[Federal Register Volume 66, Number 99 (Tuesday, May 22, 2001)]
[Notices]
[Pages 28209-28210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12825]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44307; File No. SR-NASD-2001-37]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Trading Halt Authority

May 15, 2001.
    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 May 11, 2001, the National Association of Securities Dealers, Inc. 
(``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq'' or ``Association''), 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. 
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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend NASD Rule 4120, Trading Halts, to 
clarify the extent of Nasdaq's authority to halt trading in a security 
in response to extraordinary market activity that Nasdaq believes may 
be caused by the misuse or malfunction of an electronic system that is 
operated by, or linked to, Nasdaq. The text of the proposed rule change 
is below. Proposed new language is in italics; proposed deletions are 
in brackets.

* * * * *

4120. Trading Halts

    (a) No change.
    (1)-(5) No change.
    (6) Halt trading in a security listed on Nasdaq when:
    (i) extraordinary market activity in the security is occurring, 
such as the execution of a series of transactions for a significant 
dollar value at prices substantially unrelated to the current market 
for the security, as measured by the national best bid and offer, 
and
    (ii) Nasdaq believes that such extraordinary market activity may 
be caused by the misuse or malfunction of an electronic quotation, 
communication, reporting, or execution system operated by, or linked 
to, Nasdaq.
    (b)(1)-(3) No change.
    (4) Should Nasdaq determine that a basis exists under Rule 
4120(a)[(1), (a)(2), (a)(3), (a)(4), or (a)(5)] for initiating a 
trading halt, the commencement of the trading halt will be effective 
simultaneously with appropriate notice in the Nasdaq ``NEWS'' frame.
    (5) No change.
    (6) A trading halt initiated under Rule 4120(a)(6) shall be 
terminated as soon as Nasdaq determines either that the system 
misuse or malfunction that caused the extraordinary market activity 
has been corrected or that system misuse or malfunction is not the 
cause of the extraordinary market activity.
* * * * *

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

1. Purpose
    The purpose of the proposed rule change is clarify Nasdaq's 
authority to initiate and continue trading halts in circumstances where 
Nasdaq believes that extraordinary market activity in a security listed 
on Nasdaq may be caused by the misuse or malfunction of an electronic 
quotation, communication, reporting, or execution system operated by, 
or linked to, Nasdaq. NASD Rule 4120 provides Nasdaq with authority to 
halt trading in securities in a number of circumstances in which Nasdaq 
deems a trading halt necessary to protect investors and the public 
interest. The specific bases for initiating a trade halt that are 
currently listed in Rule 4120 focus primarily on ensuring that 
investors have access to material news about an issuer. Thus, trading 
may be halted to allow the issuer to disseminate material news or to 
allow Nasdaq to request from the issuer information relating to 
material news or other information that is necessary to protect 
investors and the public interest. Trading of a security may also be 
halted in certain circumstances to ensure coordination with a halt of 
the same or a related security imposed by another market. The decision 
to halt trading and to resume trading in a particular security are 
communicated to market participants via the Nasdaq ``NEWS'' frame of 
the Nasdaq Workstation.
    As a result of the decentralized and electronic nature of the 
market operated by Nasdaq, the price and volume of transactions in a 
Nasdaq-listed security may be affected by the misuse or malfunction of 
electronic systems, including systems that are linked to, but not 
operated by, Nasdaq. In circumstances where misuse or malfunction 
results in extraordinary market activity, Nasdaq believes that it may 
be appropriate to halt trading until the system problem can be 
rectified. As is true for all trading halts initiated under Rule 4120, 
a decision to halt trading would require a determination that the 
action is necessary to protect investors and the public interest. Thus, 
a misuse or malfunction that has a limited effect on a particular 
security may not warrant a trading halt. In extraordinary 
circumstances, however, the system misuse or malfunction may generate 
significant misinformation about the demand for a particular security 
in a manner that distorts prices to the detriment of investors.
    Under the proposed rule change, Nasdaq would be authorized to 
initiate a halt if it believes that a particular insurance of 
extraordinary market activity may be caused by system misuse of 
malfunction. However, the trading halt would continue only until Nasdaq 
determines either that the system misuse or malfunction that caused the 
extraordinary market activity has been corrected or that system misuse 
or malfunction is not the cause of the extraordinary market activity. 
Thus, the existence of extraordinary market activity, unrelated to an 
instance of system misuse or malfunction, would

[[Page 28210]]

not provide a basis for continuing a trade halt.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A(b)(6) of the Act,\3\ which requires, 
among other things, that the Association's rules must be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, and, in general, to protect 
investors and the public interest. Nasdaq believes the proposed rule 
change is consistent with these requirements because the amendment will 
provide Nasdaq with clearer authority to respond to and alleviate 
market disruptions and thereby protect investors and the public 
interest.
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    \3\ 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

    Within 35 days of the date 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 NASD consents, the Commission will:
    A. By order approve such 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 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 Nasdaq. 
All submissions should refer to file number SR-NASD-2001-37 and should 
be submitted by June 12, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-12825 Filed 5-21-01; 8:45 am]
BILLING CODE 8010-01-M