[Federal Register Volume 67, Number 129 (Friday, July 5, 2002)]
[Notices]
[Pages 44914-44916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-17000]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46155; File No. SR-NASD-2002-92]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to the Day and Good-Till-Cancelled Order Designations for Non-Directed 
Orders and Establishing Time Priority in Nasdaq's Future Order Display 
and Collector Facility (``NNMS'' or ``SuperMontage'')

July 1, 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 July 1, 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 (``SEC'' or ``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 proposes to establish ``Good-till-Cancelled'' (``GTC'') and 
``Day'' designations for Non-Directed Orders and clarify the processing 
of such orders when held in Nasdaq's future Order Display and Collector 
Facility (``NNMS'' or ``SuperMontage''). In addition, to clarify the 
SuperMontage capability to accept, retain, display, and execute orders 
at multiple price levels, Nasdaq also proposes to remove the term 
``marketable'' from the text of Rule 4706(a)(1)(B). If approved, Nasdaq 
will implement this rule change within 30 days after successful 
completion of SuperMontage user acceptance testing.
    Proposed new language is italicized and deleted text is bracketed.
4701. Definitions
    (a) through (hh) No Change.
    (ii) The term ``Good-till-Cancelled'' shall mean, for orders so 
designated, that if after entry into NNMS, the order is not fully 
executed, the order (or unexecuted portion thereof) shall remain 
available for potential display and/or execution until cancelled by the 
entering party, or until 1 year after entry, whichever comes first.
* * * * *
4706. Order Entry Parameters
    (a) Non-Directed Orders--
    (1) General. The following requirements shall apply to Non-Directed 
Orders Entered by NNMS Market Participants:
    (A) No Change.
    (B) A Non-Directed Order must be a market or [marketable] limit 
order, must be a round lot or a mixed lot, must indicate whether it is 
a buy, short sale, short-sale exempt, or long sale, and if entered by a 
Quoting Market Participant may be designated as ``Immediate or 
Cancel''[.], or as a ``Day'' or a ``Good-till-Cancelled'' order. If a 
priced order designated as ``Immediate or Cancel'' (``IOC'') is not 
immediately executable, the unexecuted order (or portion thereof) shall 
be returned to the sender. If a priced order designated as a ``Day'' 
order is not immediately executable, the unexecuted order (or portion 
thereof) shall be retained by NNMS and remain available for potential 
display/execution until it is cancelled by the entering party, or until 
4:00 p.m. Eastern Time on the day such order was submitted, whichever 
comes first, whereupon it will returned to the sender. If the order is 
designated as ``Good-till-Cancelled'' (``GTC''), the order (or 
unexecuted portion thereof) will be retained by NNMS and remain 
available for potential display/execution until cancelled by the 
entering party, or until 1 year after entry, whichever comes first. 
Starting at 7:30 a.m., until the 4:00 p.m. market close, IOC and Day 
Non-Directed Orders may be entered into NNMS (or previously entered 
orders cancelled), but such orders entered prior to market open will 
not become available for execution until 9:30 a.m. Eastern Time. GTC 
orders may be entered (or previously entered GTC orders cancelled) 
between the hours 7:30 a.m. to 6:30 p.m. Eastern Time, but such orders 
entered prior to market open, or GTC orders carried over from previous 
trading days, will not become available for execution until 9:30 a.m. 
Eastern Time. Exception: Non-Directed Day and GTC orders may be 
executed prior to market open if required under Rule 4710(b)(3)(B).
    (C) through (E) No Change.
    (F)(2) No Change.
    (b) through (f) No Change.
* * * * *
4710. Participant Obligations in NNMS
    (a) No Change.
    (b) Non-Directed Orders

[[Page 44915]]

    (1) No Change.
    (A) No Change.
    (B) Processing of Non-Directed Orders--Upon entry of a Non-Directed 
Order into the system, the NNMS will ascertain who the next Quoting 
Market Participant in queue to receive an order is (based on the 
algorithm selected by the entering participant, as described in 
subparagraph (b)(B)(i)-(iii) of this rule), and shall deliver an 
execution to Quoting Market Participants that participate in the 
automatic-execution functionality of the system, or shall deliver a 
Liability Order to Quoting Market Participants that participate in the 
order-delivery functionality of the system; provided however, that the 
system always shall deliver an order (in lieu of an execution) to the 
Quoting Market Participant next in queue when the participant that 
entered the Non-Directed Order into the system is a UTP Exchange that 
does not provide automatic execution against its Quotes/Orders for 
Nasdaq Quoting Market Participants and NNMS Order Entry Firms. Non-
Directed Orders entered into the NNMS system shall be delivered to or 
automatically executed against Quoting Market Participants' Displayed 
Quotes/Orders and Reserve Size in strict price/time priority, as 
described in the algorithm contained in subparagraph (b)(B)(i) of this 
rule. Alternatively, an NNMS Market Participant can designate that its 
Non-Directed Orders be executed based on a price/time priority that 
considers ECN quote-access fees, as described in subparagraphs 
(b)(B)(ii) of this rule, or executed based on price/size/time priority, 
as described in subparagraph (b)(B)(iii) of this rule. The individual 
time priority of each Quote/Order submitted to NNMS shall be assigned 
by the system based on the date and time such Quote/Order was received. 
Remainders of Quote/Orders reduced by execution, if retained by the 
system, shall retain the time priority of their original entry.
    (i) through (iv) No Change.
    (C) through (E) No Change.

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
    Under the proposal, SuperMontage will accept, retain, display, and 
execute orders at multiple price levels. The system will allow Quoting 
Market Participants \3\ to enter Non-Directed Orders and designate that 
those orders should be: (1) returned to them if they are not 
immediately executed (i.e., an Immediate or Cancel or IOC order),\4\ 
(2) if not immediately executed or thereafter cancelled, held in the 
SuperMontage system for potential display and/or execution until the 
4:00 p.m., Nasdaq market close, and then returned to them (i.e., a Day 
order), or (3) if not immediately executed or thereafter cancelled, 
held in the SuperMontage system for potential display (if non-
marketable) and/or execution for up to one year and then to be purged 
by Nasdaq (i.e., a Good-till-Cancelled or GTC order).\5\ In this 
filing, Nasdaq seeks to establish both the GTC and Day order 
designations for Non-Directed Orders, and clarify for market 
participants how the time priority among those orders is established 
and how such orders will, or will not, be executed during the trading 
day.
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    \3\ The term ``Quoting Market Participants'' refers to NNMS 
Market Makers, NNMS Electronic Communication Networks (``ECNs''), 
and Unlisted Trading Privilege Exchange Specialists. See Rule 
4701(cc).
    \4\ If no designation is selected by the entering party, 
SuperMontage will automatically designate such orders as IOC.
    \5\ GTC orders that remain in the system for 1 year will be 
purged after the close on the anniversary date of their entry. If 
this anniversary date falls on a date when the Nasdaq market is 
closed, the order will be purged after the close on the next 
business day.
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a. Retention and Processing of Non-Directed Orders Designated as Day or 
GTC Orders
    As currently contemplated, SuperMontage will have four distinct 
time periods over the course of the trading day: (1) the Pre-Market 
Session (7:30 to 9:29:29 Eastern Time), (2) the Pre-Open Unlocking/
Uncrossing Process (9:29:30 a.m. to 9:29:59 Eastern Time),\6\ (3) 
Normal Market Day (9:30 a.m. to 4:00 p.m. Eastern Time), and (4) the 
After-Hours Session (4:00 to 6:30 p.m. Eastern Time). \7\ During these 
time periods, Non-Directed Orders that are designated Day or GTC will 
be processed as follows:
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    \6\ Nasdaq recently filed with the Commission a proposal seeking 
to establish a Pre-Open Unlocking/Uncrossing Process for 
SuperMontage. See Securities Exchange Act Release No. 45965 (May 20, 
2002), 67 FR 36659 (May 28, 2002) (Notice of File No. NASD-2002-42).
    \7\ Nasdaq will soon formally file with the Commission a 
proposal clarifying that the After-Hours session in a SuperMontage 
environment will operate in a manner similar to Nasdaq's current 
after-hours program.
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1. Pre-Market Session
    The Pre-Market Session runs from 7:30:00 to 9:29:29 a.m. Eastern 
Time. During this time, users may enter and cancel GTC and Day Non-
Directed Orders. Day Orders entered into the system in the pre-market 
period, or GTC orders entered into the system in the pre-market period 
or carried over from a previous day, though displayable, will not be 
available for execution until the Pre-Open Unlocking/Uncrossing Process 
set forth in proposed Rule 4710(b)(3)(B) commences at 9:29:30 a.m. 
Eastern Time, if approved by the Commission.\8\
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    \8\ During the Pre-Market Session executions can only occur 
through the SuperMontage Directed Order process. Telephone 
conversation between Thomas Moran, Office of the General Counsel, 
Nasdaq, and Marc McKayle, Special Counsel, Division of Market 
Regulation, Commission, on July 1, 2002.
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2. Pre-Open Unlocking/Uncrossing Process
    If approved, the Pre-Open Unlocking/Uncrossing Process will run 
from 9:29:30 to 9:29:59 Eastern Time.\9\ During the Pre-Market 
Unlocking/Uncrossing Process, GTC and Day orders will continue to be 
displayable and, starting at 9:29:30 a.m., be automatically executed if 
necessary to cure a locked/crossed market condition. Quotes and orders 
from automatic execution participants will receive execution reports, 
and SuperMontage delivery participants will have the execution 
delivered to them for acceptance, partial acceptance, or decline. \10\ 
Once this unlocking/uncrossing is completed, the system will resume 
processing incoming quotes, orders, and cancels until the 9:30 a.m. 
market open. If a Day or GTC order arrives during this period, it will 
be executed if it would lock or cross the market. If the new Day or GTC 
order does not lock/cross the market, it will be retained by 
SuperMontage for display and/or execution during the remainder of the 
trading day for Day orders and for GTC orders, and for GTC orders each 
day thereafter starting at 9:29:30 a.m. until the 4:00 p.m. normal 
market close.
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    \9\ See note 6, supra.
    \10\ Once dispatched to an order delivery market participant, an 
execution/order may not be cancelled.
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3. Normal Market Session
    The Normal Market Session runs from 9:30 a.m. to 4:00 p.m. Eastern 
Time. During this period Day and GTC orders may be entered by Quoting 
Market

[[Page 44916]]

Participants at any time and will be retained by the system until they 
are executed or cancelled. Each GTC and Day order will, like all other 
representations of trading interest in SuperMontage, be individually 
time-stamped and executed if appropriate. Remainders of quote/orders 
reduced by execution, and retained by the system, will retain the time 
priority of their original entry.
4. After-Hours Session
    If approved, the After-Hours Session in a SuperMontage environment 
will run from 4:00 p.m. (Market close) to 6:30 p.m. Eastern Time.\11\ 
At market close, SuperMontage Non-Directed Order Processing ends for 
the day, and all Day orders expire and are returned to the entering 
party. GTC orders that have not been executed or cancelled will be 
retained by the system for the next trading session. Such orders will 
not, however, be available for execution in the after-hours session. 
During the after-hours session, Quoting Market Participants may 
continue to enter new GTC orders and cancel any previously entered GTC 
order. GTC orders are not displayed during the after-hours session. Day 
orders may not be entered during the after-hours session.
b. Time Priority in SuperMontage
    The default priority for executing Non-Directed Orders in 
SuperMontage is price/time. As such, the system, unless requested 
otherwise by the party entering the Non-Directed Order,\12\ will access 
the highest buy prices or the lowest sell prices residing in the 
system.\13\ Generally, among equally priced buying interest, or equally 
priced selling or market-priced interest, the system is programmed to 
automatically access the quotes/orders that were entered first into the 
system.\14\ This time priority attaches to a quote/order based upon the 
date and time it was entered into NNMS and remains until the quote/
order is executed in full or it is cancelled by the entering party or 
by NNMS. The ability to execute against a particular quote/order will 
not impact its time priority. For example, a GTC order entered at 7:45 
a.m. is not executable, but such an order will have time priority over 
all other orders entered after that time. Similarly, that GTC order 
would retain its time priority over all other orders entered on days 
after that GTC order was entered into NNMS. In short, if NNMS allows 
the entry of the quote/order at a particular point in the trading day, 
the quote/order's time priority is established at that time.
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    \11\ See note 7, supra.
    \12\ A party entering a Non-Directed Order may also elect to 
have it order interact in the system on a price/time basis that 
takes into account access fees or on a price/size/time basis. See 
Rule 4710(b)(1)(B)(i), (ii) and (iii).
    \13\ If a Non-Directed Order is entered by a NNMS Market Maker 
or ECN, NNMS will, before sending it to a Quoting Market 
Participant, first attempt to match the order off against the 
entering party's own quote/order, if that quote/order is at the best 
price in Nasdaq. See Rule 4710(b)(1)(B)(iv)(a).
    \14\ Parties entering Non-Directed Orders also have an option to 
preference such orders to a particular market participant. See Rule 
4710(b)(1)(B)(iv)(b).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\15\ in general, and with 
Section 15A(b)(6) of the Act,\16\ in particular, in that the proposals 
are 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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    \15\ 15 U.S.C. 78o-3.
    \16\ 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

    Nasdaq neither solicited nor received written comments 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.\17\
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    \17\ Nasdaq has requested that the Commission find good cause 
pursuant to Section 19(b)(2) of the Act to approve the proposed rule 
change prior to the 30th day of publication in the Federal Register.
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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 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 USC 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-2002-92 and 
should be submitted by July 22, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-17000 Filed 7-3-02; 8:45 am]
BILLING CODE 8010-01-P