NASD Notice to Members 06-37 - August 2006

Exemption for Registered NASDAQ Market Makers Acting in the Capacity of Exchange Market Maker

Executive Summary

On July 5, 2006, The NASDAQ Stock Market, Inc. (“NASDAQ”) announced that it would begin to operate as a national securities exchange on August 1, 2006 for NASDAQ-listed securities.1 Section 1 of Schedule A to NASD's By-Laws exempts from the Trading Activity Fee (“TAF”) proprietary transactions by a firm that is a member of both NASD and a national securities exchange, effected in its capacity as an exchange specialist or market maker, and that is subject to Securities Exchange Act of 1934, Section 11(a) and Rule 11a1-1(T)(a) thereunder. The exemption does not, however, apply to other transactions permitted by Section 11(a), such as bona fide arbitrage or hedge transactions.

 

Accordingly, on August 1, 2006 when NASDAQ became operational as an exchange in NASDAQ securities, NASD member firms that are also members of the NASDAQ Exchange became exempt from the TAF for transactions in which they act in their capacity as a registered market maker in such NASDAQ securities.2 Further, when NASDAQ becomes operational as an exchange in Consolidated Quotation System (“CQS”) securities on approximately October 1, 2006, NASD member firms that are also members of the NASDAQ Exchange will be exempt from the TAF for transactions effected on the NASDAQ Exchange in which they act in their capacity as a registered market maker in CQS securities.

 

1 The Securities and Exchange Commission (“SEC”) approved NASDAQ's application for registration as a national securities exchange on January 23, 2006. See Exchange Act Release No. 53128 (Jan. 13, 2006), 71 FR 3550 (Jan. 23, 2006) (File No. 10-131). On June 30, 2006, the SEC issued an order modifying a condition to NASDAQ's operation as a national securities exchange. See Exchange Act Release No. 54085 (June 30, 2006), 71 FR 38910 (July 10, 2006) (File No. 10-131). NASDAQ plans to be operational as an exchange in NASDAQ-listed issues on August 1, 2006, and in other exchange-listed issues on or after September 1, 2006. See NASDAQ Head Trader Alert No. 2006-098 (July 5, 2006), http://www.nasdaqtrader.com/trader/news/2006/headtraderalerts/hta2006-098.stm and NASDAQ Head Trader Alert No. 2006-111 (July 26, 2006), http://www.nasdaqtrader.com/Trader/News/2006/headtraderalerts/hta2006-111.stm.

 

2 See, e.g. Notice to Member 02-63 (Sept. 2002), Question 1.

 

This Notice is superseded by Notice to Members 06-44.