[Federal Register Volume 67, Number 169 (Friday, August 30, 2002)]
[Notices]
[Pages 55905-55906]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-22218]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46411; File No. SR-NASD-2002-92]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Relating to the 
Establishment of Day and Good-Till-Cancelled Order Designations for 
Non-Directed Orders in the Nasdaq SuperMontage

August 23, 2002.

I. Introduction

    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''), 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 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 (``SuperMontage''). The proposed 
rule change was published for comment in the Federal Register on July 
5, 2002.\3\ The Commission did not receive any comment letters 
regarding the proposal. This order approves the proposed rule change.
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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. 46155 (July 1, 
2002), 67 FR 44914.
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II. Description of the Proposed Rule Change

    Nasdaq proposes to establish Day and GTC order designations for 
Non-Directed Orders in SuperMontage. Under the proposal, a Day order 
would be held in SuperMontage for potential display and/or execution 
(unless cancelled by the entering party) until the 4:00 p.m. Eastern 
Standard Time (``EST'') Nasdaq market close. At the market close, the 
order, if not fully executed, would be removed from the system and 
returned to the entering party. A GTC order would be held in the 
SuperMontage for potential display and/or execution (unless cancelled 
by the entering party) for up to one year. At the market close of the 
one-year anniversary date, the order, if not fully executed, would be 
removed from the Nasdaq system and returned to the entering party. If 
this anniversary date fell on a date when the Nasdaq market was closed, 
the GTC order would be purged after the close of the next business day.
    Market makers, Electronic Communication Networks (``ECNs''), and 
Unlisted Trading Privileges Exchanges (collectively ``Quoting Market 
Participants'') could designate a non-directed limit order as Day, GTC, 
or Immediate or Cancel (``IOC''). If a Quoting Market Participant 
entered a non-directed limit order without a designation, such an order 
would be designated as IOC, the system's default designation.\4\
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    \4\ An IOC order if not immediately executed is canceled from 
the system and returned to the order entry participant.
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    Under the proposal, whenever a Non-Directed Order designated as Day 
or GTC is entered into the system, it would receive a time stamp to be 
used in determining the order's price/time priority consistent with the 
current SuperMontage rules.\5\ Day and GTC orders would be executed 
pursuant to the execution algorithm selected (price/time (default), 
price/time taking into account access fees, and price/size/time) by the 
entering market participant. \6\ Day orders could be entered into 
SuperMontage during the Pre-Market Session through Normal Market Hours. 
GTC orders could be entered into SuperMontage during the Pre-Market 
Session through the After Hours Session. Day and GTC orders would be 
eligible for execution during the Nasdaq Unlocking/Uncrossing Session 
(beginning at 9:29:30 a.m. EST) throughout the Normal Market Hours 
(ending at 4:00 p.m. EST). At the close of Normal Market Hours, 
unexecuted Day orders would expire and be returned to the entering 
participant. GTC orders that are not executed or cancelled would 
continue residing in the system at the close of Normal Market Hours, 
however, such orders would not be eligible for execution through the 
Non-Directed Order process during the Nasdaq After-Hours Session. Thus, 
after the 4:00 p.m. EST market close, GTC orders residing in the system 
would not be eligible for execution through the Non-Directed Order 
process until the following business day at 9:29:30 a.m. EST.
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    \5\ As contemplated, SuperMontage will have four distinct time 
periods over the course of the trading day: (1) The Pre-Market 
Session (7:30 a.m. to 9:29:29 a.m. EST), (2) the Pre-Open Unlocking/
Uncrossing Process (9:29:30 a.m. to 9:29:59 a.m. EST), (3) Normal 
Market Hours (9:30 a.m. to 4:00 p.m. EST), and (4) the After-Hours 
Session (4:00 p.m. to 6:30 p.m. EST). See Securities Exchange Act 
Release No. 46410, (August 23, 2002) (approving amendments to 
SuperMontage Pre-Market Session including the Pre-Open Unlocking/
Uncrossing Process) and File No. NASD-2002-114 (extending the Nasdaq 
After-Hours Pilot to SuperMontage).
    \6\ If a Non-Directed Order is entered by a Market Maker or ECN, 
SuperMontage 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). 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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    To clarify that the SuperMontage will accept, retain, display, and 
execute orders at multiple price levels, Nasdaq also proposed to remove 
the term ``marketable'' from the text of Rule 4706(a)(1)(B).

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\7\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 15A.\8\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
section 15A(b)(6) of the Act because it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principals of trade, to foster cooperation

[[Page 55906]]

and coordination with persons 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.\9\
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    \7\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o-3.
    \9\ 15 U.S.C. 78o-3(b)(6).
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    The Commission finds that Nasdaq's proposal to allow Quoting Market 
Participants to enter GTC and Day orders, in addition to IOC orders, is 
consistent with the Act. In particular, the addition of GTC and Day 
orders will provide SuperMontage participants with more options beyond 
IOC orders for entering orders into the system. The Commission believes 
that the flexibility added by the proposal will give Quoting Market 
Participants more options in the designation of order types, which in 
turn should allow the trading interest and strategies of customers to 
be better reflected in SuperMontage. The Commission also notes that 
other market centers, including the New York Stock Exchange (``NYSE'') 
and the Pacific Stock Exchange Equities (``PCXE'') allow the use order 
of Day or GTC order types.\10\
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    \10\ See NYSE Rule 13 and PCXE Rule 7.31(c).
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposal 
is consistent with the requirements of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NASD-2002-92) is approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-22218 Filed 8-29-02; 8:45 am]
BILLING CODE 8010-01-P