NASD Notice to Members 06-03 - January 2006

NASD Provides Guidance Regarding New Rule 2111 Prohibiting Members from Trading Ahead of Customer Market Orders Under Certain Circumstances; Effective Date: January 9, 2006

Executive Summary

In October 2005, NASD issued Notice to Members (NTM) 05-69 informing members of Securities and Exchange Commission (SEC) approval of new Rule 2111, Trading Ahead of Customer Market Orders. Among other things, new Rule 2111 prohibits a firm that accepts and holds a customer market order from trading for its own account at prices that would satisfy the customer market order, unless the firm immediately thereafter executes the customer market order. Rule 2111 becomes effective on January 9, 2006. In this Notice, NASD staff is providing questions and answers regarding the application of the new rule to assist member firms in their implementation. NASD filed this Notice with the SEC as a proposed rule change on January 6, 2006.1 The proposed rule change became effective upon filing pursuant to Section 19(b)(3)(A)(i) of the Securities Exchange Act and Rule 19b-4(f)(1) thereunder, in that the proposed rule change constitutes a stated policy, practice or interpretation with respect to the meaning, administration or enforcement of an existing NASD rule. The compliance date of the proposed rule change will be January 9, 2006, which coincides with the compliance date for Rule 2111.

 

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

 

1 See File No. SR-NASD-2006-003. See also 15 U.S.C. 78s(b)(3)(A)(i) and 17 CFR 240.19b-4(f)(1).