[Federal Register Volume 64, Number 2 (Tuesday, January 5, 1999)]
[Notices]
[Pages 549-553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-75]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40835; File No. SR-NASD-98-85]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the National
Association of Securities Dealers, Inc. to Establish the Nasdaq
Application of the OptiMark System
December 28, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 13, 1998, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), through its wholly-owned
subsidiary, the Nasdaq Stock Market, Inc. (``Nasdaq'') filed with the
Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the NASD. On December 11, 1998, the
Association filed Amendment No. 1 to the proposed rule change.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Andrew S. Margolin, Assistant General
Counsel, Nasdaq to Katherine A. England, Assistant Director,
Division of Market Regulation (``Division''), Commission, dated
December 11, 1998 (``Amendment No. 1''). In Amendment No. 1, the
Association clarifies the definition of the term ``Designated
Broker'' to indicate that, to be considered a Designated Broker, a
broker must have an effective clearing arrangement in place with a
member of a clearing agency registered pursuant to the Act.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Nasdaq is proposing to establish the Nasdaq Application, a new
electronic trading system based on the innovative information
processing technology provided by OptiMark Technologies, Inc., together
with its wholly-owned subsidiary, OptiMark Services, Inc.
(``OptiMark''),\4\ as a facility of Nasdaq. In addition, the
Association is proposing to adopt NASD Rules 4991-4998 and amend NASD
Rule 11890 to govern the use of the Nasdaq Application by its members
and non-member Users.
---------------------------------------------------------------------------
\4\ OptiMark Technologies, Inc. is a computer technology firm
that has developed certain patented technology referred to as
``OptiMarkTM.'' The Nasdaq Application is one of several
different trading services based on this technology that may be
available for other markets in the future. One such service already
has received SEC approval for operation on the Pacific Exchange. See
Securities Exchange Act Release No. 39086 (September 17, 1997), 62
FR 50036 (September 24, 1997). While the OptiMark technology is
virtually identical to that which has been approved for the PCX
Application, the proposed Nasdaq Application and related rules
adapts and uses the OptiMark technology within the existing Nasdaq
market structure.
---------------------------------------------------------------------------
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Nasdaq included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
[[Page 550]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Summary of Nasdaq's Application of the OptiMark System
Nasdaq proposes to establish rules for a new Nasdaq facility called
the Nasdaq Application (``Application'') based on the information
processing technology provided by OptiMark Technologies, Inc., together
with its wholly-owned subsidiary, OptiMark. The Application is a
computerized, screen-based trading service intended for use by NASD
members and other non-member users, as described below. The Application
provides a computerized mechanism designed to satisfy the trading
desires of all market participants, including retail and institutional
investors as well as broker-dealers. The Application enables these
participants to anonymously represent their trading interest across a
full spectrum of prices and sizes, and performs a computer-based
optimal search and match for liquidity in securities listed on The
Nasdaq Stock Market.\5\ The Application is a new trading service that
will be available to market participants in addition to existing Nasdaq
trading systems and shall be operated as a new, additional facility of
the Nasdaq Stock Market. Because the Nasdaq Application of the OptiMark
System is to be operated as a Nasdaq facility, rules relating to its
operation are subject to SEC review under Section 19(b) of the Act.\6\
---------------------------------------------------------------------------
\5\ The Application would be available for securities listed on
Nasdaq, including securities listed on the Nasdaq SmallCap market.
The Application would not be available to securities not listed on
Nasdaq, such as those which may be quoted in the OTC Bulletin Board.
\6\ 15 U.S.C. 78s(b).
---------------------------------------------------------------------------
Nasdaq represents that integrating OptiMark's technology into
Nasdaq will continue Nasdaq's effort to improve opportunities for
investors to receive the best available prices in the marketplace and
reduce trading costs. Nasdaq states that the proposed Application would
match all trading interest on a level playing field and provide an
opportunity for individual investors' Profiles \7\ to be aggregated and
interact directly with institutional interest on an objective and
anonymous basis, thereby benefiting the small investor and facilitating
retail order flow. Nasdaq further notes that the proposed Application
would provide an alternative method for institutional investors to
transact with minimal market impact and to obtain price improvement.
According to Nasdaq, the proposed Application would benefit market
makers by providing an additional option to manage inventory risk
through fast and efficient executions. Nasdaq believes issuers would
also benefit through enhanced liquidity and flexibility available for
their shareholders. The proposed Application, Nasdaq states, has the
potential to increase liquidity, reduce volatility, and greatly enhance
the fairness and efficiency of the Nasdaq market overall.
---------------------------------------------------------------------------
\7\ For a description of a Profile, see Section II. Entry of
Profiles and Incorporation of the Nasdaq Quote Montage.
---------------------------------------------------------------------------
Application as a Facility of the Nasdaq Stock Market
The Application will be maintained as a facility of The Nasdaq
Stock Market, supplementing the existing trading and execution services
provided by Nasdaq to all NASD members and their customers. As
mentioned above, the Application provides another means for NASD
members and their customers to obtain executions of trading interest in
Nasdaq securities. As a facility of the Nasdaq Stock Market, the
Application allows NASD members to access the new trading facility
through the Nasdaq Workstation and the Nasdaq network that connects
those workstations. Nasdaq will provide a Graphical User Interface
(``GUI'') that permits NASD members that are subscribers to Nasdaq
Workstation Service and have signed appropriate User Agreements to
transmit Profiles from their Workstations to the OptiMark Matching
Module that will conduct Cycles \8\ on a periodic basis. The facility
also allows the use of other networks and access devices to transmit
Profiles to the OptiMark Matching Module, as long as such access is
properly authorized.
---------------------------------------------------------------------------
\8\ For a description of a Cycle, see Section II. Central
Processing Cycles--OptiMark's Matching Algorithm.
---------------------------------------------------------------------------
The Application, as a facility of the Nasdaq Stock Market, shall be
subject to NASD Rules and oversight by NASD Regulation. Information
regarding all Profiles submitted to the Application, whether executed
or not, is subject to review by NASD Regulation and the SEC, and may be
used for the purpose of ensuring that any activity conducted through
the Application is consistent with NASD Rules and the federal
securities laws. Thus, although the Profiles entered into the facility
may be anonymous with respect to other users and the operators of the
system itself, regulatory authorities have full access to all
information entered.
Access to the Application
The Application is available to any NASD member that chooses to
become a User and complies with all applicable rules. A User is a
subscriber who has entered into an agreement with OptiMark Services,
Inc. to access the Application. In addition, a non-member may become a
User, provided it is authorized in advance by one or more NASD members
who are Designated Brokers.\9\ A non-member can be authorized by one or
more NASD members in accordance with a Supplemental Account Agreement
and Designated Broker Consent Agreement. The Supplemental Account
Agreement, between the Designated Broker and the non-member, enables
Profiles of the non-member to be executed, cleared, and settled through
the use of the Designated Broker's name within the Application. The
Designated Broker Consent Agreement, between the Designated Broker and
OptiMark Services, Inc., provides the Designated Broker's authorization
for Profiles of a non-member User to be routed, executed, and reported
in the Designated Broker's name. These agreements include any
applicable credit limits imposed by the Designated Broker on the non-
member User.\10\ The Designated Broker is responsible for all of its
non-member Users' Orders and resulting transactions.
---------------------------------------------------------------------------
\9\ The term Designated Broker is defined in proposed Rule
4991(c) as ``an NASD member who has been designated by a non-member
User to execute, clear, and settle transactions resulting from the
Application.'' Rule 4991(c) further provides that ``[p]articipation
as a Designated Broker shall be conditioned upon the Designated
Broker's membership in, or maintenance of, an effective clearing
arrangement with a member of a clearing agency registered pursuant
to the Act.'' See Amendment No. 1, supra note 3.
\10\ A non-member User's credit limits, as they may be
established from time to time by a Designated Broker (or its
clearing broker), will be programmed into the OptiMark System. The
Designated Broker will be alerted as its potential exposure to its
customers, individually or in the aggregate, approaches the
established credit limits (``Alarm Threshold'') or reaches the limit
at which the Designated Broker will no longer permit a customer to
submit Profiles (``Trading Limit'').
---------------------------------------------------------------------------
Users that are NASD members may access the Application from the
Nasdaq Workstation through the Nasdaq-provided network(s). Non-member
Users sponsored by NASD members (subject to the applicable agreements
referenced above), as well as any interested NASD members, may obtain
access to the Application from the telecommunications access services
through the OptiMark-provided network(s), which may include appropriate
access provided through third parties.
[[Page 551]]
Entry of Profiles and Incorporation of the Nasdaq Quote Montage
Users would access the proposed Application by submitting
customized expressions of trading interest called Profiles. Profiles
enable Users to visually depict complex trading strategies by not only
reflecting an investor's willingness to trade at a variety of prices
and sizes, but also enabling an investor to add a third dimension to
its trading strategy. This third dimension is the level of
satisfaction, on a sliding scale, of trading at a given price and size.
For example, an investor may be 100% satisfied to buy 100,000 shares at
a price up to $1.00 above the current market price, but only 50%
satisfied to buy that number of shares at a price $1.50 above it and
not satisfied at all to pay more than $2.00 above it. The satisfaction
levels are expressed as a number between zero and one for each
coordinate on a price/size grid.
These User-defined Profiles, which are represented by graphical
user interface software, are not disclosed to other Users or market
participants, including any Designated Broker through whom a non-member
User is authorized to submit Profiles and obtain executions.\11\ The
Profiles are received and logged in by the OptiMark Matching Module for
the purpose of obtaining the optimal outcome of matching buyers and
sellers at the best prices possible.
---------------------------------------------------------------------------
\11\ Profiles entered into the Application are contingent
expressions of interest to trade at a range of prices and sizes.
---------------------------------------------------------------------------
In addition to Profiles submitted directly by Users, the Nasdaq
Application will include certain system-generated Profiles known as the
``Nasdaq Quote Montage Profiles,'' which reflect the national best bid
and offer quotes from Nasdaq Market Makers, electronic communications
networks (``ECNs''), and UTP Exchange Plan Specialists as displayed in
the Nasdaq Quote Montage at the time a matching Cycle begins (described
more fully below). In this way, the expressions of interests of all
Users are reflected in the Application, as are the publicly displayed
quotes comprising the national best bid and offer.
Central Processing Cycles--OptiMark's Matching Algorithm
At one or more times throughout the trading day, all Profiles
(including the Nasdaq Quote Montage Profiles) will be centrally
processed by the OptiMark Matching Module operated by OptiMark
Services, Inc. to obtain the optimal matches among Users. The maximum
frequency with which these ``Cycles'' may take place will be every 90
seconds, with no Cycle taking place prior to 9:45 a.m. EST or after
3:45 p.m. EST. The exact frequency of Cycles for any given Nasdaq
security will be determined by Nasdaq, in consultation with OptiMark,
based on the general characteristics of the security, the robustness of
the associated Profile flow over a period, and the current level of
interest expressed by Users.
The OptiMark Matching Module employs a sophisticated computer
algorithm that measures and ranks all relevant mutual satisfaction
outcomes by matching individual coordinates from intersecting buy
Profiles with those of sell Profiles for a particular stock. The
OptiMark System matches these intersecting Profiles in accordance with
the following eligibility restrictions and priority principles:
1. Eligibility Restrictions--At commencement of a Cycle, each
individual coordinate with a non-zero satisfaction value from all buy
Profiles and all sell Profiles received by the OptiMark System in a
given eligible security would be grouped into the Buy Profile Data Base
or the Sell Profile Data Base, respectively. Each individual
coordinate, no matter how small or large in the corresponding size,
from either profile Data Base would be eligible to be matched with one
or more coordinates from the other Profile Data Base and would result
in one or more Orders,\12\ provided that:
---------------------------------------------------------------------------
\12\ The term Orders[s] means one or more order[s] generated
from a Cycle at specific prices and sizes at which execution
immediately may occur. Orders in Eligible Securities for execution
shall be in round lots equal to or greater than 1,000 shares, except
for Orders resulting from processing the Nasdaq Quote Montage
Profiles which may be in any round lot size. Orders must be in price
increments conforming to the requirements of Nasdaq trading system
rules and system requirements applicable to all Orders executed in
Nasdaq. Such Orders shall include the following information: (1) the
stock ticker symbol; (2) a designation as ``buy,'' ``sell long,''
``sell short,'' or ``sell short exempt''; and (3) such other
information as may be required by the Board of the Nasdaq Stock
Market.
---------------------------------------------------------------------------
1.1. no buy and see coordinates could be matched in violation of
any applicable User instructions for the respective Profiles including:
(a) the maximum quantity associated with the Profile; or (b) any
boundary conditions restricting the aggregate number of shares that may
be bought or sold at a particular price or size range; and
1.2 no buy and sell coordinates could be matched at a price
inferior to that of another coordinate with Standing (as defined below)
that is eligible for matching. A buy (sell) coordinate has Standing if:
(a) it has a satisfaction value of 1, and (b) all coordinates having
the same price and a smaller size, down to and including the minimum
trading increment (100 shares), are included in the associated Profile
at a satisfaction value of 1. Also, each coordinate from a Nasdaq Quote
Montage Profile would have Standing. Alternatively, no coordinate from
a Profile containing any boundary conditions restricting the aggregate
number of shares that may be bought or sold at a particular size range
shall have Standing. For example, no coordinate from a Profile
submitted by a User on an ``all-or-none'' basis would have Standing.
2. Priority Principles--The methods for considering potential
matches between buy and sell coordinates in the Profile Data Bases
would vary, depending on whether both coordinates represent
satisfaction values of 1 or less than 1. As a result, these would be
two separate stages of a Cycle:
2.1 Aggregation Stage. The OptiMark System initially would process
eligible buy and sell coordinates in the Profile Data Bases, each with
the full satisfaction value of 1 only. At this stage of calculation
(``Aggregation Stage''), smaller-sized coordinates may be aggregated to
build sufficient size to be matched with larger-sized coordinates to
generate Orders in accordance with the following rules of priority,
subject to the applicable eligibility restrictions:
(A) Price aggressiveness. A coordinate with a more aggressive price
(i.e., a higher price for a buy coordinate and a lower price for a sell
coordinate) would have priority over coordinates with less aggressive
prices.
(B) Standing. Among the coordinates with the same price, a
coordinate with Standing would have priority over all other coordinates
without Standing.
(C) Time of entry. Among the coordinates with the same price and
Standing, the time of the entry of the associated Profile would
determine relative priority, with earlier submissions having priority.
All Profiles submitted by Users would be appropriately time-stamped
with a unique serial number when received by the OptiMark System.
Because each Nasdaq Quote Montage Profile would be generated from the
most current quotation prevailing at the time of commencement of a
Cycle, the effective time of entry of a Nasdaq Quote Montage Profile
would be later than that of any other Profile submitted by a User.
(d) Size: Among the coordinates with the same price, Standing and
time of entry, priority would be determined by size, with larger sizes
having higher priority.
2.2. Accumulation Stage. Upon completion of the Aggregation Stage,
the
[[Page 552]]
OptiMark System would consider potential matches between eligible buy
coordinates and sell coordinates in the Profile Data Bases where one or
both parties have a satisfaction value of less than 1 but greater than
0. At this stage of calculation (``Accumulation Stage''), only those
buy and sell coordinates with the same associated price an size would
be matched to generate Orders in accordance with the following rules of
priority, subject to the applicable eligibility restrictions.
(A) Mutual satisfaction. A potential match with a higher mutual
satisfaction value (the product of the two satisfaction values) would
take precedence over other potential matches with lower mutual
satisfaction values.
(B) Time of entry (based on the earlier Profile). Among the
potential matches with the same mutual satisfaction, the match with the
earlier time of entry, as determined initially by the effective time of
entry assigned to the earlier of the buy and sell Profiles involved
(the ``earlier Profile''), would have priority over other potential
matches.
(C) Size. Among the potential matches with the same mutual
satisfaction and time of entry for the earlier Profile, priority would
be given to the one with a larger size.
(D) Time of entry (based on the later Profile). Among the potential
matches with the same mutual satisfaction, time of entry (for the
earlier Profile), and size, the match with the earlier time of entry,
as determined this time by the effective time of entry assigned to the
later of the buy and sell Profiles involved (the ``later Profile''),
would have priority over other potential matches.
(E) Price assignment. In regard to all remaining ties between
potential matches, which would consist solely of the coordinates for a
single pair of buy and sell Profiles from two Users that may be matched
with the same mutual satisfaction, time of entry and size, but at
different prices, priority would be given to the match at a price more
favorable to the User whose Profile has the earlier time of entry. For
example, among the last potential matches remaining at the price of 10
and at 10\1/8\, if the sell Profile is the earlier Profile, then the
match would take place at the price of 10\1/8\. Two or more Profiles
that are entered into the OptiMark System representing the same number
of shares may result in executions at differing prices depending on the
other information and conditions entered into the OptiMark System.
Generation of Orders Resulting From OptiMark Cycles
Any Orders generated from a Cycle at specific prices and sizes that
involve the matching of any two User-submitted Profiles, in whole or in
part, will be immediately executed. The trade between the matched Users
will be transmitted automatically through Nasdaq's Automated
Confirmation Transaction Service (``ACT'') for trade reporting and
clearing purposes (discussed more fully below).
Orders generated from a Cycle at specific prices and sizes that
involve the matching of any Nasdaq Quote Montage Profile, in whole or
in part, will be immediately delivered to the relevant participant
through Nasdaq's existing delivery and execution systems, which will be
adapted for this purpose. Currently, this means Nasdaq's SOES and
SelectNet Systems. Nasdaq has already filed a proposed rule change with
the SEC that would, among other things, integrate SOES and SelectNet
into one trading system.\13\ To facilitate the delivery and execution
of any Orders resulting from the Nasdaq Quote Montage Profiles, Nasdaq
intends to employ these evolving trading systems in the form that they
exist in at the time the Application begins operations. Any Order
transmitted through these means to the participant's quote will be
executed, unless the quote has been executed or canceled, in whole or
in part, prior to delivery from the Application. If the quotation
against which the contra Profile was matched has been executed or
canceled, in whole or in part prior to delivery from the Application,
the Orders generated by the Application shall be canceled without
imposing any liability against the displayed quotation. In the case of
any Orders delivered from the Application to any UTP Plan Exchange
Specialist, those executed by the Exchange shall be considered executed
and reported on such Exchange.\14\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 39718 (March 4,
1998) 63 FR 12124 (March 12, 1998).
\14\ See proposed NASD Rule 4994(a), Order Execution, Reporting
and Clearing.
---------------------------------------------------------------------------
Clearance and Settlement
As indicated above, transactions that result from matches through
the Application will be cleared using Nasdaq's post-execution service,
ACT. Accordingly, final locked-in trades will be forwarded to the
National Securities Clearing Corporation (``NSCC'') in the ordinary
course, and will clear and settle regular way through NSCC as would any
other Nasdaq transaction. All Users will receive a report of any
execution resulting from processing the Profiles submitted by them
(including any execution resulting against a displayed quotation) as
soon as possible after the executive takes place. Non-member Users will
have the option of re-allocating for clearing purposes all or a portion
of any execution to another broker by the end of the trading day. A
Designated Broker generally will be notified promptly after the close
of the trading day to the extent it has been allocated for clearing
purposes any transaction resulting from a Profile submitted by a non-
member User sponsored by that Designated Broker.
In the comparison, clearance and settlement process, although the
specific identify of the counterparties to a particular trade will be
temporarily masked until 4:30 p.m. of the trade day, the Designated
Broker that agreed to sponsor a User in the Application is fully
responsible for the clearance and settlement of that trade. Nasdaq and
the operator of the Application are not responsible for either the User
or another Designated Broker failing to pay for or to deliver the
securities traded through this facility. Further, the NASD, Nasdaq and
any other NASD subsidiary or affiliate, and the operator of the
OptiMark Matching Module are not deemed parties to or participants in,
as principal or as agent, any trade that may occur through the
Application. In proposed NASD Rule 4998(a), the Association states that
neither Nasdaq, the NASD, nor any affiliate, operator, licensor, or
administrator of the OptiMark Matching Module may be held responsible
for any damages arising from the use of the Application. In addition,
proposed NASD Rule 4998(b) states that neither Nasdaq, the NASD, nor
any affiliate, operator, licensor, or administrator of the Application
makes any express or implied warranties with respect to any results
that a User or Designated Broker using the Application may expect.
Paragraph (b) of proposed NASD Rule 4994 clearly states that
responsibility for clearance and settlement remains with the Designated
Broker. The User and Supplemental Account Agreements that each party
must sign prior to entering a Profile into the Application likewise
make clear that the responsibility for clearance and settlement lies
with the Designated Broker, and that the Designated Broker must
evaluate the ability of Users to settle trades when it authorizes a
User to submit Profiles under its sponsorship.
Finally, trades executed through the Application will not be
subject to NASD Rule 11890, regarding clearly erroneous trades. Due to
the complexity of Profile
[[Page 553]]
matches, it would be very difficult to allow a single party to request
that its part of a matched set of Profiles be withdrawn from a match
after the fact. Attempting to delete a Profile that is part of a match
could require an entire match to be re-constructed and create a chain
reaction of broken matches. The Application will require parties
entering Profiles to agree that once matched, their Profiles cannot be
deemed to be erroneously entered. Consequently, Nasdaq seeks to amend
Rule 11890 to make clear that the Rule cannot be used by any
Application User as a means to break a trade resulting from an OptiMark
match.\15\
---------------------------------------------------------------------------
\15\ Telephone conversation between Eugene Lopez, Vice
President, Trading and Market Services, Nasdaq and David Sieradzki,
Special Counsel, Division, Commission, on December 22, 1998.
---------------------------------------------------------------------------
Trade Reporting, Short Sales, and Halts
Like other executive services provided by Nasdaq, a public trade
report will be immediately disseminated by Nasdaq for any executions
resulting from the Nasdaq Application. These trade reports will be
reported on behalf of the sell side party to the trade. The report for
any resulting transaction will not be distinguished on the public tape
from any other trade reported through Nasdaq. SEC Transaction Fees
(Section 31 Fees) \16\ apply and will be charged against the seller(s).
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78ee.
---------------------------------------------------------------------------
With respect to the NASD' short sale rule, Rule 3350, which applies
to Nasdaq National Market securities, the OptiMark Match Module will be
programmed to capture the bid price direction at the commencement of
every Cycle, as well as the short sale status of every Profile entered
(i.e., whether it is marked short, and whether or not it is exempt). It
will exclude any Profile that could result in a match and execution of
any transaction in a Nasdaq National Market security that would be
prohibited by the short sale rule.\17\
---------------------------------------------------------------------------
\17\ See proposed NASD Rule 4995, Short Sale In the Nasdaq
Application.
---------------------------------------------------------------------------
Nasdaq will suspend within the Application any activity in any
security that is subject to a trading halt or suspension pursuant to
NASD or SEC rules, Nasdaq Market Emergency Rules, or if deemed
necessary for the protection of investors or to preserve system
capacity and integrity.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6)\18\ and Section 11A\19\ of the Act.
Section 15A(b)(6) requires that the rules of a registered national
securities association be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principals of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. Section 15A(b)(6) further
requires that such rules not be designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78o-3(b)(6).
\19\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------
Section 11A(a)(1) sets forth findings of Congress that new data
processing and communications techniques create the opportunity for
more efficient and effective market operations. Section 11A(a)(1)(C)
states that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to assure: (1) economically efficient execution of securities
transactions; (2) fair competition among brokers and dealers; (3) the
availability to brokers, dealers, and investors of information with
respect to securities; (4) the practicability of brokers executing
investors' orders in the best market; and (5) an opportunity for
investors orders to be executed without the participation of a dealer.
The Application takes advantage of new data processing and
communications techniques to create the opportunity for a more
efficient market in the trading of Nasdaq securities. It will enhance
opportunities for investors by providing an alternative method to
receive the best available price in the marketplace, obtain price
improvement, and reduce trading costs.
B. Self-Regulatory Organization's Statement on Burden on Competition
Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of publication of this notice in the Federal
Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal is
consistent with the 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 rule 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 at 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-98-85 and should be
submitted by January 26, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
---------------------------------------------------------------------------
\20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-75 Filed 1-4-99; 8:45 am]
BILLING CODE 8010-01-M