[Federal Register Volume 67, Number 91 (Friday, May 10, 2002)]
[Notices]
[Pages 31858-31859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11745]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45851; File No. SR-NASD-2002-57]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. to Extend a Pilot Amendment to NASD Rule 4120 
Regarding Nasdaq's Authority To Initiate and Continue Trading Halts

April 30, 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 April 22, 2002, 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'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by Nasdaq. Nasdaq filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act,\3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission.\5\ 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Nasdaq asked the Commission to waive the 5-day pre-filing 
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to extend a pilot amendment to NASD Rule 4120, 
which clarified 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. The proposal would 
extend the pilot through September 30, 2002. There is no new proposed 
rule language.

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 its proposal and discussed any 
comments it received regarding the proposal. 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 May 11, 2001, Nasdaq filed with the Commission a proposed rule 
change to clarify Nasdaq's authority to initiate and continue trading 
halts in circumstances where Nasdaq believes that extraordinary market 
activity in a

[[Page 31859]]

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.\6\ On July 27, 2001, Nasdaq filed 
Amendment No. 1 to the proposed rule change, which requested that the 
Commission approve the proposed rule change on a three-month pilot 
basis, expiring on October 27, 2001.\7\ Also on July 27, 2001, the 
Commission approved the proposed rule change and Amendment No. 1.\8\ On 
September 27, 2001, Nasdaq filed a proposed rule change to extend the 
pilot period for the rule through January 27, 2002,\9\ and on January 
23, 2002, Nasdaq filed to extend the pilot period through April 30, 
2002.\10\
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    \6\ Securities Exchange Act Release No. 44307 (May 15, 2001), 66 
FR 28209 (May 22, 2001)(SR-NASD-2001-37).
    \7\ See July 27, 2001 letter from Thomas P. Moran, Associate 
General Counsel, Nasdaq, to Alton Harvey, Division of Market 
Regulation, Commission.
    \8\ Securities Exchange Act Release No. 44609 (July 27, 2001), 
66 FR 40761 (August 3, 2001)(SR-NASD-2001-37).
    \9\ Securities Exchange Act Release No. 44870 (September 28, 
2001), 66 FR 50701 (October 4, 2001) (SR-NASD-2001-60).
    \10\ Securities Exchange Act Release No. 45344 (January 28, 
2002), 67 FR 5022 (February 3, 2002)(SR-NASD-2002-14).
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    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 in an affected security until the system 
problem can be rectified. In the period during which the rule change 
has been in effect, Nasdaq has not had occasion to initiate a trading 
halt under the rule. Nevertheless, Nasdaq believes that the rule is an 
important component of its authority to maintain the fairness and 
orderly structure of the Nasdaq market. Accordingly, Nasdaq believes 
the rule should remain in effect on an uninterrupted basis.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with the provisions 
of Section 15A of the Act,\11\ with the provisions of Section 15A(b)(6) 
of the Act,\12\ which requires, among other things, that a registered 
national securities association's rules 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.
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will impose no 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

    Instinet Corporation (``Instinet'') has commented on the proposed 
rule change. Nasdaq has filed a proposed rule change to modify the rule 
in certain respects and to make the rule permanent.\13\ Nasdaq believes 
that the amendments to the rule proposed in SR-NASD-2001-75 respond to 
the concerns expressed by Instinet without impairing the flexibility 
that Nasdaq believes the rule must retain in order for the rule to 
assist Nasdaq in meeting its overarching responsibility to maintain the 
fairness and orderly structure of the Nasdaq market. Pending Commission 
action on SR-NASD-2001-75, Nasdaq believes that the pilot period of the 
current rule should be extended to allow the rule to remain in effect 
on an uninterrupted basis.
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    \3\ Securities Exchange Act Release No. 45355 (January 29, 
2002), 67 FR 5351 (February 5, 2002)(SR-NASD-2001-75).
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Because the foregoing 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 it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and 
Rule 19b-4(f)(6) thereunder.\15\ At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate such 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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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 5-day pre-filing 
notice requirement and the 30-day operative delay. The Commission finds 
good cause to waive the 5-day pre-filing notice requirement and the 30-
day operative delay because such designation is consistent with the 
protection of investors and the public interest. Acceleration of the 
operative date will allow the pilot to operate continuously through 
September 30, 2002. For these reasons, the Commission finds good cause 
to waive both the 5-day pre-filing requirement and the 30-day operative 
waiting period.\16\
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    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
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 proposal 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 number SR-NASD-2002-14 and should be 
submitted by May 31, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-11745 Filed 5-9-02; 8:45 am]
BILLING CODE 8010-01-P