[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