NASD Notice to Members 01-46 - July 2001

SEC Approves Extension of Limit Order Protection Principles to Certain OTCBB Securities on a Pilot Basis

Executive Summary

On February 8, 2001, the Securities and Exchange Commission (SEC) approved new National Association of Securities Dealers, Inc. (NASD®) Rule 6541 (Rule), which, on a pilot basis, applies the basic customer limit order protection principles that presently apply to Nasdaq® securities to certain designated securities that are quoted on the OTC Bulletin Board (OTCBB). The Rule, in general, will prohibit member firms that accept customer limit orders in these securities from trading "ahead" of their customers for their own account at prices equal or superior to the limit orders, without executing them at the limit price. The text of the Rule is contained in Attachment A.

 

The Rule will become effective on August 1, 2001, for a pilot period until February 8, 2002, although the minimum price improvement standard set forth in subsection (b) will be effective on a pilot basis from August 1, 2001 until November 1, 2001. The Rule will initially apply to 300 securities, and will be phased in over a period of two weeks, as described in Attachment B to this Notice. During the pilot period, an additional 25 securities may be selected for inclusion in the pilot program, which will be identified in advance in later communications.

 

Questions concerning this Notice may be directed to Jeffrey Davis, Nasdaq Office of General Counsel, at (202) 728-8461; the NASD Regulation Market Regulation Department; or visit www.otcbb.com.