[Federal Register Volume 65, Number 30 (Monday, February 14, 2000)]
[Notices]
[Pages 7407-7410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3371]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42400; File No. SR-NASD-99-23]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 to the Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Relating to Locked and Crossed 
Markets That Occur Prior to the Opening of the Market

February 7, 2000.

I. Introduction

    On May 3, 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'' or ``SEC'') a 
proposed rule change pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The 
proposed rule change would amend NASD Rule 4613(e), ``Locked and 
Crossed Markets,'' to alter the rights and obligations of market 
participants in connection with locked and crossed markets \3\ that 
occur prior to the opening of the market. On May 14, 1999, Nasdaq filed 
Amendment No. 1 to the proposal.\4\ Notice of the proposed rule change, 
as amended, was published for comment in the Federal Register on June 
10, 1999.\5\ The Commission received four comment letters on the 
proposal.\6\ Nasdaq responded to the commenters in a letter dated 
December 23, 1999.\7\ This order approves the proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A locked market occurs when the quoted bid price is the same 
as the quoted ask price. A crossed market occurs when the quoted bid 
price is greater than the quoted ask price.
    \4\ See Letter from Robert E. Aber, Senior Vice President and 
General Counsel, Nasdaq, to Richard Strasser, Assistant Director, 
Division of Market Regulation, Commission, dated May 14, 1999. 
Amendment No. 1 revised the proposal to require a market maker that 
sends a Trade-or-Move Message (as defined below) to place a modifier 
on the message indicating the message is a Trade-or-Move Message.
    \5\ See Securities Exchange Act Release No. 41473 (June 2, 
1999), 64 FR 31335.
    \6\ See letter from Arthur J. Kearney, Chairman, and Leopold 
Korins, President and Chief Executive Officer, Security Traders 
Association, to Jonathan G. Katz, Secretary, SEC, dated May 28, 1999 
(``STA Letter''); letter from Gerald D. Putnam, Chief Executive 
Officer, Archipelago, L.L.C., to Jonathan G. Katz, Secretary, SEC, 
dated June 30, 1999 (``Archipelago Letter''); letter from Kevin M. 
Foley, Bloomberg L.P., to Jonathan G. Katz, Secretary, SEC, dated 
July 12, 1999 (``Bloomberg Letter''); and letter from Cameron Smith, 
General Counsel, Island ECN, to Jonathan Katz, Secretary, SEC, dated 
July 12, 1999 (``Island Letter'').
    \7\ See letter from John F. Malitzis, Assistant General Counsel, 
Nasdaq, to Richard Strasser, Assistant Director, Division, 
Commission, dated December 23, 1999 (``December 23 Letter''). In the 
December 23 Letter, Nasdaq clarified that the proposal will apply to 
electronic communications networks (``ECNs''). In addition, Nasdaq 
provided an additional explanation of the rationale for the proposal 
and stated that the proposal would not require ECNs to assume 
proprietary positions.
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II. Description of the Proposal

    Currently, NASD Rule 4613(e) requires a market participant \8\ that 
enters a quotation at or after 9:25:00 a.m.\1\ that would lock or cross 
the market at the opening to act to avoid locking or crossing the 
market at the opening, but in no case later than 30 seconds after the 
opening (i.e., 9:30:30). The market participant could, for example, 
send a SelectNet order to take out the quotation(s) that the market 
participant is crossing or locking. Nasdaq states that although current 
NASD Rule 4613(e) has alleviated some instances of locked or crossed 
markets at the opening, locked and crossed markets continue to occur at 
the opening because a market participant whose quotation is locked or 
crossed may not respond immediately to the SelectNet message of a 
market participant seeking to resolve the locked or crossed market. To 
address ongoing concerns with locked and crossed markets, Nasdaq 
proposes to amend NASD Rule 4613(e).
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    \8\ NASD Rule 4613(e) discusses the obligations of ``market 
makers'' with regard to locked and crossed markets. For purposes of 
NASD Rule 4613(e), the term ````market maker'' includes: (1) Any 
NASD member that enters into an ECN, as that term is defined in 
Exchange Act Rule 11AC1-1(a)(8), a priced order that is displayed in 
Nasdaq; and (2) any NASD member that operates the ECN when the 
priced order being displayed has been entered by a person or entity 
that is not an NASD member. See NASD Rule 4613(e)(3).
    \9\ All references are to Eastern Time.
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    The proposed rule change will alter the rights and obligations of 
market participants with regard to pre-opening locked and crossed 
markets. As described below, a market participant's rights and 
obligations will vary depending on whether the locked or crossed market 
occurs prior to or after 9:20 a.m.
    Locks or Crosses Occurring At or After 9:20 a.m. and Before 9:30 
a.m. Under the proposal, a market participant that enters a quotation 
that locks or crosses the market between 9:20 a.m. and 9:29:59 a.m. 
must send to each market participant that he locks or crosses a 
SelectNet message at the quoted price(s) of the receiving market 
participant (``Trade-or-Move Message'') in an aggregate amount of at 
least 5,000 shares. The initiating or ``active'' locker must send the 
Trade-or-Move Messages to all parties to the lock or cross prior to or 
immediately after entering the locking or crossing quotation(s), and 
must place a modifier on each message indicating that the message is a 
Trade-or-Move Message.\10\ Within 30 second of receiving a Trade-or-
Move Message, the recipient must either: (1) Trade in full with the 
incoming Trade-or-Move Message; (2) decline to trade with the incoming 
Trade-or-Move Message and move its quotation to a price level that 
unlocks or uncrosses the market; or (3)

[[Page 7408]]

trade with a portion of the incoming Trade-or-Move Message and move its 
quotation to a level that unlocks or uncrosses the market.
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    \10\ See Amendment No. 1, supra note 4. The Trade-or-Move 
modifier will allow a market participant to distinguish a Trade-or-
Move Message (to which a receiving market maker is obligated to 
respond) from other pre-opening messages it may receive.
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    A market participant that trades in full with a Trade-or-Move 
Message (i.e., up to the full amount of the incoming Trade-or-Move 
Message) may maintain, rather than move, its locked or crossed 
quotation if it wishes to trade more shares. Thereafter, any party to 
the lock or cross has the right, but not an obligation, to send a 
Trade-or-Move Message to any other party to the lock or cross. Any 
party to the lock or cross that receives a Trade-or-Move Message would 
be obligated to trade with the message or move its quotation within 30 
seconds.
    The following example illustrates the operation of this provision 
of the proposed rule:
    At 9:21 a.m., MMA locks four market participants--MMB, MMC, MMD, 
and MME--each of which is quoting 1,000 shares. Because MMA has locked 
the market after 9:20 a.m., MMA must send Trade-or-Move Messages in an 
aggregate amount of 5,000 shares to all four market participants whose 
quotations MMA has locked. Accordingly, MMA sends a Trade-or-Move 
Message for 1,100 shares to MMB, which declines and moves its 
quotation. MMA sends a Trade-or-Move Message for 1,500 shares to MMC, 
who fills it partially (1,000 shares), and, as required, moves its 
quotation. MMA sends MMD a message for 400 shares. MMD fills the 
message in full and moves its quotation \1/8\th to unlock the 
market.\11\ MMA sends MME a 2,000-share message. MME fills it 
completely. MME may remain at its quotation, but is not required to do 
so. MME also may send a Trade-or-Move Message to MMA, which must trade 
with the message or move its quotation within 30 seconds. In addition, 
MMA may send another Trade-or-Move Message to MME, which must trade 
with the message or move its quotation.
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    \11\ Because MMD has filled the message in full, it is not 
required to move its quote.
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    Locks or Crosses Occurring Prior to 9:20 a.m. Beginning at 9:20 
a.m., nay market participant that is a party to a lock or cross that 
occurred prior to 9:20 a.m. will have the right, but not an obligation, 
to send a Trade-or-Move Message of any size to any party to the lock or 
cross. A market participant that receives a Trade-or-Move Message must 
respond within 30 seconds by either: (1) Trading in full with the 
incoming Trade-or-Move Message; (2) declining to trade with the 
incoming Trade-or-Move Message and moving its quotation to a price 
level that unlocks or uncrosses the market; or (3) Trading with a 
portion of the incoming Trade-or-Move Message and moving its quotation 
to a level that unlocks or uncrosses the market. A market participant 
that trades in full with the incoming Trade-or-Move Message is not 
required to move its quotation.
    The following example illustrates the operation of this provision 
of the proposed rule:
    At 9:18 a.m., MMW and MMX are bidding 74, and MMY and MMZ enter 
offer prices of 73, which cross the market. Because it is before 9:20 
a.m., none of the market participants may send Trade-or-Move Messages. 
At 9:20 a.m., all four market participants have the right to send 
Trade-or-Move Messages of any size to either of the two market 
participants crossing them. Any market participant that does not fill 
an incoming Trade-or-Move Message in full within 30 seconds must move 
its question out of the cross.
    Unlike a market participant that actively locks or crosses the 
market after 9:20 a.m., a market participant that locks or crosses the 
market prior to 9:20 a.m. is not obligated to send a specific number of 
shares to all parties to the lock or cross. Nasdaq maintains that the 
distinction is appropriate because market participants often do not 
actively monitor their quotations prior to 9:20 am., and, as a result, 
it is often difficult to determine which party actively locked or 
crossed the market prior to 9:20 a.m. For this reason, the obligations 
and rights of the parties to the lock or cross do not begin until 9:20 
a.m.
    Nasdaq believes that the 9:20 a.m. benchmark establishes a 
reasonable point in time for market participants to begin responding to 
income Trade-or-Move Messages and actively monitoring their quotations 
to determine whether they are locking or crossing other market 
participants. In Nasdaq's view, a market participant that receives a 
Trade-or-Move Message at or after 9:20 a.m. and remains at its 
quotation without trading in full or in part with the incoming message 
generally would be considered in violation of the proposed rule, 
although it would not be considered to be a violation of NASDAQ Rule 
4613(b).\12\

III. Summary of Comments
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    \12\ Nasdaq states that because the proposed rule will apply to 
quotations entered prior to the opening of the market, a market 
participant that receives a Trade-or-Move Message prior to the 
opening would have no liability under NASDAQ Rule 4613(b), ``Firm 
Quotations.'' In addition, Nasdaq believes that a market participant 
that receives a Trade-or-Move Message prior to the opening would owe 
no liability to the message under Exchange Act Rule 11Ac1-1. Thus, a 
market participant that receives a Trade-or-Move Message would be 
permitted to move its quote without trading upon the receipt of 
what, during market hours, would be a SelectNet liability order.
    Under the current proposal, a market participant that receives a 
Trade-or-Move Message within the last 30 seconds before the opening 
(i.e., at or after 9:20 a.m.) must trade or move within 30 seconds, 
even if the end of that 30 seconds occurs after the market's 
opening. Moreover, a market participant that wishes to enter a 
locking or crossing quote at or after 9:30 a.m. would be required to 
use reasonable means to avoid locking or crossing the market by, for 
example, sending a SelectNet message to the party (or parties) it 
will lock or cross. See NASD Notice to Members 97-49.
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    The Commission received four comment letters regarding the 
proposal.\13\ The STA supported the proposal, noting that its members 
have expressed concern about market disarray prior to the opening of 
the market. The STA believed that the proposal would substantially 
reduce the problem of pre-opening locked and crossed markets.
    Archipelago, Bloomberg (the owner of Bloomberg Tradebook L.L.C.), 
and Island, which operate ECNs, opposed the proposal. The ECNs argued 
that the proposal would require ECNs, which generally do not trade on a 
proprietary basis, to assume proprietary positions in excess of the 
orders entered by their participants.\14\ Archipelago believed that the 
5,000 share requirement would limit the ability of ECNs and smaller 
market makers to use Trade-or-Move-Messages and would limit ECNs' and 
retail investors' participation in the pre-opening market. Archipelago 
urged Nasdaq to revise its proposal to decrease the 5,000-share Trade-
or-Move Message requirement to a single unit of trading.
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    \13\ See note 6, supra.
    \14\ See Archipelago Letter, Bloomberg Letter, and Island 
Letter, supra note 6.
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    In addition, Bloomberg asserted that because the proposal omits 
references to ECNs, the application of the proposal to ECNs is 
unclear.\15\ Bloomberg also supported reducing the share requirement to 
the greater of 100 shares or the actual size of the order that would be 
locked or crossed.
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    \15\ See Bloomberg Letter, supra note 6.
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    Island argued that the share requirement could be anticompetitive 
because it requires a market participant to send a 5,000 share order if 
it wants to improve the inside market. It further noted that, due to 
the inability of some ECNs to manually modify their quotations, the 
proposal could force ECNs to execute 5,000 share orders, regardless of 
the size of the ECN's quotation. Island recommended that Nasdaq address 
the problem of pre-opening locked and crossed markets by permitting 
market makers to open firm, pre-opening quotations. A market maker

[[Page 7409]]

whose closed quotation was locked or crossed by an open quotation would 
be required to open its quotation at a modified level or risk an 
unexcused withdrawal at or prior to the open.

IV. Discussion

    After carefully considering all of the comments, the Commission 
finds, for the reasons discussed below, that the proposed rule change 
is consistent with the Act and the rules and regulations applicable to 
the NASD. In particular, the Commission finds that the proposal is 
consistent with the requirements of Sections 15A(b)(6), 15A(b)(11), and 
Section 11A(a)(1)(C) of the Act.\16\ 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 principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
and 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)(11) requires that the rules of a registered national securities 
association be designed to produce fair and informative quotations, 
prevent fictitious or misleading quotations, and to promote orderly 
procedures for collecting, distributing, and publishing quotations. In 
Section 11A(a)(1)(C), Congress found 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 quotations and transactions in 
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.\17\
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    \16\ 15 U.S.C. 78o-3(b)(6), 15 U.S.C. 78o-3(b)(11), and 15 
U.S.C. 78k-1(a)(1)(C).
    \17\ In approving the proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    Specifically, the Commission finds that the proposal is consistent 
with Sections 15A(b)(6), 15A(b)(11), and 11A(1)(C) of the Act because 
it is designed to reduce the frequency of pre-opening locked and 
crossed markets, which should help to provide more informative 
quotation information, facilitate price discovery, and contribute to 
the maintenance of a fair and orderly market. The proposal will require 
a market participant that enters a locking or crossing quotation 
between 9:20 a.m. and 9:29:59 a.m. to send Trade-or-Move Message(s) in 
an aggregate amount of 5,000 shares to each party to the locked or 
crossed market, thereby creating a substantial trading requirement for 
any market participant that wishes to enter a locking or crossing 
quotation between 9:20 a.m. and 9:29:59 a.m. In addition, the proposal 
will allow, but not require, any party to a locked or crossed market 
that occurs prior to 9:20 a.m. to send a Trade-or-Move Message of any 
size after 9:20 a.m. to any other party to the locked or crossed 
market. The recipient of a Trade-or-Move Message must respond to that 
message within 30 seconds of receiving it.
    The Commission believes that the 5,000 share Trade-or-Move Message 
requirement may reduce instances for pre-opening locked and crossed 
markets by creating a disincentive for a market participant to enter a 
locking or crossing quotation between 9:20 a.m. and 9:29:59 a.m. In 
addition, Trade-or-Move Message may provide an effective mechanism for 
promptly resolving any pre-opening locked or crossed markets that 
occur. In this regard, the Commission notes that the recipient of a 
Trade-or-Move Message must respond to the message within 30 seconds by 
either (1) trading in full with the incoming Trade-to-Move Message; (2) 
declining to trade with the incoming Trade-or-Move Message and moving 
its quotation to a price level that unlocks or uncrosses the market; or 
(3) trading with a portion of the incoming Trade-or-Move Message and 
moving its quotation to a price level that unlocks or uncrosses the 
market. By reducing instances of pre-opening locked and crossed 
markets, and facilitating the prompt resolution of any pre-opening 
locked or crossed markets that occur, the proposal should help to 
provide a more orderly opening in Nasdaq securities, to the benefit of 
all market participants.
    The Commission believes, as it has concluded previously,\18\ that 
continued locking and crossing of the market can negatively impact 
market quality. By helping to reduce the frequently of pre-opening 
locked and crossed markets, the Commission believes that the proposal 
should improve market quality and enhance the production of fair and 
orderly quotations. Accordingly, the Commission believes that the 
proposal is designed to produce fair and informative quotations, 
consistent with Section 15A(b)(11), and to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, consistent with Section 15A(b)(6).
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    \18\ See Securities Exchange Act Release No. 40455 (September 
22, 1998), 63 FR 51978 (September 29, 1998) (order approving File 
No. SR-NASD-98-01) (``1998 Order'')
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    As discussed more fully above, several ECNs expressed concerns 
regarding the proposal.\19\ In response, Nasdaq stated that the current 
proposal would apply equally to market makers and ECNs, and the 
customers of market makers and ECNs.\20\
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    \19\ Specifically, the ECNs maintained that: (1) The application 
of the proposal to ECNs was unclear; (2) the 5,000 share Trade-or-
Move Message requirement discriminates unfairly against ECNs and 
would create an unnecessary or inappropriate burden on competition 
by requiring ECNs to assume unwanted proprietary positions; (3) the 
proposal would require an ECN to execute the full size of an 
incoming 5,000 share Trade-or-Move Message, regardless of the size 
of the ECN's quotation; (4) the 5,000 share Trade-or-Move Message 
requirement would penalize a market participant seeking to improve 
the inside price; (5) the proposal would limit the participation of 
ECNs, retail investors, and smaller broker-dealers in the pre-
opening market; and (6) Nasdaq failed to provide a rationale for the 
5,000 share Trade-or-Move Message requirement.
    \20\ See December 23 Letter, supra note 7.
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    In response to questions concerning the rationale for the 5,000 
share Trade-or-Move Message, Nasdaq stated that a market participant 
should not be able to ``bid up'' or otherwise manipulate the opening 
price of a security by displaying a 100 share locking or crossing quote 
prior to the opening of the market.\21\ According to Nasdaq, the 5,000 
share Trade-or-Move Message requirement is designed to require a market 
participant to risk significant capital if it intends to lock or cross 
the market during one of the most critical points in the trading 
day.\22\
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    \21\ See December 23 Letter, supra note 7.
    \22\ See December 23 Letter, supra note 7.
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    Nasdaq disagreed with the commenters' assertions that the 5,000 
share requirement would require ECNs to assume unwanted proprietary 
positions and would effectively exclude ECNs from the pre-opening 
session. In this regard, Nasdaq stated that an ECN with an order of 
less than 5,000 shares that would lock or cross the market could (1) 
attempt to match the order internally with the order of another 
subscriber; (2) attempt to fill the order by sending a SelectNet 
message to the market participant(s) it would lock or cross; or (3) 
wait to accumulate the 5,000 shares and then send a Trade-or-Move 
Message. In addition, an ECN whose subscriber entered a locking or

[[Page 7410]]

crossing quotation between 9:20 a.m. and 9:29:59 a.m. could require its 
subscriber to comply with the Trade-or-Move Message requirement.\23\ 
Nasdaq also noted that an ECN with a pre-opening order that locked or 
crossed the market could wait until the opening of the market before 
sending a SelectNet message to the market participants it would lock or 
cross.\24\
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    \23\ Telephone conversation between John Malitzis, Assistant 
General Counsel, Nasdaq, and Yvonne Fraticelli, Special Counsel, 
Division, Commission, on January 18, 2000.
    \24\ See December 23 Letter, supra note 7.
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    Nasdaq stated that the proposal would not require an ECN that 
received a Trade-or-Move Message in excess of its subscriber's posted 
quotation to execute the full size of the incoming Trade-or-Move 
Message.\25\ Instead, the ECN would be required to execute the incoming 
Trade-or-Move Message only up to the size of its subscriber's order and 
could then decline the remainder of the Trade-or-Move Message.\26\ For 
example, if an ECN received a 5,000 share Trade-or-Move Message 
directed to its subscriber's 1,000 share order, the ECN would fill its 
customer's 1,000-share order and decline the remainder of the Trade-or-
Move Message. \27\
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    \25\ Telephone conversation between John Malitzis, Assistant 
General Counsel, Nasdaq, and Yvonne Fraticelli, Special Counsel, 
Division, Commission, on January 24, 2000.
    \26\ See January 24 conversation, supra note 25.
    \27\ See January 24 conversation, supra note 25.
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    Nasdaq also maintained that the 5,000 share requirement must apply 
equally to ECNs and market makers for the proposed rule to operate 
effectively.\28\ If the requirement applied to market makers but not to 
ECNs, a market maker or its customer could avoid the requirement by 
entering a locking or crossing order in an ECN for display in 
Nasdaq.\29\ In addition, because the 5,000 share requirement applies 
equally to all market participants, including market makers, the 
customers of market makers, and ECN subscribers, Nasdaq maintained that 
the proposal is consistent with Section 15(a)(6) of the Act and does 
not discriminate between customers, issuers, brokers, or dealers.\30\
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    \28\ See December 23 Letter, supra note 7.
    \29\ See December 23 Letter, supra note 7.
    \30\ See December 23 Letter, supra note 7.
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    The Commission believes that the proposed changes are a reasonable 
means to address the problem of pre-opening locked and crossed markets. 
By establishing a significant trading requirement for a market 
participant seeking to enter a locking or crossing quotation prior to 
the opening of the market, the proposal may reduce the frequency of 
pre-opening locked and crossed markets. The Commission believes that a 
substantial trading requirement, such as the 5,000 share Trade-or-Move 
Message requirement proposed by Nasdaq, rather than the 100 share or 
actual size trading requirement suggested by the commenters, may be 
useful to achieve the proposal's goal of reducing instances of pre-
opening locked and cross markets.
    As Nasdaq noted in its response to the commenters, an ECN with a 
subscriber seeking to enter a pre-opening order of less than 5,000 
shares that would lock or cross the market has a number of options open 
to it that do not require the ECN to take a proprietary position. An 
ECN can reject the locking or crossing order, just as ECNs reject 
locking or crossing orders during normal trading hours. Alternatively, 
an ECN whose subscriber entered a locking or crossing order between 
9:20 a.m. and 9:29:59 a.m. could require the subscriber to comply with 
the Trade-or-Move Message requirement.\31\ In addition, the proposal 
would not require an ECN that received a Trade-or-Move Message in 
excess of its subscriber's quotation to execute the full size of the 
incoming Trade-or-Move Message; instead, the ECN could trade with the 
incoming Trade-or-Move Message up to the size of its subscriber's order 
and decline the remainder of the Trade-or-Move Message.\32\ For these 
reasons, the Commission does not believe that the proposal would 
exclude ECNs from participating in the pre-opening market. In addition, 
because the proposed Trade-or-Move Message requirements will apply 
equally to orders placed through market makers and through ECNs, the 
Commission does not believe that the proposal discriminates unfairly 
against ECNs.
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    \31\ See January 18 conversation, supra note 23.
    \32\ See January 24 conversation, supra note 25.
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    The Commission believes that Nasdaq's position that the proposal 
must apply equally to all market participants to operate effectively is 
reasonable. As argued, an exception from the Trade-or-Move Message 
requirements for orders entered into an ECN could allow market 
participants to avoid the requirements of the proposed rule by placing 
orders with an ECN rather than with a market maker.\33\
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    \33\ See December 23 Letter, supra note 7.
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    With regard to one commenter's assertion that the proposal 
penalizes a market participant seeking to provide price improvement, 
the Commission notes that the proposal is designed to provide a more 
orderly opening for the Nasdaq market and to prevent efforts to 
manipulate the opening price of a security by entering a 100 share 
locking or crossing quotation.\34\ The Commission believes that the 
proposal is a reasonable means to accomplish these goals. Finally, the 
Commission notes that market participants would be able to enter 
quotations that are not subject to the 5,000 share Trade-or-Move 
Message requirement after the market opens at 9:30 a.m.\35\
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    \34\ See December 23 Letter, supra note 7.
    \35\ However, as the Commission has noted previously, market 
participants are required to use reasonable means to avoid locking 
and crossing the market. See 1998 Order, supra note 18.
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V. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposed rule change is consistent with the Act in general, and in 
particular, with Sections 15A(b)(6), 15A(b)(11), and Section 11A of the 
Act.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\36\ that the proposed rule change (SR-NASD 99-23), as amended, is 
approved.
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    \36\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-3371 Filed 2-11-00; 8:45 am]
BILLING CODE 8010-01-M