[Federal Register Volume 67, Number 111 (Monday, June 10, 2002)]
[Notices]
[Pages 39768-39769]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14431]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46013; File No. SR-NASD-2002-55]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to a Proposed Rule Change 
Relating to the Minimum Life of Directed Orders in Nasdaq's 
SuperMontage System and the Minimum Life of SelectNet Orders

May 31, 2002.
    On April 18, 2002, 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 (``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: (1) Establish a minimum life 
of five seconds for Directed Orders in Nasdaq's future Order Display 
and Collector Facility (``NNMS'' or ``SuperMontage''), and (2) reduce 
from ten seconds to five seconds the minimum time period before an 
order entered into Nasdaq's SelectNet system may be cancelled by the 
entering party. The proposed rule change was published for comment in 
the Federal Register on May 1, 2002.\3\
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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. 45813 (April 24, 
2002), 67 FR 21792.
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    The Commission received one comment regarding the proposal.\4\ 
According to this one commenter, the reduction from ten seconds to five 
seconds of the minimum life of SelectNet orders was both justified and 
beneficial, and would reduce opportunity costs as well as increase 
market efficiency. The commenter also believes that, ``[b]ased on the 
current performance of the SelectNet system, the risk of rejected 
executions with a 5 second delay is almost zero. [Further, c]urrent 
SelectNet performance levels justify further cutting the delay down to 
as little as one second.''
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    \4\ See e-mail comment from Joshua Levine to [email protected], Commission, dated May 15, 2002.
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    The Commission finds that the proposed rule change is consistent 
with the requirements of section 15A of the Act \5\ and the rules and 
regulations thereunder. Specifically, the Commission finds that the 
proposed rule change is consistent with Section 15(A)(b)(6),\6\ which 
provides that the rules of the association be designed 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. Nasdaq represents that the 
average time for a SelectNet order to be delivered to a recipient is 
0.5 seconds, and that this standard will be maintained with Directed 
Orders in SuperMontage.\7\ The Commission finds that the proposal to 
establish a minimum life of five seconds for Directed Orders in 
SuperMontage is consistent with section 15A(b)(6) of the Act \8\ 
because it should provide market participants with a reasonable 
opportunity to respond to incoming orders before they are cancelled, 
while

[[Page 39769]]

limiting the exposure of order senders to potential inferior execution 
in a volatile market. In addition, the Commission finds that 
establishing a five-second minimum life period for both Directed Orders 
in SuperMontage and for SelectNet orders should help to provide clarity 
and uniformity of minimum order life parameters across both systems 
during the phase-in period.\9\ Nasdaq expects to implement both rule 
changes on July 1, 2002.
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    \5\ 15 U.S.C. 78o-3.
    \6\ 15 U.S.C. 78o-3(b)(6).
    \7\ Telephone conversation between Thomas Moran, Associate 
General Counsel, Nasdaq, and Sapna C. Patel, Attorney, Division of 
Market Regulation, Commission, on May 31, 2002.
    \8\ 15 U.S.C. 78o-3(b)(6).
    \9\ Nasdaq intends to introduce SuperMontage through a phased 
roll-out process where limited numbers of securities will transition 
to trading in the new SuperMontage environment under new rules, 
while the remainder will continue to trade in Nasdaq's current 
environment. Nasdaq represents that, during this transition, both 
SuperMontage and SelectNet will continue to operate, and a single 
uniform minimum order cancellation time parameter will be needed to 
govern both systems.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change 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,\10\ that the proposed rule change (SR-NASD-2002-55) is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14431 Filed 6-7-02; 8:45 am]
BILLING CODE 8010-01-P