NASD Notice to Members 06-53 - September 2006

Guidance on the Requirements for Availability of Bona Fide Market Making Activity Exception to NASD Rule 5100

Executive Summary

Rule 5100 generally prohibits a member from effecting short sales in NASDAQ Global Market (NGM) securities1 otherwise than on an exchange for a customer account, or the member's own account, at or below the current national best (inside) bid, when the current national best (inside) bid is below the preceding national best (inside) bid (the bid test).2 Rule 5100(c)(1) provides an exception to the bid test for short sales by a market maker registered in the security in connection with bona fide market making activity. NASD is issuing this Notice to remind member firms of the requirements to qualify for the bona fide market making activity exception to NASD's short sale rule contained in Rule 5100.

 

Questions regarding this Notice may be directed to the Legal Section, Market Regulation, at (240) 386-5126 or the Office of General Counsel, Regulatory Policy and Oversight, at (202) 728-8071.

 

1 Note: NASDAQ National Market securities were renamed NASDAQ Global Market securities. See Securities Exchange Act Release No. 54071 (June 29, 2006), 71 FR 38922 (July 10, 2006) (File No. SR-NASD-2006-068).

 

2 On June 30, 2006, the SEC approved SR-NASD-2005-087, which amends certain NASD rules to reflect the separation of NASDAQ from NASD upon the operation of the NASDAQ Exchange as a national securities exchange. See Securities Exchange Act Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006). Among other amendments, NASD's rule change amended Rule 3350 to renumber it as Rule 5100 and apply it uniformly to short sales of over-the-counter (OTC) transactions reported to the Alternative Display Facility (ADF) or the Trade Reporting Facility (TRF). SR-NASD-2005-087 became effective on August 1, 2006, the date upon which NASDAQ began operation as an exchange for NASDAQ-listed securities.