) to Nancy Morris, dated May 17, 2006 (“Citigroup Comment Letter”); letter from Kim Bang to Nancy Morris, dated May 30, 2006 (“Bloomberg Comment Letter II”); letter from David C. Chavern, Vice President, Capital Markets Program, U.S. Chamber of Commerce (“USCC”) to Nancy Morris, dated June 8, 2006 (“USCC Comment Letter”); letter from David Colker, National Stock Exchange (“NSX”) to Chairman Cox, dated June 20, 2006 (“NSX Comment Letter”); letter from Kim Bang to Nancy Morris, dated June 23, 2006 (“Bloomberg Comment Letter IV”); and letter from Martin Kaye to Chairman Cox, dated July 3, 2006 (“Track Comment Letter II”). On July 7, 2006, Nasdaq filed Amendment No. 2 to the proposed rule change (“Amendment No. 2”). On July 14, 2006, Nasdaq filed Amendment No. 3 to the proposed rule change (“Amendment No. 3”). This order approves the proposed rule change, as amended by Amendment No. 1. Simultaneously, the Commission is providing notice of filing of Amendment Nos. 2 and 3 and granting accelerated approval of Amendment Nos. 2 and 3. II. Description Nasdaq proposes to combine the operations of the existing Nasdaq Market Center with its Brut and INET facilities to create a single integrated system, with a single pool of liquidity (the “Integrated System” or “System”). The Integrated System would only accept automatic executions and would eliminate Nasdaq's current order delivery functionality. The Integrated System is designed to enable Nasdaq to operate its execution system as that of a national securities exchange rather than as a national securities association, pursuant to the Commission order, dated January 13, 2006, approving Nasdaq's application to register as a national securities exchange. 5 In addition, Nasdaq has designed the Integrated System to comply with the requirements of Rules 610 and 611 of Regulation NMS under the Act (“Regulation NMS”). 6 Nasdaq has designated August 28, 2006 as the initial implementation date for this System. 7 5 *See* Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (“Exchange Application Order”). 6 *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 7 *See* Amendment No. 3. Nasdaq currently operates three execution systems:

(1)The Nasdaq Market Center, formerly known as SuperMontage (“NMC Facility”);

(2)the Brut ECN, a registered broker-dealer that is a Nasdaq subsidiary (“Brut Facility”); and

(3)the INET ECN, which is operated by Brut, LLC, a subsidiary of Nasdaq (“INET Facility”) (collectively, the “Nasdaq Facilities”). 8 Currently, the Nasdaq Facilities are all linked, but separate, each operating pursuant to independent Commission-approved rules, with the NMC Facility operating under the 4700 Series, the Brut Facility operating under the 4900 Series, and the INET Facility operating under the 4950 Series. 8 In its Single Book Proposal, Nasdaq noted that, until January 31, 2006, INET ATS, Inc. was a registered broker-dealer and a member of the NASD. On February 1, 2006, the INET broker-dealer and a member of the NASD. On February 1, 2006, the INET broker-dealer was merged into the Brut broker-dealer which is a member of the New York Stock Exchange (“NYSE”). Nasdaq states that it will continue to operate the Brut Facility and INET Facility under the rubric of a single broker-dealer until the Integrated System is fully operational. *See* Single Book Proposal at 19589. Under the proposal, as amended, Nasdaq seeks to integrate the matching systems of the three Nasdaq Facilities into a single matching system, governed by a single set of rules. To ease the transition for Nasdaq participants, the Integrated System would be accessible through the same connectivity by which users currently access each of the Nasdaq Facilities, and use functionality that is already approved and operating within one or more of the Nasdaq Facilities. For example, the Integrated System would use slightly modified functionality from the INET Facility for order entry, display, processing, and routing, and draw on functionality in the NMC Facility for the opening and closing processes. Participants would remain subject to general obligations applicable to all Nasdaq Facilities, including honoring System trades, complying with all Commission and Nasdaq rules, and properly clearing and settling trades. The proposed rule change, as amended, is designed to ensure Nasdaq's readiness to comply with Regulation NMS and facilitate Nasdaq's operation as a national securities exchange. As the proposed rule change merges the three Nasdaq Facilities into a single platform, it also simplifies Nasdaq's rules by merging five sets of rules (the 4600, 4700, 4900, 4950, and 5200 Series) into two (the 4600 and 4750 Series). The proposed 4600 Series would govern Nasdaq participants, while the proposed 4750 Series would govern the operation of the Integrated System. The proposed rule change would delete in the following series of rules in their entirety: Series 4700 (Nasdaq Market Center—Execution Services), Series 4900 (Brut Systems), Series 4950 (INET System), and Series 5200 (Intermarket Trading System/Computer Assisted Execution System). The proposed rule change would add new Series 4750 (Nasdaq Market Center—Execution Services) and modify current Series 4600 (Requirements for Nasdaq Market Makers and Other Nasdaq Market Center Participants), including renumbering rules governing participants' obligations to honor trades and to comply with applicable rules and registration requirements. In addition to reorganizing the rules, and making changes to the Exchange's rules for exchange and Regulation NMS readiness, the proposed rule change, as amended, addresses, among other things, openings and closings, the order display/matching system, order types, time in force designations, anonymity, routing, book processing, adjustment of open orders, 9 and Nasdaq's plan for a phased-in implementation of the proposed rule change. 9 *See supra* note 3. In Amendment No. 2, because of the extension of certain compliance dates relating to Regulation NMS, Nasdaq proposed to modify certain rules such that their effectiveness would coincide with the Regulation NMS compliance dates announced by the Commission. Amendment No. 2 also contained a number of non-substantive changes and technical corrections to clarify the proposal. In Amendment No. 3, Nasdaq proposed to schedule the implementation of the System beginning August 28, 2006. 10 Nasdaq described its planned phase-in schedule for the Integrated System and intention to test the System during the month of July and early in August prior to the transition. Then, beginning August 28, 2006, Nasdaq would transition Nasdaq-listed securities in three groups over a three-week period with 15 to 30 Nasdaq-listed stocks the first week, an additional 100-200 Nasdaq-listed stocks the second week, followed by the remaining Nasdaq-listed stocks the third week. Following the transition of Nasdaq stocks, Nasdaq would transition all non-Nasdaq-listed securities ( *i.e.* , NYSE, American Stock Exchange (“Amex”), and regional-listed stocks). Nasdaq noted that it plans to monitor the implementation and adjust the schedule as needed to maintain an orderly transition. 10 The Commission notes that Amendment No. 3 replaces the August 14, 2006 implementation date that Nasdaq had proposed in Amendment No. 2. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment Nos. 2 and 3 are 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-NASDAQ-2006-001 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-NASDAQ-2006-001. 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 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; 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-2006-001 and should be submitted on or before August 10, 2006. IV. Summary of Comments Received The Commission received twelve comment letters, representing seven different entities, on the proposed rule change. 11 Five of the seven commenters either directly or indirectly operate electronic communications networks (“ECNs”). Each of the ECN commenters opposed the proposed rule change. The remaining two commenters did not directly support or oppose the proposal. 11 *See supra* note 4. Other than the Bloomberg Comment Letter I, all the comment letters discussed not only SR-NASDAQ-2006-001, but SR-NASD-2006-048 as well. In NASD-2006-048, Nasdaq propoess to charge an order delivery fee of 10 cents per 100 shares to order delivery participants on its system. *See* Securities Exchange Act Release No. 53644 (April 13, 2006), 71 FR 20149 (April 19, 2006) (“Order Delivery Fee Proposal”). The summary here focuses on the comment letter discussions relating to SR-NASD-2006-001, rather than those relating to the Order Delivery Fee Proposal. Bloomberg submitted four comment letters. The Bloomberg Comment Letter I was submitted prior to Nasdaq's submission of Amendment No. 1. In that letter, Bloomberg commented on one provision of the proposal that would have prohibited members from charging access fees triggered by the execution of a quotation within the System. 12 Bloomberg suggested that such a provision would violate Section 6(e)(1) of the Act, 13 which states that “no national securities exchange may impose any schedule or fix rates of commissions, allowances, discounts, or other fees to be charged by its members.” In addition, the Bloomberg Comment Letter I asserted that the Form 19b-4 did not adequately discuss or justify the burdens on competition with respect to the proposed prohibition on fees. 14 Bloomberg recommended that Nasdaq withdraw the provision of the proposal regarding the prohibition of fees. In Amendment No. 1, Nasdaq eliminated its proposal to prohibit members from charging access fees. 15 12 Bloomberg Comment Letter I at 1-2. 13 15 U.S.C. 78f(e)(1). 14 Boomberg Comment Letter I at 2-4. 15 *See infra* Section V. In its second comment letter, Bloomberg objected to proposed Nasdaq Rule 4623(b)(5), which would eliminate the order delivery functionality from Nasdaq's rules, because it would expose ECNs to the risk of dual liability. 16 Bloomberg said that dual liability was “a risk that in the past the Commission found to justify requiring Nasdaq to provide order delivery as opposed to execution delivery.” 17 Bloomberg opined that eliminating the order delivery functionality, and thereby requiring all Nasdaq participants to accept automatic execution, would force ECNs to “abandon their current business models and begin to act, involuntarily, as dealers;” currently, unlike market makers, ECNs act as agency brokers and do not carry inventory or act as principal. 18 Bloomberg also asserted that because ECNs do not earn a market maker's bid-ask spread, being forced to “eat” an execution could “never be profitable” for ECNs. 19 Bloomberg concluded that this aspect of the proposal would force ECNs out of the Nasdaq market. Bloomberg questioned how investors and the national market system would be well served by eliminating the competitive liquidity and investor choices provided by ECNs from the Nasdaq platform. 20 16 Bloomberg Comment Letter II at 1. 17 Bloomberg Comment Letter II at 8-9, note 7 (citing Securities Exchange Act Release No. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001) (“SuperMontage Order”)), *See also* ECN Comment Letter at 3. 18 Bloomberg Comment Letter II at 4; *see also* Citigroup Comment Letter at 1. 19 Bloomberg Comment Letter II at 4. 20 Bloomberg Comment Letter II at 2, 10. Bloomberg noted that the “independent ECNs” at risk represent some 15% of the total Nasdaq volume. The Bloomberg Comment Letter II took issue with Nasdaq's claim that the order delivery functionality of ECNs made Nasdaq less competitive by slowing its execution services. Bloomberg stated that Nasdaq's claim did not include any data or factual support, and was “incredible on its face.” 21 Bloomberg noted that Nasdaq market participants entering orders could effectively choose to have their orders sent to automatic execution participants; thus, if order delivery ECNs were consistently slower or less efficient, they would suffer dire business consequences. 22 The comment letter also noted that Nasdaq itself routes orders to other market centers, such as Archipelago, and that there was no indication that this routing slowed down its system. Bloomberg stated that its typical response time to incoming Nasdaq orders was 5-20 milliseconds. Bloomberg posited that slow quotation updates, rather than order delivery delays, were the true cause of Nasdaq's system slowdowns. Bloomberg noted that the Nasdaq Quotation Dissemination Service feed had latencies of 500 milliseconds or more during periods of high market activity. 23 21 Bloomberg Comment Letter II at 5. 22 Bloomberg Comment Letter II at 5-6. 23 Bloomberg Comment Letter II at 6-8. Bloomberg also disagreed with Nasdaq's characterization of the Division's response to Question 5 of its Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS. 24 In the Single Book Proposal, Nasdaq stated that it did not believe that it could offer order delivery functionality and also satisfy Question 5's standard of continuously providing “a response to incoming orders that does not significantly vary between orders handled entirely within the SRO trading facility and orders delivered to the ECN.” 25 In Bloomberg's view, Question 5 does not “authorize Nasdaq to drop order delivery without considering the factors the Division cited.” Bloomberg believed that the Division suggested that Nasdaq could “continue to deliver orders to an ECN as long as Nasdaq's order-handling performance does not significantly vary between orders handled entirely within the SRO trading facility and orders delivered to the ECN.” 26 Rather than considering whether it could meet the conditions outlined by the Division in its NMS FAQs relating to order delivery functionality, Bloomberg believed that Nasdaq chose not to confront the issue. Bloomberg believed that the “facts demonstrate that there is no valid basis for Nasdaq's proposed deletion of order delivery to ECNs that can respond within milliseconds.” 27 24 Division of Market Regulation (“Division”), Responses to Frequently Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS, dated January 27, 2006 (“NMS FAQs”) (available at *http://www.sec.gov/divisions/marketreg/rule611faq.pdf* ). 25 Single Book Proposal at 19591, citing NMS FAQs at Question 5. 26 Bloomberg Comment Letter II at 7. 27 Bloomberg Comment Letter II at 7-8. Bloomberg also argued that the proposed rule change was inconsistent with the Act, in that Nasdaq's analysis of the proposal's impact on competition failed to consider “the liquidity that ECN participants provide to investors, the advantage this brings to investors and the internal discipline and drive to innovation within Nasdaq itself that is provided by the ECNs.” 28 28 Bloomberg Comment Letter II at 8. Bloomberg posited that the proposed rule change was inconsistent with Section 6(b)(5) of the Act 29 because it discriminated unfairly against ECNs in that the only order delivery participants on Nasdaq are ECNs. Bloomberg also opined that the proposed rule change was inconsistent with Nasdaq's obligations under the Act to promote a free and open market and a national market system. In addition, Bloomberg believed that the proposal would violate Section 6(b)(8) of the Act 30 by imposing burdens on competition that are not necessary or appropriate in furtherance of the purposes of the Act. Finally, Bloomberg noted that Section 3(f) of the Act 31 requires the Commission to consider whether the proposed rule change would promote competition. 32 29 15 U.S.C. 78f(b)(5). 30 15 U.S.C. 78f(b)(8). 31 15 U.S.C. 78c(f). 32 Bloomberg Comment Letter II at 9-11. In its comment letter, Citigroup stated its belief that the National Association of Securities Dealers, Inc.'s (“NASD”) Alternative Display Facility (“ADF”) currently does not provide a viable alternative to the Nasdaq platform. Citigroup cited the ADF's connectivity costs, inability to quote NYSE- and Amex-listed securities, and inability to display sub-penny quotations to four decimal places for sub-$1.00 securities. In addition, Citigroup asserted that the ADF was a more expensive facility for ECNs, because it charged for quotation updates and did not have a general revenue sharing plan. Citigroup also believed that the ADF provided inadequate order protection because it would not provide an aggregate top-of-the-book quotation with protection under Rule 611 of Regulation NMS. 33 33 Citigroup Comment Letter at 2-3. In support of its claim that the ADF is not a viable alternative to Nasdaq, Citigroup noted that daily volume on the ADF averaged approximately fifteen million shares compared to the total daily volume of approximately 1.7 billion shares for Nasdaq securities. 34 Finally, Citigroup said that the Commission, in response to various ADF-related comments in the Nasdaq exchange application context, 35 indicated that the ADF was not a viable alternative to the Nasdaq Market Center. 36 34 Citigroup Comment Letter at 3. 35 *See supra* note 5. 36 Citigroup Comment Letter at 3, quoting Exchange Application Order at 57-58 (referring to comments from the Securities Industry Association and Instinet). In its third comment letter, responding to Nasdaq's initial comment response letter, 37 Bloomberg endorsed the “main thrust” of Citigroup's comment letter, in particular supporting Citigroup's assertion that the ADF was not a viable alternative to Nasdaq, pointing to the ADF's connectivity issues and its lack of capability to provide an aggregate top-of-book quotation under Rule 611 of Regulation NMS. 38 Bloomberg also reiterated its disagreement with Nasdaq's assertion that retaining order delivery would slow down the Nasdaq market. 39 In addition, Bloomberg emphasized that several other ECNs shared their concerns about the proposal. 40 37 *See infra* note 75. 38 Bloomberg Comment Letter III at 1. 39 Bloomberg Comment Letter III at 2. 40 Bloomberg Comment Letter III at 2. Bloomberg stated that, contrary to Nasdaq's assertions in its initial comment response letter, the existing platform of the NSX is not a viable venue for multiple participants, particularly in light of its limited capacity. While acknowledging that BATS had moved from Nasdaq to NSX, Bloomberg pointed out that, notwithstanding that BATS is a very new ECN and has a relatively light share volume, BATS experienced a significant decrease in trading volume following its move to NSX. In addition, Bloomberg argued that, because the current NSX platform is unable to attribute quotes for multiple participants, market participants might be required to build temporary connectivity to each ECN participating in NSX, which would divert the industry's attention and resources at a time when implementation of Regulation NMS and industry consolidation issues were already pushing programming capacity to its limits. 41 41 Bloomberg Comment Letter III at 2-3. Bloomberg also believed that Nasdaq, in its initial comment response letter, misstated the Commission's duties under the Act. Bloomberg opined that the Act put a special burden on self-regulatory organizations (“SROs”) if an SRO such as Nasdaq wished to change an existing rule or system. Bloomberg believed that Nasdaq must demonstrate that such change is lawful, does not unfairly discriminate among members, and that any resulting burden on members is necessary or appropriate in furtherance of the purposes of the Act, which Bloomberg contrasted with an SRO's own commercial purposes. In addition, Bloomberg believed that whether other national securities exchanges had similar systems should not be relevant to the Commission's analysis. 42 42 Bloomberg Comment Letter III at 4-6. Bloomberg also posited that the data Nasdaq provided in its initial comment response letter pertaining to order delivery transactions was contextually insufficient. Bloomberg pointed to the speed of Nasdaq's quotation updates as a factor in order failures, and noted that Nasdaq had not provided data regarding the speed of quotation updates during high volume openings and closings. Bloomberg also suggested that, rather than removing order delivery functionality from its system, Nasdaq should establish rules to mandate faster quotation updates. In addition, Bloomberg proposed that Nasdaq could prevent some ECN outliers from exceeding its 5-second response time rule by mandating a 500-millisecond or even 50-millisecond rule. 43 43 Bloomberg Comment Letter III at 6-8. Bloomberg also noted that, based on public statements of Nasdaq and the Commission, an order delivery ECN would have reasonably believed that either order delivery functionality would remain on the Nasdaq system indefinitely or an order delivery ban would not occur until the fall of 2006 at the earliest. 44 Bloomberg contended that it was not seeking to slow down Nasdaq's Single Book Proposal, but rather Nasdaq had accelerated the timing of the new system's roll-out. In addition, Bloomberg noted that the roll-out of the Single Book Proposal is not necessary to the commencement of Nasdaq's operation as an exchange and “would visit needless disruption and dislocation not only on the independent ECNs but on the market as a whole” and would “unfairly disadvantage independent ECNs and regional exchange competitors, such as NSX.” 45 44 Bloomberg Comment Letter III at 8-9. 45 Bloomberg Comment Letter III at 9-10. Bloomberg also believed that the elimination of order delivery functionality would burden competition for order flow in Nasdaq-listed securities. Bloomberg claimed that Nasdaq acquired INET and Brut “with a view to curtailing competition for order flow in Nasdaq securities” and was now “attempting to perfect its monopoly by crushing the remaining independent ECNs.” 46 Finally, Bloomberg believed that Nasdaq, in its initial comment response letter, misstated the Commission's authority when it said that the Commission lacked the statutory authority to provide a delay. Bloomberg believed that the Commission has clear authority to require Nasdaq to provide an adequate transition period in its proposal, and could request that Nasdaq amend its proposal to build in such a delay. 47 46 Bloomberg Comment Letter III at 10. 47 Bloomberg Comment Letter III at 10-11. The remaining ECN commenters each endorsed the positions set forth in the Bloomberg Comment Letter II. 48 Some commenters also expressed their concern not only about short-term market dislocation and disruption, 49 but also regarding the long-term loss of investor choice. 50 In particular, Bloomberg stated that, since Nasdaq's acquisition of the Brut and INET ECNs in the past two years, trading in the Nasdaq market had become more concentrated and less competitive. Bloomberg opined that Nasdaq was driving other ECNs off its system to allow it “to charge monopoly rents for access to its market and for market data.” 51 In addition, some of the commenters felt that Nasdaq's proposal represented a for-profit exchange using the regulatory process to eliminate competition. 52 48 *See* BATS Comment Letter, Track Comment Letter I, Knight Comment Letter. 49 *See* BATS Comment Letter, Track Comment Letter I at 1, Bloomberg Comment Letter II at 2. 50 *See* BATS Comment Letter, Bloomberg Comment Letter II at 2. 51 *See* Bloomberg Comment Letter II at 2. 52 *See* BATS Comment Letter, Track Comment Letter I at 1, Bloomberg Comment Letter II at 1, 3. Bloomberg also noted that it did not believe that requiring Nasdaq to maintain its order delivery functionality would imply an affirmative obligation for other national securities exchanges to provide the same. 53 Finally, Bloomberg and Track requested that if the Commission decided to approve the proposed rule change, more time should be given to the ECNs to find another venue to operate their business. 54 Similarly, the USCC encouraged the Commission to, as a matter of good process, “consider the need for appropriate transition periods” should the proposed rule change be adopted. 55 53 *See* Bloomberg Comment Letter II at 11. 54 *See* Bloomberg Comment Letter II at 11 (delay in the effective date); Track Comment Letter I at 2 (phased-in approach). 55 *See* USCC Comment Letter at 1-2. In response to Nasdaq's fourth comment letter regarding technical difficulties relating to INET's participation in the NSX, 56 NSX submitted a comment letter to describe its relationship with Nasdaq and INET, in particular noting that NSX's dissemination of quotations for Nasdaq may be slow because of Nasdaq's own internal system delays. 57 NSX also noted that it intended to build a robust, state-of-the-art trading system that should help minimize future problems related to the capacity of, or linkage to, its market. 58 56 *See infra* note 99. 57 *See* NSX Comment Letter at 1-2. 58 *See* NSX Comment Letter at 1-2. On June 23, 2006, Bloomberg submitted its fourth comment letter, welcoming the USCC Comment Letter's call for an appropriate transition period, and describing Nasdaq's third and fourth response letters 59 as containing misleading statements and false assertions. 60 Bloomberg believed that Nasdaq's characterization in its third comment letter that the two ECNs operating on NSX (BATS and INET) were cohabitating with little disruption contrasted with Nasdaq's fourth response letter which stated that the NSX platform was experiencing severe capacity overages and delays. 61 In addition, Bloomberg said that Nasdaq's claim in its fourth comment letter that the Commission had ordered INET to cease quoting in NSX by September 1, 2006 was untrue, noting that the Commission merely recognized a Nasdaq representation that it would cease quoting in NSX and the correct date was September 30, 2006. 62 Bloomberg emphasized that the difference between the two dates was crucial, and stated that the “Commission understood that additional time beyond September 30, 2006 might be prudent and necessary.” 63 59 *See infra* Nasdaq Response Letter III and Nasdaq Response Letter IV, notes 92 and 99. 60 *See* Bloomberg Comment Letter IV at 1-2 and 4-5. 61 *See* Bloomberg Comment Letter IV at 2. 62 *See* Bloomberg Comment Letter IV at 3 (citing Nasdaq Rule 4720). 63 *See* Bloomberg Comment Letter IV at 3. Bloomberg also reiterated its prior arguments regarding the need for business certainty and that Nasdaq had given the expectation that its Single Book Proposal would be rolled out in December 2006. Bloomberg said that, because of the resulting uncertainty and confusion of Nasdaq's earlier proposed roll-out date, ECNs have had to explore and develop, at substantial cost, a number of competing alternative scenarios; for example, Bloomberg has explored an interim migration to another platform, temporarily participating in Nasdaq while trying to prevent double execution, and ultimately migrating to an exchange platform that offers order delivery and quotation display. Bloomberg stated that the lack of certainty has “impeded sound business planning and threatens to constrict investor choice and the development of sound market alternatives.” 64 64 *See* Bloomberg Comment Letter IV at 4. Bloomberg also disputed Nasdaq's statement regarding its participation in Nasdaq's Opening and Closing Crosses, stating that it has had to develop special facilities to integrate during such times with Nasdaq and that, during those limited periods, Bloomberg simply operates as an order-routing system. 65 In addition, Bloomberg also disputed various characterizations by Nasdaq, including its NSX participation, percentage of total Nasdaq trading volume attributable to order delivery executions, and the data Nasdaq presented with regard to Bloomberg's response times in early May 2006. 66 Bloomberg also again suggested that Nasdaq could enforce its 5-second response time rule or even impose a more stringent 50-millisecond rule. 67 Finally, Bloomberg believed that, contrary to Nasdaq's assertions in its response letters, it was proper for the Commission to consider comment letters received after the comment period deadline had expired. 68 65 *See* Bloomberg Comment Letter IV at 5. 66 *See* Bloomberg Comment Letter IV at 5-7. 67 *See* Bloomberg Comment Letter IV at 7-8. 68 *See* Bloomberg Comment Letter IV at 8. On July 3, 2006, Track submitted a second comment letter to clarify to the Commission that it was still a participant in the Nasdaq Market Center, reiterate its comments submitted previously as part of the ECN Comment Letter, and support the comment letters of Citigroup, USCC, and Bloomberg. 69 Track emphasized that Bloomberg was not the sole party objecting to aspects of the Single Book Proposal, but that it and other ECNs were interested parties as well. Track stated that it continued to execute significant business through Nasdaq's platform. In addition, it noted that only one percent of its volume was on the ADF, which it did not believe was a viable place to conduct its business. Track believed that NSX's trading platform currently under development, which it expected to include order delivery functionality, would be a viable alternative. However, Track noted that the new NSX platform was not scheduled to be ready until September 2006. Adding in two months to ramp up its volume on the new system, Track requested that it be able to continue to operate on Nasdaq's platform until the NSX platform is operational and capable of handling the volumes of business required by the ECNs. Track also noted that it planned to begin testing on the new platform in July 2006. 70 Track stated that its only issue with the Single Book Proposal was Nasdaq's decision to accelerate its roll-out timetable for its integrated system because it provided too brief a period for migration to workable venues, and that “[a]ll other matters with regard to Nasdaq's Exchange status are not at issue with Track ECN.” 71 69 *See* Track Comment Letter II at 1. 70 *See* Track Comment Letter II at 2. 71 *See* Track Comment Letter II at 2. V. Nasdaq's Response to Comments In Amendment No. 1, Nasdaq addressed the Bloomberg Comment Letter I and the ECN Comment Letter. Nasdaq revised its statement on burden on competition to state that it operates in an intensely competitive global marketplace where its ability to compete is “based in large part on the quality of its trading systems, the overall quality of its market and its attractiveness to the largest number of investors, as measured by speed, likelihood and cost of executions, as well as spreads, fairness, and transparency.” 72 Nasdaq asserted that its Single Book Proposal would have a pro-competitive effect by reducing overall trading costs, increasing price competition, and spurring further initiative and innovation among market centers and market participants. In addition, Nasdaq believed that its discontinuation of the order delivery functionality was pro-competitive, because such functionality harmed its competitiveness vis-à-vis other exchanges and reduced the overall quality of its marketplace. 72 *See* Single Book Proposal at 19596. Nasdaq also defended its proposal to require all of its participants to accept automatic execution by eliminating its order delivery functionality. Nasdaq stated that its order delivery functionality is unique among exchanges and that no other exchange offers order delivery to its participants. Nasdaq asserted that such functionality is “expensive, complex, and detrimental to system performance, thereby increasing the cost and complexity of Nasdaq's trading systems and decreasing its performance.” Nasdaq also believed that order delivery discourages order flow providers from sending orders to Nasdaq for processing because market participants cannot predict whether their orders will be delivered or automatically executed, thereby hurting Nasdaq's ability to compete with other markets. 73 73 *Id* . In addition, Nasdaq noted that, within its own system, the presence of order delivery negatively impacts the competition between market makers, ECNs/alternative trading systems (“ATSs”), and agency broker-dealers, because market makers and agency broker-dealers (who are required to participate in Nasdaq via automatic execution) view themselves as disadvantaged relative to ECNs and ATSs that can choose to participate either via automatic execution or order delivery. Nasdaq believed that removing the order delivery functionality would level the playing field between its market participants. Finally, Nasdaq noted that its ability to provide the fastest, fairest, and most efficient system possible was particularly important given the Commission's adoption of Regulation NMS. 74 74 *See* Single Book Proposal, *supra* note 3. On May 8, 2006, Nasdaq again responded to the comments regarding the proposed rule change. 75 Nasdaq stated that the Single Book Proposal would “benefit investors by offering a faster, fairer, more efficient and more transparent system that executes trades in strict price/time priority; promote competition by allowing Nasdaq to increase efficiency, decrease overall trading costs, and provide better service to market participants; promote the development of the national market system by integrating separate trading systems into a single pool of exchange liquidity for market participants to access; and improve regulation by complying with the Regulation NMS Access and Order Protection Rules to prevent locked and crossed markets and trade throughs.” 76 Nasdaq contended that Bloomberg's sole dispute with the Single Book Proposal was Nasdaq's proposal to eliminate the order delivery functionality that is available only to ECNs and available only on Nasdaq. 77 75 *See* Letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq to Morris, dated May 8, 2006 (“Nasdaq Response Letter I”). 76 Nasdaq Response Letter I at 1. 77 Nasdaq Response Letter I at 2. Nasdaq stated that Bloomberg was unable to identify any requirement in the Act that a national securities exchange offer order delivery functionality, and noted that no other exchange has been required to, or chosen to, offer such functionality. Nasdaq stated that any requirement to offer such functionality should apply equally to all SRO markets. 78 In addition, Nasdaq rejected Bloomberg's claim that it was unfairly discriminating against “independent” ECNs to the advantage of its own ECN facilities ( *i.e.* , Brut and INET), because this proposal would integrate the Brut and INET execution facilities with the Nasdaq Market Center into a single trading platform. 79 78 Nasdaq Response Letter I at 2. 79 Nasdaq Response Letter I at 2. Nasdaq emphasized that its proposal would not exclude ECNs but rather it would welcome them to participate in Nasdaq provided that they accept automatic execution. Nasdaq opined that the ECN commenters' systems were fully automated, and that they had declined to participate in Nasdaq via automatic execution to “isolate orders within [their] own system[s] and to preserve internal executions as much as possible.” 80 Nasdaq also noted that several agency brokers participate in Nasdaq, accept automatic executions, and manage their risk of double executions by cancelling their quote or order on Nasdaq before matching an order internally. 81 80 Nasdaq Response Letter I at 3. 81 Nasdaq Response Letter I at 3, note 6. Nasdaq stated that Bloomberg could conduct its business elsewhere and that the Act does not require Bloomberg to post its orders in Nasdaq. As an example, Nasdaq noted that other ECNs have elected to move their business to regional exchanges or the ADF. Nasdaq said that Bloomberg's contention was based on the false premise of a Nasdaq monopoly, and that Bloomberg was a privileged Nasdaq participant, as opposed to a “prisoner” of Nasdaq's system. 82 82 Nasdaq Response Letter I at 4. Nasdaq reiterated its concerns about the delay in executions caused by order delivery. Nasdaq stated that order delivery interactions were more time consuming than automatic execution interactions, and that unlike automatic execution, orders delivered to an ECN could be rejected if the shares had been accessed by an ECN's direct subscribers. Nasdaq also presented data relating to order delivery during the week of March 13, 2006, which included a so-called “expiration Friday” on March 17th. During that week, Nasdaq stated that: 100 percent of automatic execution orders that Nasdaq attempted to execute actually executed; 14 percent of total orders that Nasdaq delivered to order delivery participants failed to execute and for one order delivery participant the overall failure rate exceeded 25 percent; 55.6 percent of orders delivered to order delivery participants prior to 9:30:15 failed to execute; 27.9 percent of orders delivered to order delivery participants between 9:30:15 and 9:30:30 failed to execute; 12.7 percent of orders delivered to order delivery participants between 9:30:30 to 3:59:30 failed to execute; and prior to 9:30:15, three order delivery participants had mean response times of over four, nine, and twenty seconds per order during that week. 83 83 Nasdaq Response Letter I at 5-6. In addition to the time and response issues, Nasdaq stated that it was costly to maintain the order delivery functionality because it demanded “disproportionate system capacity and unique specifications, requirements, and programming not available to or needed by the vast majority of Nasdaq participants * * *.” Nasdaq emphasized that these are costs no other SRO incurs. Nasdaq also believed that ECN response times and rejection rates created strong disincentives for market participants to use Nasdaq's systems because of the uncertainty and reduced speed of an order execution. 84 In addition, Nasdaq believed that time and response issues would be exacerbated under Regulation NMS, and expressed concern again about order delivery making Nasdaq a “slow” market or exposing it to “self-help” declarations by other trading centers. 85 84 Nasdaq Response Letter I at 6. 85 Nasdaq Response Letter I at 6. Finally, Nasdaq objected to Bloomberg's request for a delay in the effective date of an approval. Nasdaq believed that this would simply “delay the time when investors receive the benefits offered by a faster, fairer, more efficient and more transparent system.” 86 In addition, Nasdaq noted that BATS was able to shift its order flow to the NSX in a matter of weeks, and that Nasdaq's filing provides Bloomberg with over three months to make the system changes needed for similar migration. Nasdaq also stated that there was no requirement under the Act to “accommodate the business schedule of any individual market participant” as it negotiated “a beneficial arrangement to post quotes in another venue” and that the Commission was directed by Section 19(b) of the Act to “determine promptly whether a rule proposal is consistent with the Act and to approve or reject it accordingly.” 87 86 Nasdaq Response Letter I at 6. 87 Nasdaq Response Letter I at 7. On May 26, 2006, Nasdaq submitted to the Commission a second letter, responding to the Citigroup Comment Letter. 88 Nasdaq requested that the Commission disregard Citigroup's comment letter because Nasdaq asserted that it was untimely filed and was an attempt to use the statutory notice and comment period to delay consideration of the Single Book Proposal. 89 Nonetheless, Nasdaq responded to the substantive elements of the letter and disputed the assertions by Citigroup regarding the ADF's viability. In particular, Nasdaq noted that the predecessor of Citigroup's current OnTrade ECN, NexTrade, had been quoting on the ADF for over three years. Nasdaq also disputed Citigroup's assertion that the ADF's cost of connectivity was an “economic disincentive,” instead characterizing it as “a cost of doing business” and stating that Nasdaq's order routing technology supports connectivity to any ADF participant whose quotation is displayed through the ADF in the consolidated quotation. 90 Nasdaq also reiterated that, like Bloomberg, Citigroup failed to mention that scores of agency brokers participate on Nasdaq systems and accept automatic executions, managing their dual liability risks by cancelling their quotations or orders on Nasdaq prior to matching their orders internally. Finally, Nasdaq asserted that Citigroup misstated that there would be no alternative facility for NYSE- and Amex-listed securities and distorted the Commission's statements in the Exchange Application Order, noting that it believed that the passage cited by Citigroup related to the Commission's requirement that there be an alternative facility for non-Nasdaq stocks prior to Nasdaq's operation as an exchange. 91 88 *See* Letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq to Morris, dated May 26, 2006 (“Nasdaq Response Letter II”). 89 Nasdaq Response Letter II at 1-2. 90 Nasdaq Response Letter II at 2. 91 Nasdaq Response Letter II at 2. On June 8, 2006, Nasdaq submitted to the Commission a third letter, responding to the Bloomberg Comment Letter III. 92 In this letter, Nasdaq reiterated its belief that Bloomberg could participate in Nasdaq via automatic execution, that Bloomberg was technologically capable of quoting in the NASD ADF “in a matter of days,” and that Bloomberg did in fact have a number of alternatives to being an order delivery participant in Nasdaq. 93 Nasdaq also disagreed with Bloomberg's description of NSX's current operation and pointed out that two ECNs, INET and BATS, operate in that market with little disruption. 94 In addition, Nasdaq reiterated the critical nature of its Single Book Proposal, given the competition it faces both in the United States and abroad. Nasdaq stated that Single Book would be “lightning fast” and produce faster, more certain executions. In addition, Nasdaq stated that the proposal would transform its market into a strict price-time priority venue, promote competition, decrease overall trading costs, provide better service to market participants, and allow Nasdaq to comply with the access and order protection provisions of Regulation NMS. 95 92 *See* Letter from Jeffrey S. Davis, Senior Associate General Counsel, Nasdaq to Morris, dated June 8, 2006 (“Nasdaq Response Letter III”). 93 Nasdaq Response Letter III at 2-3, 4-5. 94 Nasdaq Response Letter III at 3. 95 Nasdaq Response Letter III at 3-4. Nasdaq also stated that Bloomberg has a negative impact on Nasdaq's competitiveness, pointing to the period immediately following the market's opening as an example. 96 Nasdaq noted that, during the first week of May 2006, during the trading period prior to 9:30:15 am, Bloomberg's mean response time to delivered orders was over 5 seconds per order. 97 Finally, Nasdaq disagreed with Bloomberg's contention that eliminating order delivery was discriminatory, stating that it did not see “how requiring all market participants to use identical automatic functionality [could] be considered discriminatory.” 98 96 Nasdaq Response Letter III at 4. 97 Nasdaq Response Letter III at 4. 98 Nasdaq Response Letter III at 4-5. On June 9, 2006, Nasdaq submitted to the Commission a fourth letter, describing INET's technological problems in NSX. 99 Nasdaq stated that, on June 8, 2006, senior officers of the NSX notified Nasdaq that the NSX was “experiencing severe capacity overages and quotation delays in its core systems * * * [and] * * * requested that Nasdaq cause INET to cease sending quotations to the NSX and stated that NSX was considering terminating INET's ability to send quotations to NSX.” 100 Nasdaq stated that the possibility of future technology failures was increasing as message traffic has increased significantly across the industry. Nasdaq stated that it was taking all available, prudent steps to avoid future disruptions, and that approval of the Single Book Proposal would enable it to remove all quotations from NSX and avoid such technology failures. 101 99 *See* Letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq to Cox, dated June 9, 2006 (“Nasdaq Response Letter IV”). 100 Nasdaq Response Letter IV at 1. 101 Nasdaq Response Letter IV at 1-2. VI. Commission's Findings and Order Granting Accelerated Approval of Amendment Nos. 2 and 3 As discussed fully throughout this approval order, the Commission has carefully reviewed the proposed rule change, as amended, the comment letters, and Nasdaq responses, and finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act. 102 Specifically, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act 103 in that it is designed 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; and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by the Act matters not related to the purposes of the Act or the administration of the exchange. The Commission also finds that the proposed rule change, as amended, is consistent with Section 6(b)(8) of the Act 104 in that it does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 102 15 U.S.C. 78f(b). 103 15 U.S.C. 78f(b)(5). 104 15 U.S.C. 78f(b)(8). A. Elimination of Order Delivery Function Nasdaq's proposal would require that all Nasdaq participants accept automatic executions and would eliminate order delivery processing in the newly integrated system. Nasdaq's primary rationale for this aspect of the proposal is as follows: • Order delivery functionality is expensive, complex, and detrimental to its system and decreases system performance and no other national securities exchange is required to provide this service; • Order delivery functionality hampers Nasdaq's ability to compete by discouraging order flow providers from sending orders to Nasdaq because market participants cannot predict whether their orders will be delivered or automatically executed; • Order delivery functionality negatively impacts competition between market makers, ECNs/ATSs, and agency broker-dealers, because market makers and agency broker-dealers (who are required to participate in Nasdaq via automatic execution) are disadvantaged relative to ECNs and ATSs that can choose to participate either via automatic execution or order delivery; • Nasdaq's system is completely voluntary and ECNs are not required to quote or participate in Nasdaq; and • In light of the competition fostered by Regulation NMS, Nasdaq needs to provide the fastest, fairest, and most efficient system. Nearly all of the commenters opposed the proposed elimination of Nasdaq's order delivery functionality. 105 The commenters suggested that the proposal was inconsistent with Sections 6(b)(5) 106 and 6(b)(8) of the Act 107 in that it unfairly discriminated between brokers or dealers and imposed a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The main assertions by the commenters are as follows: 105 *See, e.g.* , Bloomberg Comment Letter II at 9; Knight Comment Letter at 2; Track Comment Letter I at 1. 106 15 U.S.C. 78f(b)(5). 107 15 U.S.C. 78f(b)(8). • The automatic execution requirement would expose ECNs to dual liability risks; • The automatic execution requirement would force ECNs out of the Nasdaq market and have a negative impact on their customers; • The costs to move to another facility would be burdensome for ECNs; • There are no viable alternatives, including the NASD ADF and regional exchanges, to participation in Nasdaq; • Nasdaq is using its regulatory status to perfect a monopoly over Nasdaq-listed securities; and • Order delivery does not have a negative impact on the performance of Nasdaq's system, nor would it place Nasdaq at any undue risk in light of Regulation NMS. The Commission finds that this proposal does not unfairly discriminate among market participants, nor does it impose any burden on competition that is not necessary or appropriate in furtherance of the Act. 1. Competition Issues The Commission believes that the Single Book Proposal is an appropriate initiative by Nasdaq to enhance the quality of its exchange through integrating its three trading platforms into a single unified system, to add efficiency in executions and to increase overall market transparency. The Commission has long held the view that “competition and innovation are essential to the health of the securities markets. Indeed, competition is one of the hallmarks of the national market system.” 108 The Commission notes that the notion of competition is inextricably tied with the notion of economic efficiency, and the Act seeks to encourage market behavior that promotes such efficiency, lower costs, and better service in the interest of investors and the general public. 109 Therefore, the Commission believes that the appropriate analysis to determine a proposal's competitive impact is to weigh the proposal's overall benefits and costs to competition based on the particular facts involved, such as examining whether the proposal would promote economically efficient execution of securities and fair competition between and among exchange markets and other market centers, as well as fair competition between the participants of a particular market. 108 *See* SuperMontage Order at 8049. 109 15 U.S.C. 78c(f). The Commission notes that Nasdaq operates in a competitive global exchange marketplace for listings, financial products, and market services and competes in such an environment with other market centers, including national securities exchanges, ECNs, and other alternative trading systems, for the privilege of providing market and listing services to broker-dealers and issuers. Within Nasdaq's systems, ECNs and ATSs compete with market makers and agency broker-dealers for retail and institutional order flow. Thus, the Commission views Nasdaq as an individual market as well as a piece of the larger, overall market structure. The ECN's opposition to the instant proposal is that it will cause a disruption to their manner of doing business, and such operational changes are potentially burdensome and costly. Under the proposal, ECNs that choose to continue operating in Nasdaq will have to accept automatic executions and internally manage their quotes to prevent dual executions of the same order, while ECNs that opt to use another SRO facility to display their order flow may face reduced connectivity and higher costs. That a proposed rule change to an SRO's trading system requires a market participant to reevaluate its business model, develop new technology, or reprogram its current systems is not something that is unique to Nasdaq and moreover is not something that is unique to ECNs. Invariably, any proposed rule change to a fundamental function of an SRO market ( *e.g.* , display, execution, trade-reporting, etc.) will require certain changes by the affected market participants; and more than likely such changes must be effectuated by a technological solution in an increasingly automated national market system. As stated above, ECNs currently using Nasdaq's order delivery functionality may continue to participate in Nasdaq via automatic execution. Rather than excluding ECNs, Nasdaq is simply requiring ECNs to participate in Nasdaq on an automatic execution basis, as other participants are currently required to do. According to Bloomberg, order delivery is necessary because unlike market makers, ECNs act as agency brokers and do not carry inventory or act as principal. Without the order delivery functionality, Bloomberg contends that ECNs would be exposed to dual liability. 110 Bloomberg says that ECNs would be involuntarily forced to act as dealers and abandon their current business models. 111 Nasdaq responds that ECNs could participate as Nasdaq automatic execution participants as agency brokers by managing dual liability risks by cancelling their quote/order on Nasdaq before matching the order internally. 112 This risk management objective could be technologically achieved by ECNs giving priority to execution of the publicly displayed order in Nasdaq rather than the order flow that is only internally available on the ECN books to its subscribers. 113 In fact, Nasdaq asserts that agency-brokers on its system currently operate and manage their dual liability risks in that manner. The various ECN comment letters opposing the elimination of Nasdaq's order delivery functionality have not disputed the validity of this claim. 110 Bloomberg Comment Letter II at 4. 111 *See, e.g.* , Bloomberg Comment Letter II at 4. 112 *See* Nasdaq Response Letter I at 3, note 6. 113 Nasdaq Response Letter I at 3, note 6. Nasdaq has also stated that its current order delivery functionality is costly to operate and requires disproportionate system capacity, unique specifications, and additional programming. In addition, Nasdaq has emphasized that, though ECNs may provide an automated evaluation and response to orders, the time required to send message traffic back and forth between Nasdaq and ECNs involves delays that do not exist in the case of automatic executions. This potential for delay, as well the possibility that an order could be rejected by an order delivery ECN, gives a measure of uncertainty to orders entered on Nasdaq, which may impede Nasdaq's ability to compete with other markets and provide faster executions with increased certainty. 114 114 Nasdaq Response Letter I at 4-6. *See also* Nasdaq Response Letter III at 3-5. Nasdaq has stated legitimate regulatory and operational reasons for eliminating the order delivery service. For instance, Nasdaq is concerned that order delivery may cause the System to be deemed “slow” under Rule 611 of Regulation NMS. Although it appears that under most operating conditions, order delivery may not pose a significant risk that the System would be a “slow” market or expose it to the election of the “self-help” exception under Rule 611(b)(1) of Regulation NMS, Nasdaq raises legitimate concerns that, during periods of increased market activity or system stress, the order delivery functionality could place its market at risk. The Commission recognizes ECNs could pose differing levels of risk to the Integrated System and that normally ECNs may, as Bloomberg commented, generally be able to respond within 5-20 milliseconds; 115 however, Nasdaq has valid concerns over the response times of its market participants and the potential for such response times to negatively impact its entire market. Thus, the prospect of a single participant's slow response time affecting the protected quotation status of the entire market under Regulation NMS is a valid consideration in Nasdaq's determination of whether it is best to retain the order delivery functionality. 115 *See, e.g.* , Bloomberg Comment Letter II at 7-8. ECNs also assert that the proposal is unfairly discriminatory and it imposes a burden on competition that is not necessary or appropriate in furtherance of the Act because it would force ECNs to leave the Nasdaq market to operate either in another SRO facility or the NASD ADF. The commenters argue there are no viable alternatives for the ECN business model in the marketplace, and thus the Nasdaq order delivery service, which accommodates the ECN business model, must be preserved. The Commission does not share this view. As an initial matter, the Commission notes that the Act does not require Nasdaq to retain a market structure that supports the business operations of ECNs. Further, ECNs may post their orders in an SRO other than Nasdaq. The Commission believes that ECNs have a variety of options if they determine that, as a result of this proposal, they should forego Nasdaq participation. For example, ECNs may decide to post their liquidity to another SRO. In the past ECNs such as BATS, Brut, Instinet, Island, INET, Archipelago, and Attain have moved some or all of their activities from Nasdaq to other trading venues. Specifically, INET quotes on NSX; more recently, BATS has also moved from Nasdaq to NSX. Archipelago, through ArcaEx, became the equities trading facility of the Pacific Exchange, Inc. Other ECNs, including OnTrade (and its predecessor, NexTrade), quote in the NASD's ADF. Before Brut's purchase by Nasdaq, Brut quoted on the Boston Stock Exchange. Accordingly, ECNs that do not want to operate under the Nasdaq's Exchange Rules have other options at this time, and other alternatives for ECNs to participate as order delivery systems are emerging. Thus, while ECNs may not view the presently available alternatives to Nasdaq to be as appealing as participating on Nasdaq via order delivery, the Commission nevertheless believes viable alternatives to Nasdaq participation exist for ECNs. *a. Alternatives to Nasdaq.* In their comment letters, ECNs have been particularly critical of the capabilities of the NASD ADF and suggested that it does not constitute a true viable alternative to the Nasdaq market because it lacks:

(1)An execution facility;

(2)adequate order protection and quote attribution;

(3)favorable revenue sharing plans;

(4)sub-penny quoting up to four decimal places for securities priced less than $1.00; and

(5)connectivity to ECN participants. However, the Commission, on various occasions, has determined that the NASD ADF provides an alternative quotation facility for Nasdaq securities. 116 The NASD ADF does not have all the advantages and liquidity of an active exchange like Nasdaq, and thus may not currently be the *optimal* facility for an ECN and its particular business model; nonetheless, the NASD ADF facility has the basic requirements of a quotation facility for Nasdaq securities, thus providing market participants a venue other than Nasdaq in which to display their quotes. 116 *See, e.g.,* Securities Exchange Act Release No. 45156 (December 14, 2001), 67 FR 388 (January 3, 2002). The history of ECN participation in Nasdaq is instructive. Nasdaq began as a quotation, and then trading reporting, facility of the NASD, where quotes and trades of securities not listed on an exchange could be displayed. Later, Nasdaq displayed quotes and trades of exchange-listed stocks. Nasdaq satisfied the NASD's obligation to operate a system to collect quotes and trades arising under now Rules 601 and 602 of Regulation NMS. 117 117 17 CFR 242.601-02. In 1996, the Commission adopted the Order Handling Rules, 118 enabling ECNs to comply with a requirement to publicly display market maker quotes entered into the ECN by communicating these quotes to an SRO that was willing to display them in the consolidated quote system. The Commission said that if no SRO was willing to accept these quotes, it would take steps to ensure that these ECN quotes were included in the consolidated quote by an SRO. 119 118 Securities Exchange Act Release Nos. 37619A (September 6, 1996), 61 FR 48290 (“Order Handling Rules”). 119 *Id.* Nasdaq, as the competing market maker quotation system for non-exchange listed stocks operated on behalf of the NASD, chose at that time to accept ECN quotes in its system. Nasdaq accommodated the ECN order delivery preferences at their own displayed size even though market makers in Nasdaq were required (against their wishes) to accept automatic execution at an NASD-imposed 1,000-share automatic execution size. 120 120 *See* Securities Exchange Act Release Nos. 42344 (January 14, 2000), 65 FR 3987 (January 25, 2000) (NASD-99-11). Nasdaq subsequently eliminated the required 1,000-share automatic execution size, but retained automatic execution for market makers. 121 In SR-NASD-99-53, 122 Nasdaq recast its execution system as the SuperMontage system, accepting orders directly from agency brokers, subject to automatic execution. In response to criticisms raised by ECNs, SuperMontage retained an order delivery functionality for ECNs. 121 * See* Securities Exchange Act Release Nos. 45998 (May 29, 2002), 67 FR 39759 (June 10, 2002) (NASD-2001-66). 122 *See* SuperMontage Order, *supra* note 17. Because of concerns raised about the monopoly position of Nasdaq as the residual quote and trade facility of the NASD, in approving the SuperMontage, the Commission conditioned its operation on the NASD's creation of an alternate display facility that would permit NASD members to operate outside of Nasdaq and still comply with their regulatory obligations under the Order Handling Rules and Regulation ATS. 123 The Commission also required that the NASD ADF be designed to identify through the central processor the identity of the NASD member that is the source of each quote and provide a market neutral linkage to the Nasdaq and other marketplaces, but not an execution service. 124 Later, in approving a pilot program for the operation of the NASD ADF, the Commission re-stated the purpose first raised in the SuperMontage Order that the “ADF * * * permits registered market makers and registered ECNs to display their best-priced quotes or customer limit orders * * * through the NASD. ADF market participants are required to provide other ADF market participants with direct electronic access to their quote * * *. The ADF also serves as a trade reporting and trade comparison facility. The ADF will therefore allow market participants to satisfy their order display and execution access obligations under the Order Handling Rules and Regulation ATS.” 125 The D.C. Circuit Court of Appeals later stated that the NASD ADF is an alternative display facility that was created to “provide an alternative outlet in which market participants that did not wish to use SuperMontage could fulfill their order display and trading reporting obligations under SEC regulations.” 126 123 *See* Order Handling Rules, *supra* note 118 and Securities Exchange Act Release No. 40760 (December 8, 1998), 63 FR 70844 (December 22, 1998) (“Regulation ATS”). 124 SuperMontage Order at 8024. 125 *See* Securities Exchange Act Release No. 46429 (August 29, 2002), 67 FR 56862. 126 *Domestic Securities, Inc.* v. *Securities and Exchange Commission,* 333 F.3d 239, 248-249 (D.C. Cir. 2003). Subsequently, the NASD and Nasdaq chose to sunder their relationship, and Nasdaq registered as a separate national securities exchange. 127 The NASD satisfies its obligations for Nasdaq securities under Rules 601 and 602 of Regulation NMS through the ADF. 127 *See supra* note 5. One commenter, Citigroup, suggested that the Commission “recently indicated that ADF is not a viable alternative to the Nasdaq Market Center; referring to comments received in response to the Nasdaq application for registration as an exchange.” In this regard, the Commission believes that its response to Nasdaq exchange application comments has been misconstrued. The Commission did not intend to imply that the ADF is not a viable alternative to the Nasdaq Market Center. Instead, in response to the aforementioned comments the Commission reiterated its general belief, a theme initially voiced in the SuperMontage Order and again in the order approving the operation of the NASD ADF, that it would not be “consistent with the Exchange Act to allow the NASD to separate from the [Nasdaq] facilities by which it satisfies its regulatory obligations without having alternative means to do what the Exchange Act and the rules thereunder require. Accordingly, the Nasdaq Exchange may not begin operating as a national securities exchange and cease to operate as a facility of the NASD until NASD has the means to fulfill its regulatory obligations.” 128 In the Exchange Application Order, the Commission clearly articulates the statutory and regulatory obligations the NASD must be able to satisfy prior to Nasdaq commences operation as a national securities exchange. 129 In pertinent part, the NASD must represent to the Commission that control of Nasdaq through the Preferred D Share is no longer necessary because the NASD can fulfill through means other than Nasdaq systems or facilities its obligations with respect to CTA Plan securities under Section 15A(b)(11) of the Act, Rules 602 and 603 of Regulation NMS, and the national market system plans, *i.e.* , the CTA Plan, CQ Plan, Nasdaq UTP Plan, the ITS Plan, and the Order Execution Quality Disclosure Plan, in which the NASD will participate. 130 128 * See* Exchange Application Order at 3564. 129 * See* Exchange Application Order at 3562-64, 3566. The Commission recently modified the requirements for Nasdaq's operation as an exchange. *See* Securities Exchange Act Release No. 54085 (June 30, 2006), 71 FR 38910 (July 10, 2006). 130 *See* Securities Exchange Act Release No. 54085 (June 30, 2006), 71 FR 38910 (July 10, 2006). Thus, while Citigroup cites to the comparative various operational differences of the NASD ADF versus the Nasdaq Market Center from a business perspective, the only regulatory requirement referenced in its letter is the ability of the NASD to accept quotes in non-Nasdaq listed securities, which is a pre-condition to the separation of Nasdaq from NASD and Nasdaq's Exchange operation that must be achieved by virtue of the NASD's plan participation. The Commission recognizes that participation in the NASD ADF may require additional connectivity and related development costs for certain market participants. Again, the notion that innovation or change to a market's structure or manner of operation will require the use of technological or developmental resources is neither novel nor unforeseen. In fact, in approving Rule 610 of Regulation NMS ( *i.e.* , the Access Rule) the Commission extensively discussed the connectivity requirements for participants in the NASD ADF. The Regulation NMS Order reads, in pertinent part, 131 131 *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37542 (June 29, 2005). The NASD is not * * * statutorily required to provide an order execution functionality in the ADF. As a national securities association, the NASD is subject to different regulatory requirements than a national securities exchange * * *.The Exchange Act does not expressly require an association to establish a facility for executing orders against the quotations of its members, although it could choose to do so. The Commission believes that market makers and ECNs should continue to have the option of operating in the OTC market, rather than on an exchange or The NASDAQ Market Center. As noted in the Commission's order approving Nasdaq's SuperMontage trading facility, this ability to operate in the ADF is an important competitive alternative to Nasdaq or exchange affiliation * * *. The Commission further stated that: [R]ule 610(b)(1) requires all trading centers that choose to display quotations in an SRO display-only quotation facility to provide a level and cost of access to such quotations that is substantially equivalent to the level and cost of access to quotations displayed by SRO trading facilities. Rule 610(b) therefore may cause trading centers [ *e.g.* , ECNs] that display quotations in the ADF to incur additional costs to enhance the level of access to their quotations and to lower the cost of connectivity for market participants seeking to access their quotations. Thus, the Commission has contemplated the costs related to linking to and operating in the NASD ADF and who may appropriately bear such costs. The Commission notes that, in addition to the ADF, other SROs such as NSX may eventually offer ECNs an order delivery quote functionality. 132 NSX, in response to Nasdaq Response Letter IV, 133 stated that it intended to undertake a major trading system initiative to prepare itself for the market structure changes and growth in volume anticipated with the implementation of Regulation NMS. 134 This NSX statement is in accord with the Commission's belief that efforts to improve the national market system via technological innovations is, and will continue to be, a market-wide phenomenon that will ultimately ensure that ECNs have a variety of viable options not only from a regulatory perspective, but from an operational and business perspective as well. 132 Bloomberg also questioned the viability of NSX as a potential venue alternative to Nasdaq due primarily to a lack of system capacity. *See* Bloomberg Comment Letter III at 2-3. 133 *See supra* note 82. 134 Specifically, NSX stated that it intends to implement a new state-of-the-art trading system, “NSX Blade,” that would increase its systems capacity ten-fold and “establish a new standard for speed in the securities industry.” NSX stated that broker-dealers would be able to connect to its system “through industry-standard FIX protocol or connect through any of the major extranets.” Thus, NSX has represented that it intends to address the capacity and linkage concerns which Bloomberg believes make NSX an inadequate venue alternative to the Nasdaq Market Center. *See* NSX Comment Letter at 2. Accordingly, the Commission continues to encourage the innovation of the NASD ADF, SRO facilities, ECNs, and market participants in general that would enhance participation and interaction between markets and order flow within the national market system. Nonetheless, the Commission also believes that Nasdaq must have the flexibility to rework its structure to permit appropriate responses to the rapidly changing marketplace. Congress noted that the Commission should seek to “enhance competition and to allow economic forces, interacting with a fair regulatory field, to arrive at appropriate variation in practices and services.” 135 In the Commission's view, as an exchange in competition with other markets, Nasdaq has the right to seek a more efficient model of doing business. While ECNs may desire certain functionality accommodating their current mode of participating in the Nasdaq market, Nasdaq, like other exchanges and market participants, must be permitted to innovate and adjust to the dynamic nature of today's securities industry, within the requirements of the Act. 135 *See* S. Rep. No. 94-75, 94th Cong., 1st Sess. 7

(1975)at 8. The Commission recognizes that ECNs as a group have been among the most innovative market participants in recent years, introducing a number of novel trading tools and strategies. In addition, ECNs have benefited investors by providing cheaper and faster access to valuable liquidity. However, the Commission does not believe that the elimination of Nasdaq's order delivery functionality must or should necessarily have a deleterious impact on ECNs or the national market system as a whole. b. *Nasdaq's Position as SRO.* Some of the commenters contended that this proposal is an attempt by Nasdaq to use its position as an SRO and as a for-profit entity to “crush” its ECN competition. 136 Specifically, some commenters aver that Nasdaq's acquisitions of the Brut and INET ECNs set this strategy in motion and this proposal would enable Nasdaq to “perfect its monopoly.” Bloomberg, in its second comment letter, asserted that Nasdaq seeks to eliminate the order delivery functionality for independent ECNs “while preserving it for Nasdaq's own ECN facilities,” namely Brut and INET, thereby giving its own ECNs a competitive advantage. 137 However, the Commission notes that under this proposal Nasdaq would integrate the Brut and INET execution systems with the Nasdaq Market Center, utilizing the INET platform; only Brut's broker-dealer routing functionality would continue upon the unification of the three trading platforms. Thus, this proposal could not advantage Nasdaq-affiliated ECNs over other ECNs because Nasdaq-affiliated ECNs would not exist. In addition, the Commission notes that Nasdaq's acquisitions of Brut and INET were reviewed and approved by the Commission as positive developments in the ever-changing, dynamic market environment. 138 136 *See* , *e.g.* , Track Comment Letter I at 1; and Bloomberg Comment Letter II at 1, 5, 8. 137 Bloomberg Comment Letter II at 1. 138 *See* Securities Exchange Act Release Nos. 51326 (March 7, 2005), 70 FR 12521 (March 14, 2005) and 52902 (December 7, 2005), 70 FR 73810 (December 13, 2005). The Commission agrees with Nasdaq's statement that there is no explicit requirement in the Act for a national securities exchange to offer order delivery participation in their execution systems. 139 The Commission does not believe that Nasdaq must continue to offer order delivery functionality to meet its obligations in the Act and the rules and regulations thereunder. Although the order delivery functionality has been a part of Nasdaq's trading platform, the Commission does not believe Nasdaq is required to retain the functionality going forward, particularly given the legitimate regulatory reasons for its discontinuation provided by Nasdaq including that the functionality could pose significant risks and costs. 139 Nasdaq Response Letter at 2. In addition, Nasdaq endured significant cost in 2005 to acquire INET 140 and, through the Single Book Proposal, Nasdaq seeks to use the INET platform as the basis for its Integrated System going forward in order to provide a faster and more efficient system with greater capacity. As competition increases both in the United States and globally, and with the Commission's approval of Regulation NMS, nearly all national securities exchanges are in the process of transforming their systems to better compete. Through implementation of its Single Book Proposal, Nasdaq seeks to maximize the advantages of the INET trading platform—faster executions and increased certainty. 140 In its third comment response letter, Nasdaq stated that it spent close to $1 billion in 2005 to acquire INET from Reuters. Nasdaq Response Letter III at 3. As Nasdaq prepares to commence operations as a national securities exchange, the Commission believes that providing order delivery functionality is not required of Nasdaq, as with any other exchange. If another exchange deems such functionality to be advantageous for its operation as an exchange, it may choose to add it. Notwithstanding the valuable contributions that ECNs bring to the national market system in terms of liquidity and innovation, the Commission does not believe that the Act requires the Nasdaq exchange to continue to separately provide functionality to accommodate the particularized business choices of the ECN participants. 2. Claims of Unfair Discrimination Some of the commenters assert that the elimination of the order delivery functionality in the proposed rule change, as amended, is inconsistent with Section 6(b)(5) of the Act because it would discriminate unfairly against independent ECNs vis-à-vis all other Nasdaq members and it would not promote a free and open market and a national market system. 141 The Commission disagrees. ECNs have been the only Nasdaq participants with the option to use the Nasdaq order delivery service; all other Nasdaq market participants, *i.e.* , market makers, order entry firms, and UTP Exchanges, are currently required to accept automatic executions. Nasdaq has also maintained other features of its market exclusively for the benefit of ECNs ( *e.g.* , the ability to charge quote access fees.) While the Commission approved these “ECN-friendly” measures and found them to be consistent with the Act, these same provisions were never imposed upon Nasdaq by the Commission or deemed to be requirements under the Act. 141 Bloomberg Comment Letter II at 10. During its development as a quote facility of the NASD, Nasdaq had taken a series of actions to accommodate ECN participation and their particularized business model. In certain respects, ECNs have enjoyed a privileged status in the Nasdaq market compared to agency brokers and market maker participants by virtue of their ability to, amongst other things, accept order delivery instead of automatic execution. The Commission does not believe that, in removing the order delivery functionality, the instant proposal would result in unfair discrimination between customers, issuers, brokers, or dealers. Because Nasdaq has previously accommodated ECNs, changing features such as the order delivery function will necessarily impact ECNs disproportionately. However, the Commission disagrees with the suggestion that it logically follows that such disproportionate impact is per se equivalent to unfair discrimination under the Act. In this case, the Commission believes the proposed rule change is consistent with the Act and it does not unfairly discriminate between ECNs and other Nasdaq market participants. Nasdaq is eliminating a disparate treatment between ECNs and the other Nasdaq market participants by requiring that all participants accept automatic execution to increase the efficiency and competitiveness of the Nasdaq exchange. 3. Automatic Execution Function The Commission notes that in numerous instances it has a pproved automatic execution within the national market system in general, and Nasdaq in particular. For instance, in the SuperMontage Order, the Commission affirmed that automatic execution is a reasonable way for Nasdaq to improve market efficiency and provide many benefits to a marketplace, particularly speed and certainty of executions. 142 The SuperMontage Order said that automatic execution also would promote investor confidence by increasing the likelihood that orders of moderate size from large and small investors alike will be filled almost instantaneously, improve the accuracy of Nasdaq's pricing systems, promote the timeliness of trade reporting, and help alleviate locked and crossed markets. 143 Most recently, in approving Rule 611 of Regulation NMS, the Commission clearly enunciated a view that automated markets and automated quotes ( *i.e.* , automatic execution functionality), combined with access to such markets and quotes was an important attribute in a national market system. 144 142 SuperMontage Order at 8049. 143 SuperMontage Order at 8049-50. 144 *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). To this end, Rule 611 of Regulation NMS only protects from trade-throughs automated quotations of automated markets. An automated quotation is a quotation that, among other things, is displayed and is immediately accessible through automatic execution, and that immediately and automatically cancels any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere. 145 In Question 5 of the Division's NMS FAQs, the Division said that an SRO trading facility that displays the quotations of order delivery ECNs can meet the requirements of the definition of an automated quotation only if such quotations are closely integrated within the SRO trading facility. 146 In its comment letter, Bloomberg asserted that Nasdaq's interpretation of the response to Question 5 of the Division's NMS FAQs was wrong, in that the Division did “not authorize Nasdaq to drop order delivery without considering the factors the Division cited.” 147 The Commission believes that Bloomberg has misinterpreted the Division's response to Question 5. The response does not address an exchange dropping its order delivery functionality. Instead, the response relates to whether a market supporting order delivery could be considered “automated,” and if its quote could be “protected” under Regulation NMS. The Division's answer is intended to clarify how a market would comply with Regulation NMS and does not control whether Nasdaq keeps or discards its order delivery functionality. 145 Rule 600(b)(3) of Regulation NMS defines an automated quotation to mean a “quotation displayed by a trading center that:

(i)Permits an incoming order to be marked as immediate-or-cancel;

(ii)immediately and automatically executes an order marked as immediate-or-cancel against the displayed quotation up to its full size;

(iii)immediately and automatically cancels any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere;

(iv)immediately and automatically transmits a response to the sender of an order marked as immediate-or-cancel indicating the action taken with respect to such order; and

(v)immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms. 17 CFR 242.600(b)(3). 146 NMS FAQs at Question 5. 147 Bloomberg Comment Letter II at 7. 4. Implementation Date In Bloomberg Comment Letter III, Bloomberg stated that it and other order delivery ECNs had been led by Nasdaq to believe that the Nasdaq Market Center's order delivery functionality would be available until at least fall of 2006 at the earliest, if not on an ongoing basis. 148 Bloomberg requested that, should the Commission decide to approve the Single Book Proposal, the Commission delay the effective date of the rules to provide ECNs an opportunity to migrate to another venue. 149 The USCC also encouraged the Commission to, as a matter of good process, “consider the need for appropriate transition periods” should the proposed rule change be adopted. 150 Similarly, Track requested a phased-in approach to the rules should they be adopted. 151 In response to commenter concerns and in order to provide ECNs with adequate time to program their systems for participation in Nasdaq or migration to another venue, 152 Nasdaq has agreed to delay its implementation and roll-out of the Single Book Proposal until August 28, 2006. 153 148 Bloomberg Comment Letter III at 8-11. 149 Bloomberg Comment Letter II at 11; *see also* Bloomberg Comment Letter III at 11. 150 *See* USCC Comment Letter at 1-2. 151 Track Comment Letter I at 2. 152 *See* Bloomberg Comment Letter II at 11; Bloomberg Comment Letter III at 11; USCC Comment Letter at 1-2; and Track Comment Letter I at 2. 153 *See* Amendment No. 3. In the Commission's approval of Nasdaq's exchange application in January 2006, the Commission emphasized that Nasdaq's approval was based on a set of rules with price/time priority. 154 In addition, the Commission noted in the Exchange Application Order that the two ECNs that Nasdaq had recently acquired—Brut and INET—both applied rules that required their orders to be executed in price/time priority. 155 As discussed above, the Single Book concept of integrating the three Nasdaq Facilities was discussed by the Commission in the Exchange Application Order and the Commission believed that such an integration would be beneficial, though the Commission permitted the three Nasdaq Facilities to operate separately for a temporary period, until September 30, 2006, because the Brut and INET facilities had only been recently acquired by Nasdaq. 154 Exchange Application Order at 3558-59. 155 Exchange Application Order at 3558, note 137. *See also* Securities Exchange Act Release Nos. 52902 (December 7, 2005), 70 FR 73810 (December 13, 2005) (“INET Order”) and 51326 (March 7, 2005), 70 FR 12521 (March 14, 2005) (“Brut Order”). The Commission notes that Nasdaq, independent of its exchange application and as a NASD subsidiary at the time, had already proposed to integrate its three facilities by September 30, 2006 in its filing to establish the rules governing the operation of its INET System. 156 In the INET Order the Commission approved Nasdaq's proposed commitment to integrate as of September 30, 2006; 157 however, that date was not mandated by the Commission. In addition, the plain language of the INET Order, NASD Rule 49545(b)(2), and the Exchange Application Order makes clear that September 30, 2006 was the latest date that Nasdaq, pursuant to its commitment, could integrate its trading facilities. Neither the INET Order nor the Exchange Application Order required that integration be delayed until September 30, 2006, or prohibited Nasdaq integrating its systems at an earlier date. 156 *See* Securities Exchange Act Release No. 52723 (November 2, 2005), 70 FR 67513 (November 7, 2005)(”INET Notice”). 157 *See* INET Order at 73811. The Commission believes that astute market participants, such as Bloomberg, could have reasonably anticipated the strong possibility of Nasdaq operating on an automatic-execution only basis prior to September 30, 2006, based on:

(1)Nasdaq's anticipated operation as an exchange with executions based on price-time priority for all of Nasdaq's order flow,

(2)Nasdaq's acquisition of Brut and INET, both of which are automatic-execution facilities, and

(3)Regulation NMS where the Commission clearly enunciated a view that automated markets and automated quotes ( *i.e.* , automatic execution functionality), combined with access to such markets and quotes was an important attribute in a national market system. In addition, formal notice of Nasdaq's intention to create an Integrated System based on automatic executions prior to September 30, 2006 was clearly given on February 7, 2006, the day Nasdaq filed the Single Book Proposal with the Commission. At that time, Nasdaq proposed to commence operation of the Integrated System by as early as May 2006. Bloomberg submitted an initial comment letter opposing the proposed rule change dated March 6, 2006, which suggested that it would take three to six months to complete the systems work required to adapt to a new venue. 158 The Commission understands that BATS has already made and implemented its plans to migrate its liquidity to NSX. 159 In addition, in response to comments for a transitional phase-in period, 160 Nasdaq has proposed to commence its phased-in implementation of the Integrated System based on automatic executions on August 28, 2006; 161 which is almost seven months after the proposal was filed, and nearly six months since Bloomberg's initial comment letter. The Commission believes that order delivery ECNs have had sufficient time to make alternate plans for quoting in the ADF or another SRO. 158 Bloomberg Comment Letter I at 11. 159 *See* Nasdaq Response Letter II. 160 *See* Track Comment Letter I at 2; USCC Comment Letter at 1-2; and Bloomberg Comment Letter IV at 1. 161 *See* Amendment No. 3. Section 19(b)(1) of the Act 162 requires a SRO to the file with the Commission “any proposed rule change in, addition to, or deletion from the rules of such self-regulatory organization * * * accompanied by a concise general statement of the basis and purpose of such proposed rule change. Such proposed rule change must be filed in accordance with the requirements of Rule 19b-4 under the Act. 163 The Commission believes that Nasdaq has filed the Single Book Proposal in accordance with the requirements of the Act and its rules and regulations thereunder. 162 15 U.S.C. 78s(b)(1). 163 17 CFR 240.19b-4. The Commission believes that Nasdaq has met all of the procedural requirements for the instant proposed rule change and provided the public in general and interested parties in particular with adequate notice and opportunity to comment under the Act. The Commission believes that the Integrated System will promote competition and bring investors and the national market system benefits through the efficiencies and transparencies brought about through a single liquidity pool with price/time priority. The Commission believes that, given the notice provided by Nasdaq's filings, it is consistent with the Act for Nasdaq to implement the Integrated System as proposed. B. Operation as a National Securities Exchange The Commission notes that, under the Single Book Proposal, Nasdaq's trading platform would have an integrated quote/order book operated in accordance with a unified price/time priority execution algorithm. In the Exchange Application Order, the Commission acknowledged that, because of the recent nature of Nasdaq's Brut and INET acquisitions and because of the reliance by participants on the continued availability of those ATSs, it was in the public interest for Brut and INET to be available for a limited period while Nasdaq worked to integrate them with its NMC Facility. 164 The Commission stated that “it is beneficial for orders in the same securities directed to an exchange to interact with each other” and that “[s]uch interaction promotes efficient exchange trading and protects investors by assuring that orders are executed pursuant to a single set of priority rules that are consistently and fairly applied.” 165 The Commission permitted the Exchange to operate three separate trading platforms—namely the NMC Facility, Brut Facility, and INET Facility—for a temporary period prior to September 30, 2006. This proposed rule change, as amended, would enable Nasdaq to satisfy its Commission-approved commitment to integrate its three trading facilities prior to September 30, 2006. 164 *Id* at 3559. 165 *Id.* In addition, Nasdaq's Single Book Proposal will allow the Exchange to program its system to operate in compliance with the Exchange Application Order in additional ways. For example, the Integrated System would not accept reports of transactions occurring outside the Integrated System, would interact with the network processors for the various national market system plans in compliance with Commission rules governing exchanges, and would fulfill Nasdaq's new role as an exchange in the national market system plans, including the national market system plan governing the Intermarket Trading System (“ITS Plan”). In addition, under the Single Book Proposal, Nasdaq itself (rather than its individual members) would be bound by the obligations of the ITS Plan, maintain a single two-sided quotation, and be responsible for trade-through compliance. The Commission notes that the proposed rules change, as amended, cannot be operational until Nasdaq has satisfied all the conditions set forth by the Commission in the Exchange Application Order. 166 166 Exchange Application Order at 3566. C. Regulation NMS The Commission believes that the proposed rule change should allow Nasdaq to comply with the requirements of Regulation NMS. 167 In proposed Nasdaq Rule 4613(e), Nasdaq proposes to adopt a rule with regard to locked and crossed markets. The Exchange has also designed its proposed Book Processing 168 and Order Routing 169 rules to comply with the requirements of Regulation NMS. These proposed rules include permitting users to designate orders meeting the requirements of Rule 600(b)(30) of Regulation NMS 170 as intermarket sweep orders, which would allow orders so designated to be automatically matched and executed without reference to protected quotations at other trading centers. 167 *See supra* note 6. 168 *See* proposed Nasdaq Rule 4757. 169 *See* proposed Nasdaq Rule 4758. 170 17 CFR 242.600(b)(30). In addition, Nasdaq has proposed to implement routing options that its believes are consistent with Rules 610 and 611 of Regulation NMS. Nasdaq also proposed rules intended to ensure its compliance with Rule 612 of Regulation NMS ( *i.e.* , accepting sub-penny prices in $0.0001 increments for securities priced less than $1.00 a share and rejecting orders in sub-penny increments for securities priced $1.00 or more per share). 171 The Commission also notes that proposed Nasdaq Rule 4756(c)(4) addresses situations where Nasdaq has reason to believe it is not capable of displaying automated quotations, including adopting policies and procedures for communicating to both its members and other trading centers about such a situation, as well as receiving and responding to notices of other trading centers electing the “self-help” exception under Rule 611(b)(1) of Regulation NMS. 171 Single Book Proposal at 19592. *See also* proposed Nasdaq Rule 4613(a)(1)(B). D. Other Rules The proposed rule change, as amended, would merge five current sets of rules (the 4600, 4700, 4900, 4950, and 5200 Series) into two (the 4600 and 4750 Series), with the proposed 4600 Series governing System participants and the proposed 4750 Series governing the operation of the Integrated System. In addition to reorganizing the rule set, and making changes to the Exchange's rules for exchange and Regulation NMS readiness, the proposed rule change, as amended, addresses, among other things, openings and closings, the order display/matching system, order types, time in force designations, anonymity, routing, book processing, adjustment of open orders, and Nasdaq's proposed phase-in plan for the proposed rules. E. Impact on Efficiency, Competition, and Capital Formation Section 3(f) of the Act requires that the Commission consider whether Nasdaq's proposal will promote efficiency, competition, and capital formation. 172 As discussed in more detail above, the Commission has carefully considered whether the proposal will promote efficiency, competition and capital formation and has concluded that the Single Book Proposal should encourage competition and should not impede the development of other trading systems or market innovation. The Commission believes that the Single Book Proposal is an appropriate undertaking by Nasdaq to enhance the quality of its market by providing more information to investors, promoting greater efficiency in executions, and increasing overall market transparency. While the Single Book Proposal should provide a central means for accessing liquidity in Nasdaq and non-Nasdaq stocks, it does not represent an exclusive means, nor does it prevent broker-dealers from seeking alternative order routing and execution services. In addition, the Commission believes that the proposal should promote competition and capital formation by providing its market participants with several quote and order management options ( *e.g.* , Discretionary Orders, Reserve Orders, Pegged Orders, and Minimum Quantity Order), including order types which will enable market participants to operate in the post-Regulation NMS trading environment, such as Intermarket Sweep Orders, Price to Comply Orders, and Price to Comply Post Orders. 172 15 U.S.C. 78c(f). F. Accelerated Approval of Amendment Nos. 2 and 3 As set forth below, the Commission finds good cause to approve Amendment Nos. 2 and 3 to the proposed rule change, as amended, prior to the thirtieth day after the amendments are published for comment in the **Federal Register** pursuant to Section 19(b)(2) of the Act. In Amendment No. 2, Nasdaq modifies the proposed rule language to reflect the Commission's extension of certain compliance dates relating to Regulation NMS. Specifically, Nasdaq is modifying proposed rules to reflect that such rules would not become effective until the applicable Regulation NMS implementation date of May 21, 2007. Such rules include Rule 4613(e) (pertaining to locked and crossed markets), Rule 4751(f) (pertaining to order types), and Rule 4755 (pertaining to intermarket sweep orders). The Commission finds good cause to accelerate approval of these changes prior to the thirtieth day after publication in the **Federal Register** . The Commission believes this is a reasonable approach in light of the extension of Regulation NMS compliance dates and should help to ensure that the appropriate Nasdaq rules are in place at the time that Regulation NMS compliance is required. In Amendment No. 2, Nasdaq also is making several technical corrections to the proposed rule change, for example, eliminating typographical and underlining errors. These changes are non-substantive and technical in nature and are necessary to clarify the proposal. The Commission finds good cause to accelerate approval of these changes prior to the thirtieth day after publication in the **Federal Register** because they better clarify Nasdaq's rules, which should assist members' ability to comply with their requirements, and assist investors in understanding their application and scope. In Amendment No. 3, in response to the comments filed by the U.S. Chamber of Commerce, Bloomberg, and others, Nasdaq proposes to commence a phased-in implementation of the Integrated System on August 28, 2006. 173 In addition, Amendment No. 3 describes Nasdaq's plan to test securities on the System during July and early August 2006 and phase-in the operation of the Integrated System with an initial three-week transition period for Nasdaq-listed stocks, followed by non-Nasdaq-listed stocks. 173 The Commission notes that Amendment No. 3 replaces the August 14, 2006 implementation date that Nasdaq had proposed in Amendment No. 2. The Commission finds good cause to accelerate approval of this change prior to the thirtieth day after publication in the **Federal Register** . The Commission finds that the change in the proposed implementation of the Integrated System to a later date than that originally proposed and published for comment and later than that proposed by Amendment No. 2, as well as the allowance of a testing period and phased-in period, would provide a longer transition period for Nasdaq market participants and other participants in the national market system. The delay until August 28, 2006 and the phase-in period should help to ensure that there is an orderly transition to the Integrated System and provide Nasdaq's market participants, including many of the commenters, opportunity to decide whether to continue participating in Nasdaq, or to elect to move their business elsewhere. The Commission notes that August 28, 2006 represents a period of nearly seven months from the original filing date of this proposed rule change. The Commission also notes that, notwithstanding Nasdaq's proposed August 28, 2006 implementation date, the proposed rules change, as amended, cannot be operational until Nasdaq has satisfied all the conditions set forth by the Commission in the Exchange Application Order. 174 The Commission believes that August 28, 2006 should provide market participants with adequate time to prepare for the Implemented System, and would also permit Nasdaq to meet its commitment to fully integrate its three trading facilities on or before September 30, 2006. 174 Exchange Application Order at 3566. The Commission recently modified the requirements for Nasdaq's operation as an exchange. *See* Securities Exchange Act Release No. 54085 (June 30, 2006), 71 FR 38910 (July 10, 2006). VII. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 175 that the proposed rule change (File No. SR-NASDAQ-2006-001), as amended by Amendment Nos. 1, 2, and 3, be, and hereby is, approved. 175 15 U.S.C. 78s(b)(2). By the Commission. Nancy M. Morris, Secretary. [FR Doc. 06-6366 Filed 7-19-06; 8:45 am]

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