[Federal Register Volume 65, Number 70 (Tuesday, April 11, 2000)]
[Notices]
[Pages 19420-19421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42618; File No. SR-NASD-00-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Extending the Pilot Program for the Nasdaq 
Application of the OptiMark System

April 4, 2000.
    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 March 28, 2000, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), through its wholly owned subsidiary, the 
Nasdaq Stock Market, Inc. (``Nasdaq''), filed a proposed rule change 
with the Securities and Exchange Commission (``SEC'' or 
``Commission''). The proposed rule change is described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. On March 30, 
2000, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ The 
Exchange filed the proposed rule change, as amended, pursuant to 
Section 19(b)(3)(A) of the Act,\4\ and Rule 19b-4(f)(6) thereunder,\5\ 
which renders the proposed rule change effective upon filing with the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See March 30, 2000 letter from Peter R. Geraghty, Assistant 
General Counsel, Nasdaq, to Rebekah Liu, Special Counsel, Division 
of Market Regulation, SEC (``Amendment No. 1''). In Amendment No. 1, 
Nasdaq requested that the proposed rule change be filed under 
Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. 15 
U.S.C. 78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6). Nasdaq also 
requested that the Commission waive the 5-day notice of its intent 
to file the proposal by treating the original proposed rule change 
as the prefiling notice required under Rule 19b-4(f)(6); and 
requested that the Commission waive the 30-day period before the 
proposal becomes effective to permit the proposed rule change to 
become immediately effective.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to extend the pilot period for the Nasdaq 
application of the OptiMark System (the ``Nasdaq Application'') for an 
additional six months from April 3, 2000. No changes to the existing 
rule language are being proposed.

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, as 
amended, 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

1. Purpose
    On January 5, 1999, the Commission approved a proposed rule change 
filed by the NASD to implement the Nasdaq Application.\6\ The Nasdaq 
Application permits NASD members and their customers to enter large 
orders in Nasdaq stocks into an anonymous matching system that has been 
designed, developed, and patented by OptiMark Technologies, Inc. 
(``OptiMark Match'') and has been integrated into Nasdaq's facilities 
in Trumbull, Connecticut. The anonymity offered by this facility limits 
the market impact of trading in larger quantities of securities and 
provides NASD members with a new, additional tool to trade Nasdaq 
securities more effectively.
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    \6\ Securities Exchange Act Release No. 41967 (September 30, 
1999), 64 FR 54704 (October 7, 1999)(SR-NASD-98-85).
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    The Nasdaq Application allows NASD members (and if sponsored by 
NASD members, customers of such members) to enter trading interests, 
called profiles, into Nasdaq-operated systems where those profiles are 
collected and matched periodically by the OptiMark Match. As currently 
approved, these matches occur no more frequently than every five 
minutes. In addition to matching profiles entered directly into the 
system, the Nasdaq Application incorporates bids and offers in the 
Nasdaq Quote Montage, creates profiles for such quotes, and includes 
the quotes in the next match. The OptiMark Match then attempts to match 
contra interests at the best prices and sizes according to the rules of 
the match process. If the system finds that a quote profile matches 
another profile, the system sends a message to the market participant 
(via the Nasdaq SelectNet system) seeking to trade at the market 
participant's quoted price or better and at round lot sizes, up to the 
amount quoted by that market participant.
    The Commission approved the Nasdaq Application on a pilot basis for 
a six-month period ending April 3, 2000.\7\ The Commission's rationale 
for limiting the period was based partly on the perceived need to 
enhance certain aspects of clearing brokers' capabilities to monitor 
trading activity occurring in the Nasdaq Application. Nasdaq is in the 
process of adding new features to the Nasdaq Application that address 
all of the stated concerns regarding clearing and anonymity, and plans 
to file with

[[Page 19421]]

the Commission a proposed change reflecting these new features. Because 
these new features will not be in place until the second quarter 2000 
and must be subject to notice and comment before approval, the pilot 
will end prior to such time periods. Nasdaq believes that the Nasdaq 
Application provides benefits to the market and should be allowed to 
continue to operate as currently operating for an additional six months 
to permit Nasdaq to implement the system changes that address the 
Commission's concerns.
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    \7\ See supra note 6.
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \8\ in that it is 
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, 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 markets system, and, 
in general to protect investors and the public interests.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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    Nasdaq also believes the proposed rule change is consistent with 
Section 11A of the Act \9\ in general, and Section 11A(a)(1)(A) \10\ in 
particular, by promoting economically efficient execution of securities 
transactions, fair competition among markets, the best execution of 
customer orders, and an opportunity for orders to be executed without 
the participation of a dealer.
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    \9\ 15 U.S.C. 78k-1.
    \10\ 15 U.S.C. 78k-1(a)(1)(C).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    Nasdaq has neither solicited nor received written comments on the 
proposed rule change, as amended.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
For Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(6) \12\ 
thereunder because the proposed rule change does not (i) significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which the proposed rule change was filed, or 
such shorter time as the Commission may designate. At any time within 
60 days of the filing of a rule change pursuant to Section 19(b)(3)(A) 
of the Act, 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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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6).
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    The Commission finds that it is appropriate to accelerate the 
effective date of the proposed rule change and to permit the proposed 
rule change to become immediately effective because the proposed simply 
extends a previously approved pilot program for an additional six 
months. By extending the pilot program, the Commission will enable 
Nasdaq to continue to offer this additional trading mechanism without 
interruption. In addition, the Commission finds that Nasdaq provided 
the required prefiling written notice of its intent to file this 
proposed rule change when it filed the original proposed rule 
change.\13\
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    \13\ In reviewing this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
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 20549-0609. 
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 the File No. SR-NASD-00-14 and 
should be submitted by May 2, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8877 Filed 4-10-00; 8:45 am]
BILLING CODE 8010-01-M