[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6415-6416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3100]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41015; File No. SR-NASD-99-03]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Eliminate the Aggregation Presumption for 
SOES Orders Entered Within Five Minutes of Each Other

February 3, 1999.
    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 January 14, 1999, 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 (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by Nasdaq. Nasdaq has designated this proposal as one constituting a 
stated policy, practice, or interpretation with respect to the meaning, 
administration or enforcement of an existing rule to take effect upon 
filing with the Commission pursuant to Section 19(b)(3)(A)(i) of the 
Act,\3\ and Rule 19b-4(e)(1) \4\ promulgated thereunder, which renders 
the rule effective upon the Commission's receipt of this filing. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(e)(1).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change would eliminate the single investment 
decision aggregation presumption for Small Order Execution System 
(``SOES'') orders entered for accounts under the control of an 
associated person or public customer within five minutes of each other. 
This presumption is discussed in NASD Notice To Members (``NTM'') 88-
61.

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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Nasdaq is proposing to eliminate the presumption, contained in NASD 
NTM 88-61, that any two or more orders entered into Nasdaq's SOES 
system within any five minute period are part of a single investment 
decision and thus subject to aggregation for purposes of determining if 
the order as a whole violates the prohibition on the entry or orders in 
excess of the maximum SOES tier size assigned to a particular security. 
While eliminating the single investment decision presumption, NTM 88-
61's interpretation concerning what constitutes an order from a public 
customer will remain in effect.
    The proposal responds to recent Nasdaq rule changes that now allow 
market makers to display the actual size of their trading interest 
rather than a required minimum size. Nasdaq believes that the removal 
of these artificial mandatory minimum quote increments, and the 
resulting increased ability of market makers to manage their exposure 
to automatic order execution, reduces the concerns about inappropriate 
splitting of orders too large for SOES into smaller, SOES-eligible 
amounts that served as the basis for the establishment of the 
aggregation presumption. Nasdaq notes that the prohibition on splitting 
up larger orders to obtain SOES access contained in NASD Rule 
4730(c)(3) remains in effect and, if violated, may still serve as the 
basis for disciplinary action by NASD Regulation, Inc.
    Based on the above, Nasdaq believes that the proposed rule change 
is consistent with the provisions of section 15A(b)(6) of the Act \5\ 
in that the proposal is designed to prevent fraudulent and manipulative 
acts and practices, promote just and equitable principles of trade, and 
to facilitate transactions in securities.
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    \5\ 15 U.S.C. 78o-3(b)(6).
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(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.

(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

    The foregoing rule change has become immediately effective pursuant 
to Section 19(b)(3)(A)(i) of the Act,\6\ and Rule 19b-4(e)(1) \7\ 
thereunder, in that it constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration or 
enforcement of an existing rule. At any time within 60 days of the 
filing of a rule change pursuant to Section 19(b)(3)(A) of the Act,\8\ 
the Commission may summarily abrogate the rule change if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Act.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(i).
    \7\ 17 CFR 249.19b-4(e)(1).
    \8\ 15 U.S.C. 78s(b)(3)(A).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 6416]]

arguments concerning the foregoing, including whether the proposed rule 
change 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 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 SR-NASD-99-03 and should be 
submitted by March 2, 1999.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3100 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M