[Federal Register Volume 67, Number 53 (Tuesday, March 19, 2002)]
[Notices]
[Pages 12631-12633]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6510]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45554; File No. SR-NASD-2001-97]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the National Association of 
Securities Dealers, Inc. Relating to the Elimination of Interval Delays 
in Nasdaq's SuperMontage System

March 13, 2002.
    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 January 2, 2002, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association''), through its subsidiary, the Nasdaq 
Stock Market, Inc. (``Nasdaq''), filed with the Securities

[[Page 12632]]

and Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by Nasdaq. On March 7, 2002, the Nasdaq filed Amendment 
No. 1 to the proposed rule change.\3\ 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 letter from Thomas P. Moran, Associate General Counsel, 
Nasdaq, to Katherine A. England, Assistant Director, Division of 
Market Regulation, Commission, dated March 6, 2002 (``Amendment No. 
1''). In Amendment No. 1, Nasdaq made some technical corrections to 
the proposed rule text and to the proposed rule change. In addition, 
Nasdaq added a footnote to clarify that the 5-second interval delay 
will be retained for odd-lot executions against the same market 
maker. Nasdaq further deleted sentences referring to ``sweep 
orders.'' Nasdaq explained that the concept is no longer a part of 
Nasdaq's future Order Display and Collector Facility (``NNMS'' or 
``SuperMontage'') because with the removal of interval delays, all 
SuperMontage orders will have the ability to immediately execute 
across multiple price levels without delay between those price 
intervals if the terms of the order and quote/orders it interacts 
with will allow it.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 4710(b)(1)(D) to remove delays 
between executions across price levels in SuperMontage. Nasdaq will 
implement this rule change within 30 days after successful completion 
of SuperMontage user acceptance testing.
    Proposed new language is italicized; proposed deletions are in 
[brackets].
* * * * *

4710. Participant Obligations in NNMS

    (a) No Change
    (b)(1)(A) through (b)(1)(C) No Change
    [(D) Interval Delay--After the NNMS system has executed all 
Displayed Quotes/Orders and Reserve Size interest at a price level, the 
following will occur:
    (i) If the NNMS system cannot execute in full all shares of a Non-
Directed Order against the Displayed Quotes/Orders and Reserve Size 
interest at the initial price level and at price two minimum trading 
increments away, the system will pause for 5 seconds before accessing 
the interest at the next price level in the system; provided, however, 
that once the Non-Directed Order can be filled in full within two price 
levels, there will be no interval delay between price levels and the 
system will execute the remainder of order in full; or
    (ii) If the Non-Directed Orders is specially designated by the 
entering market participant as a ``sweep order,'' the system will 
execute against all Displayed Quotes/Orders and Reserve Size at the 
initial price level and the two price levels being displayed in the 
Nasdaq Order Display Facility without pausing between the displayed 
price levels. Thereafter, the system will pause 5 seconds before moving 
to the next price level, until the Non-Directed Order is executed in 
full.
    (iii) The interval delay described in this subparagraph may be 
modified upon Commission approval and appropriate notification to NNMS 
Participants.]
    [E] D All entries in NNMS shall be made in accordance with the 
requirements set forth in the NNMS Users Guide, as published from time 
to time by Nasdaq.
* * * * *

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
    As part of its ongoing preparation for the launch of 
SuperMontage,\4\ Nasdaq is engaging in a continuing review of the 
system's functionality and rules with a view to constant improvement. 
As a result of this review, and in consultation with industry 
professionals, Nasdaq has determined to eliminate system delays between 
executions at different price levels in SuperMontage.\5\
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    \4\ See Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (order approving SuperMontage).
    \5\ Nasdaq will retain the 5 second interval delay between odd-
lot executions against the same market maker contained in NASD Rule 
4710(e)(2)(E). See Amendment No. 1, supra note 3.
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    Currently, the rules of the SuperMontage system provide for 
immediate executions of Non-Directed Orders across the best inside 
price and next two best trading increments away from that inside price. 
If a Non-Directed Order cannot be executed in full against the combined 
displayed and reserve size amounts at those three increments, the 
system will pause 5 seconds before moving to price increments further 
away. If during this delay, additional share amounts appear in the 
system at any of the previous three price increments, the system will 
immediately execute against those shares.\6\
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    \6\ SuperMontage also would have allowed sweep orders, which 
would have immediately executed an order against the three best 
prices in the system before pausing. Nasdaq explained that the 
concept is no longer a part of SuperMontage because with the removal 
of interval delays, all SuperMontage orders will have the ability to 
immediately execute across multiple price levels without delay 
between those price intervals if the terms of the order and quote/
orders it interacts with will allow it. See Amendment No. 1, supra 
note 3.
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    In response to concerns raised by market participants about the 
increased potential for the queuing of orders caused by system delays 
between executions, Nasdaq has determined to eliminate all interval 
delays in the SuperMontage system. In Nasdaq's view, removal of all 
interval delays will result in improved price discovery and a smoother 
functioning market. In addition, elimination of interval delays between 
executions will make the operation of this aspect of SuperMontage 
consistent with Nasdaq's current SuperSOES automatic execution 
functionality that likewise has no such delays.\7\
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    \7\ See Securities Exchange Act Release No. 44504 (July 2, 
2001), 66 FR 36022 (July 10, 2001).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with section 15A(b)(6) \8\ of the Act, in that the proposed 
rule change is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principals of trade, to foster 
cooperation and coordination with person 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 market 
system, and, in general, to protect investors and the public interest.
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    \8\ 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.

[[Page 12633]]

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 self-regulatory organization 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, as amended, 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 File No. 
SR-NASD-2001-97 and should be submitted by April 9, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6510 Filed 3-18-02; 8:45 am]
BILLING CODE 8010-01-P