[Federal Register Volume 63, Number 61 (Tuesday, March 31, 1998)]
[Notices]
[Pages 15471-15472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8317]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39794; File No. SR-NASD-98-17]


Self-Regulatory Organizations; Notice of Extension of the Comment 
Period for the Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to an Integrated Order Delivery and 
Execution System

March 25, 1998.
    On February 19, 1998, the National Association of Securities 
Dealers, Inc. (``NASD''), through its wholly-owned subsidiary, The 
Nasdaq Stock Market, Inc. (``Nasdaq''), filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') a series of proposed 
rule changes.\1\ The NASD is proposing new rules and amendments to 
existing NASD rules to establish an integrated order delivery and 
execution system (``System'').
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    \1\ Exchange Act Release No. 39718 (March 4, 1998) 63 FR 12124 
(March 12, 1998) (File No. SR-NASD-98-17). As originally noticed, 
the comment period ran through April 2, 1998.
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    As proposed, the new System will have three types of registered 
executing participants (as it does currently): market makers, 
electronic communication networks (``ECNs''), and UTP exchange 
specialists. Executing participants' quotes will be displayed on Nasdaq 
workstations, disseminated through information vendors, and accessible 
by System participants. Registered NASD members, and certain customers 
they sponsor, will be able to deliver various sized orders (up to 
999,999 shares, if the Actual Size Rule is expanded to all Nasdaq 
stocks \2\ through the new System to electronically access the 
displayed quotations.
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    \2\ The Actual Size Rule allows market makers to quote their 
actual size by reducing the minimum quotation size requirement to 
one normal unit of trading (i.e., 100 shares). The Actual Size Rule 
currently applies to 150 Nasdaq stocks on a pilot basis. The NASD 
has filed a proposal to expand the pilot program to cover all Nasdaq 
stocks permanently. See Exchange Act Release No. 39760 (March 16, 
1998) 63 FR 13894 (March 23, 1998).
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    The System features a voluntary central limit order file that all 
market participants will be able to access either directly or through a 
System participant. System participants will be able to send

[[Page 15472]]

directed (i.e., to a particular market maker) or non-directed orders. 
Orders will remain anonymous until they are executed. The System will 
replace the Small Order Execution System (``SOES'') and SelectNet (and 
related NASD rules), while maintaining features of each. Primary market 
makers will be able to sponsor other firms (e.g., institutions), giving 
them System access.
    As proposed, the System would operate differently depending on 
whether the Commission approves the NASD's request to permit Market 
Makers to quote their actual size for all Nasdaq stocks.\3\ If the 
Actual Size Rule is not extended to all Nasdaq stocks, the Nasdaq 
proposes that nonmarket makers will not be permitted to enter orders 
larger than 1,000 shares for non-directed orders, and that the SOES 
prohibition on splitting orders and the Five Minute Rule (i.e., any 
orders sent within a five minute period are considered part of one 
order) will be retained. Also, if Actual Size is not expanded to cover 
all Nasdaq stocks, the NASD proposes that non-market makers be 
prohibited from entering principal orders. Finally, if Actual Size is 
approved for all Nasdaq stocks, the order splitting and Five Minute 
Rules will not apply.
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    \3\ Id.
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    Under the proposal, market makers will no longer be ``SOESed-Out-
of-the-Box'' when they allow their quote size to be diminished to 
zero.\4\ Instead, the NASD proposes that after three (rather than the 
current five) minutes, a firm that is effectively out of the market 
(i.e., has not refreshed its quote) will be automatically reestablished 
at the lowest ranked bid and offer for 1,000 shares.
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    \4\ See Exchange Act Release No. 39423 (December 10, 1997) 62 FR 
66160 (December 17, 1997).
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    Given the proposal's complexity and the Commission's desire to give 
the public sufficient time to consider the proposal, the NASD has 
consented to extend the comment period to May 8, 1998.\5\
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    \5\ See letter from Richard G. Ketchum, President and Chief 
Operating Officer, Nasdaq, to Katherine A. England, Assistant 
Director, Division of Market Regulation, SEC, dated March 24, 1998.
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    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Exchange Act. Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street NW., Washington, 
DC 20549. 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 ruld 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 will also be available for inspection and copying at the 
principal office of the NASD. All submissions should refer to File No. 
SR-NASD-98-17 and should be submitted by May 8, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8317 Filed 3-30-98; 8:45 am]
BILLING CODE 8010-01-M