[Federal Register Volume 66, Number 43 (Monday, March 5, 2001)]
[Notices]
[Pages 13361-13362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-5249]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44003; File No. SR-NASD-01-10]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Requiring Conversion to Decimals of Open 
Fractional Orders in Nasdaq Securities

February 26, 2001.

I. Introduction

    On January 29, 2001, the National Association of Securities 
Dealers, Inc. (``NASD''), through its subsidiary, the Nasdaq Stock 
Market, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``Commission''), pursuant

[[Page 13362]]

to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change that would 
require all open orders priced in fractions in NASD member firms' 
systems on the evening before that security is to commence quoting in 
decimals to be converted to decimals. Notice of the proposed rule 
change appeared in the Federal Register on February 6, 2001.\3\ The 
Commission received no comments on the proposed rule change. This order 
grants accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 43906 (January 30, 
2001), 66 FR 9115 (February 6, 2001).
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II. Description of the Proposal

    Pursuant to the Decimals Implementation Plan for the Equities and 
Options Markets (``Implementation Plan''), which was submitted to the 
Commission on July 24, 2000, the NASD is to fully convert the Nasdaq 
market to decimal pricing no later than April 9, 2001. Before full 
implementation, Nasdaq will begin a decimal pricing pilot program for 
10-15 Nasdaq issues on March 12, 2001, and add a second decimal phase-
in of approximately 100+ additional Nasdaq securities on March 26, 
2001.
    Nasdaq's proposal would adopt a mandatory conversion rule for all 
open orders in Nasdaq securities that are priced in fractions and 
reside in the internal systems of NASD member firms on the evening 
prior to the first day a particular security commences quoting in 
decimals. Under the proposal, all open orders, including those with 
price qualifiers such as ``Do Not Reduce'' (``DNR'') and ``Do Not 
Increase'' (``DNI''), priced in fractions that reside in a firm's 
internal system on the evening before the start of decimal pricing, 
will be converted as follows: (1) The price of all open Buy Orders 
(including ``Good-til-Canceled'' (``GTC''), ``Good-til-Executed'' 
(``GTX''), and Buy Stop and Buy Stop Limits) priced in fractions will 
be converted to their decimal equivalent and ``rounded down'' to the 
nearest $0.01; and (2) the price of all open Sell Orders (GTC, GTX, 
Sell Stop and Sell Stop Limits) priced in fractions will be converted 
to their decimal equivalent and ``rounded up'' to the nearest $0.01. 
Examples of fractional buy and sell conversions were provided in the 
notice for SR-NASD-01-10.\4\
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    \4\ Securities Exchange Act Release No. 43906 (January 30, 
2001), 66 FR 9115 (February 6, 2001).
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    Under the proposal, market participants would be free to accept 
decimal-priced orders for any number of values beyond the decimal point 
as they deem appropriate after the conversion to decimals. Nasdaq will 
continue to require that firms round orders to two decimal places 
before submitting them to Nasdaq for display in the quote montage. 
Likewise, the Automated Confirmation Transaction Service (``ACT'') will 
only accept trade reports up to six places beyond the decimal point and 
disseminate decimal priced transaction reports to four decimal points 
to the tape.

III. Discussion

    The Commission has reviewed carefully the proposed rule change, and 
finds that it is consistent with the Act and the rules and regulations 
promulgated thereunder.\5\ Specifically, the Commission finds that 
approval of the proposed rule change is consistent with section 
15A(b)(6) \6\ of the Act, in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and 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. The 
Commission believes that uniform open fractional order conversion 
methodology may aid in structuring an orderly transition from 
fractional to decimal pricing. The Commission finds that Nasdaq's 
proposal is narrowly tailored to require only the conversion of open 
fractional orders that reside in the internal systems of NASD member 
firms on the evening prior to the first day a particular security 
commences quoting in decimals. After the conversion, market 
participants will be free to accept orders priced in decimals for any 
number of values beyond the decimal point. The Commission believes 
Nasdaq's approach is reasonable, and that requiring such conversion may 
help to reduce investor confusion, reduce discrepancies in 
reconciliation, and in general, provide for a more orderly transition 
to decimal pricing.
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    \5\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition and capital 
formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78o-3(b)(6).
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    The Commission finds good cause for approving the proposed rule 
change prior to the 30th date after the date of publication of notice 
of the filing in the Federal Register. Notice of the proposal indicated 
that the Commission would consider granting accelerated approval of the 
proposed rule change after a 15-day comment period.\7\ The Commission 
received no comments on the proposal. Given the absence of comments, 
and Nasdaq's resolve to begin decimal pricing in certain Nasdaq 
securities on March 12, 2001, the Commission finds good cause to 
approve the proposal on an accelerated basis to ensure adequate notice 
of the rule in advance of March 12, 2001.
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    \7\ See Securities Exchange Act Release No. 43906 (January 30, 
2001), 66 FR 9115 (February 6, 2001).
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IV. Conclusion

    For the above reasons, the Commission finds that the proposed rule 
change is consistent with the provisions of the Act, in general, and 
with section 15A(b)(6),\8\ in particular.
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    \8\ 15 U.S.C. 78o-3(b)(6)
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    It is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-NASD-01-10), be and hereby is 
approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-5249 Filed 3-2-01; 8:45 am]
BILLING CODE 8010-01-M