[Federal Register Volume 66, Number 132 (Tuesday, July 10, 2001)]
[Notices]
[Pages 36022-36023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17134]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44504; File No. SR-NASD-2001-35]


Self-Regulatory Organizations; Order Granting Accelerated 
Approval to a Proposal Rule Change and Amendment Nos. 1 and 2 Thereto 
by the National Association of Securities Dealers, Inc. Relating to the 
Elimination of the Interval Delay Between Executions in the Nasdaq 
National Market Execution System

July 2, 2001.
    On May 10, 2001, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its subsidiary, the Nasdaq 
Stock Market, Inc. (``Nasdaq''), filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend NASD Rule 4710, 
``Participant Obligations in NNMS,'' to: (i) Eliminate the interval 
delay between executions against the same market maker at the same 
price level in the Nasdaq National Market Execution System (``NNMS'' or 
``SuperSOES''); \3\ and (ii) decrement a market maker's displayed 
quotation when the sum of the number of shares executed against a 
displayed quotation as a result of odd lot orders and the portion of 
mixed lot orders in excess of a round lot equals one normal unit of 
trading. On May 24, 2001, Nasdaq filed Amendment No. 1 to the proposed 
rule change.\4\ The proposed rule change and Amendment No. 1 were 
published for comment in the Federal Register on June 5, 2001.\5\ No 
comments were received regarding the proposal, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission approved the NNMS, a new platform for trading 
Nasdaq National Market (``NNM'') securities, on January 14, 2000. 
See Securities Exchange Act Release No. 42344 (January 14, 2000), 65 
FR 3897 (January 25, 2000) (order approving File No. SR-NASD-99-11). 
Nasdaq plans to implement SuperSOES on July 9, 2001.
    \4\ See Letter from John M. Yetter, Assistant General Counsel, 
Nasdaq, to Katherine A. England, Division of Market Regulation, 
Commission, dated May 22, 2001 (``Amendment No. 1''). In Amendment 
No. 1, Nasdaq revised the text of NASD Rule 4710(b)(1) to replace a 
reference to an ``NNMS security'' with a reference to ``NNM 
security.''
    \5\ See Securities Exchange Act Release No. 44365 (May 29, 
2001), 66 FR 30252.
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    On June 5, 2001, Nasdaq filed Amendment No. 2 to the proposed rule 
change.\6\ This order approves the proposed rule change, as amended, on 
an accelerated basis.
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    \6\ See Letter from Johm M. Yetter, Assistant General Counsel, 
Nasdaq, to Katherine A. England, Division of Market Regulation, 
Commission, dated June 4, 2001 (``Amendment No. 2''). In Amendment 
No. 2, the Nasdaq added ``the sum of'' to the proposed rule text of 
NASD Rule 4710(b)(1)(C)(ii) to clarify the operation of the revised 
decrementation feature of SuperSOES. This is a technical amendment 
and is not subject to notice and comment.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities association \7\ and, in 
particular, the requirements of section 15A of the Act \8\ and the 
rules and regulations thereunder. Specifically, the Commission finds 
that the proposal to eliminate the interval delay between executions 
against a market maker's quotation at the same price level for all 
transactions in SuperSOES is consistent with section 15A(b)(6) of the 
Act \9\ because it may minimize the risk of orders queuing within 
SuperSOES, thereby helping to ensure the efficient and orderly 
operation of SuperSOES.\10\ In addition, the Commission believes that 
the prompt execution of orders in SuperSOES should facilitate the price 
discovery process, to the benefit of all market participants. The 
Commission expects Nasdaq to carefully monitor the effect on the Nasdaq 
market and on market participants of eliminating the interval delay 
between executions in SuperSOES.
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    \7\ 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).
    \8\ 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ In response to market participants' concerns that 
significant order flow could potentially produce queuing within the 
system, Nasdaq previously filed proposals with the Commission that 
revised the interval delay parameter in SuperSOES to: (i) Reduce the 
interval delay between executions against a market maker's quotation 
in Nasdaq 100 Index securities from five seconds to two seconds; and 
(ii) eliminate the interval delay between executions against a 
market maker's quotation during the first day of trading of 
securities of initial public offerings and secondary offerings. See 
Securities Exchange Act Release Nos. 43720 (December 13, 2000), 65 
FR 79909 (December 20, 2000) (notice of filing and immediate 
effectiveness of File No. SR-NASD-00-67); and 44142 (April 2, 2001), 
66 FR 18331 (April 6, 2001) (order approving File No. SR-NASD-01-
03). According to Nasdaq, market participants support the current 
proposal to eliminate the interval delay for all transactions in 
SuperSOES to further minimize the risk of queuing within the system.
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    The Commission also finds that the proposed change in the 
decrementation feature of SuperSOES will facilitate the maintenance of 
a fair and orderly market by providing more accurate information about 
the size of market maker's displayed quotations, and by

[[Page 36023]]

helping market makers to manage their quotations.
    Nasdaq seeks to implement the proposed changed with the planned 
implementation of SuperSOES on July 9, 2001. To provide market 
participants with adequate notice of the changes and to allow 
sufficient time for broker-dealers and service bureaus to modify their 
electronic systems to conform to the proposed changes, Nasdaq has 
requested that the Commission find good cause for approving the 
proposal, as amended, prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register.
    The Commission notes that the proposal and Amendment No. 1 were 
noticed for the full 21-day comment period and the Commission received 
no comments regarding the proposal, as amended. As discussed more fully 
above, the Commission believes that the proposed changes are designed 
to facilitate the efficient and orderly operation of the Nasdaq market. 
The Commission also believes that it is important to provide market 
participants with adequate time to modify their electronic systems to 
conform to the proposed changes. Accordingly, the Commission finds good 
cause pursuant to section 19(b)(2) of the Act \11\ to approve the 
proposed rule change, as amended, on an accelerated basis, prior to the 
thirtieth day after the date of publication of notice of filing thereof 
in the Federal Register.
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 15 U.S.C. 78s(b)(2).
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    For the foregoing reasons, the Commission finds that the proposal, 
as amended, is consistent with the requirements of the Act and rules 
and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-NASD-2001-35), as amended, 
is approved on an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-17134 Filed 7-9-01; 8:45 am]
BILLING CODE 8010-01-M