[Federal Register Volume 67, Number 167 (Wednesday, August 28, 2002)]
[Notices]
[Pages 55290-55292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21955]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46398; File No. SR-NASD-2002-114]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Relating to the Availability of Nasdaq 
Services and Facilities Until 6:30 PM Eastern Time After the 
Introduction of Nasdaq's SuperMontage System

August 22, 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 August 19, 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'' or ``SEC'') 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\ The NASD provided the Commission with notice of its intent 
to file the proposed rule change on May 24, 2002. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). Nasdaq asked the 
Commission to waive the 30-day operative delay.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq filed this proposed rule change setting forth the operation 
of Nasdaq's current after-hours pilot program extending the 
availability of several Nasdaq services and facilities until 6:30 PM 
\6\ after the introduction of Nasdaq's SuperMontage system. Although 
the proposed rule change is

[[Page 55291]]

effective upon filing with the Commission, Nasdaq will implement the 
rule change within 30 days after successful completion of SuperMontage 
user acceptance testing. The text of the proposed rule change is below. 
Proposed additions are in italics.
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    \6\ All references to time are Eastern Time.
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4701. Definitions
    (a) through (ii) No Change.
    (jj) The term ``End-of-Day'' shall mean, for orders so designated, 
that if after entry into the NNMS, the order is not fully executed, the 
order (or unexecuted portion thereof) shall remain available for 
potential execution and/or display until market close (4 p.m. Eastern 
Time), and thereafter for potential execution until 6:30 p.m. Eastern 
Time, after which it shall be returned to the entering party.
* * * * *
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) through (E) No Change.
    (b) Directed Orders A participant may enter a Directed Order into 
the NNMS to access a specific Attributable Quote/Order displayed in the 
Nasdaq Quotation Montage, subject to the following conditions and 
requirements:
    (1) Unless the Quoting Market Participant to which a Directed Order 
is being sent has indicated that it wishes to receive Directed Orders 
that are Liability Orders, a Directed Order must be a Non-Liability 
Order, and as such, at the time of entry must be designated as:
    (A) an ``All-or-None'' order (``AON'') that is at least one normal 
unit of trading (e.g. 100 shares) in excess of the Attributable Quote/
Order of the Quoting Market Participant to which the order is directed; 
or
    (B) a ``Minimum Acceptable Quantity'' order (``MAQ''), with a MAQ 
value of at least one normal unit of trading in excess of Attributable 
Quote/Order of the Quoting Market Participant to which the order is 
directed. Nasdaq will append an indicator to the quote of a Quoting 
Market Participant that has indicated to Nasdaq that it wishes to 
receive Directed Orders that are Liability Orders.
    (2) A Directed Order may have a time in force of 3 to 99 minutes, 
or may be designated as a ``Day'' order, or an ``End-of-Day'' order.
    (3) Directed Orders shall be processed pursuant to Rule 4710(c).
    (c) through (f) 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 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
    In October of 1999, the Commission approved a pilot program that 
made available certain Nasdaq systems and facilities until 6:30 PM. 
Under the pilot, Nasdaq provides, until 6:30 PM, the following 
services: (1) SelectNet Service (``SelectNet''); (2) Automated 
Confirmation Transaction Service (``ACT''); (3) Nasdaq Quotation 
Dissemination Service (``NQDS''); and (4) Nasdaq Trade Dissemination 
Service (``NTDS''). The posting of quotations and/or trading of 
securities by NASD members during the period of time after Nasdaq's 
normal market close and before 6:30 PM was, and remains, voluntary. 
Since its original approval, this pilot program has been extended 
numerous times and has operated continuously.\7\ Nasdaq intends to 
continue to provide its facilities for voluntary after-hours trading 
after the introduction of SuperMontage.
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    \7\ Nasdaq's after-hour pilot is scheduled to terminate on 
September 1, 2002. See Securities Exchange Act Release No. 45503 
(March 5, 2002), 67 FR 10955 (March 11, 2002)(SR-NASD-2002-29).
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    After Nasdaq launches SuperMontage, market participants who elect 
to conduct business after the 4 PM Nasdaq market close will do so in 
same manner as they do today. Quotes entered after hours will continue 
to be disseminated by Nasdaq via NQDS,\8\ and Nasdaq's ACT system will 
continue to accept trade reports up to 6:30 PM. Nasdaq will also 
continue to disseminate transactions report to the public via the 
consolidated Securities Information Processor (``SIP''). The pilot will 
continue to operate under the same terms and conditions set forth in 
the Commission's previous approval order,\9\ including the continued 
mandating of 90-second trade reporting until 6:30 PM. The only changes 
to the pilot will be ones of terminology. Currently, after-hours market 
participants use SelectNet to communicate with each other. In the 
SuperMontage environment, this after-hours service will be provided 
using the Directed Order functionality of the SuperMontage system, a 
functionality that relies extensively on the current SelectNet 
technology. While the SelectNet system name will no longer be used, 
market participants that wish to communicate with each other after-
hours using a Nasdaq system will use directed orders that operate 
exactly the same way and provide the same features that after-hours 
SelectNet orders do today. Similarly, today's SelectNet allows a market 
participant to enter an order designated as an ``E'' indicating that 
the entering party wishes it to remain in effect after the 4 PM market 
close, until 6:30 PM, when all Nasdaq systems close.\10\ In the 
SuperMontage environment, such orders will be re-designated as ``End-
of-Day'' (``EOD'') orders, but will provide exactly the same 
functionality as an extended-hours ``E'' order in today's SelectNet. 
The Directed Order process will remain, like its SelectNet predecessor, 
the sole Nasdaq-provided system for participating in after-hours 
trading.
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    \8\ The best bid and best offer in a particular security will be 
sent to the consolidated Securities Information Processor (``SIP'') 
for full public dissemination.
    \9\ See Securities Exchange Act Release No. 42003 (October 13, 
1999), 64 FR 56554 (October 20, 1999)(SR-NASD-99-57).
    \10\ End-of-Day orders may be entered throughout the day 
starting at 7:30 AM until the close of all Nasdaq systems at 6:30 
PM. Once entered, such orders shall be continuously available for 
execution by those receiving them until 6:30 PM, unless cancelled 
prior to that time by the entering party. Orders not executed by the 
6:30 PM system-close time will be cancelled by the system, and a 
notification of that cancellation will be sent to the entering 
party. As such, no EOD order will carry over to the next trading 
day.
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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,\11\ in general and with 
section 15A(b)(6) of the Act,\12\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities.
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    \11\ 15 U.S.C. 78o-3.
    \12\ 15 U.S.C. 78o-3(6).

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[[Page 55292]]

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, as amended.

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

    Written comments were neither solicited nor received.

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 \13\ and 
Rule 19b-4(f)(6) thereunder.\14\ 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the 30-day operative 
delay. The Commission believes waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Acceleration of the operative date will allow Nasdaq to implement the 
change in terminology immediately, thereby ensuring that the proper 
terminology is in place for the launch of SuperMontage. For these 
reasons, the Commission designates the proposal to be effective and 
operative upon filing with the Commission.\15\
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    \15\ 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-2002-114 and should be 
submitted by September 18, 2002.
    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21955 Filed 8-27-02; 8:45 am]
BILLING CODE 8010-01-P