[Federal Register Volume 67, Number 203 (Monday, October 21, 2002)]
[Notices]
[Pages 64685-64687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26687]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46645; File No. SR-NASD-2002-144]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by National Association of
Securities Dealers, Inc. Relating to Directed Orders in the Nasdaq
Order Collection and Display Facility (``NNMS'' or ``SuperMontage'')
October 10, 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 October 9, 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'') 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\ Nasdaq asked the Commission to waive the 5-day pre-filing
notice requirement and the 30-day operative delay. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is filing a proposed rule change to modify the Directed
Order process in Nasdaq's future Order Display and Collector Facility
(``SuperMontage''). The text of the proposed rule changes follows.
Proposed new language is underlined; proposed deletions are in
brackets.
* * * * *
4706. Order Entry Parameters
(a) No Change.
[[Page 64686]]
(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.]
(C) A Directed Order that is entered at a price that is inferior to
the 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) No Change.
(3) No Change.
(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 statutory 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
Nasdaq has long intended the SuperMontage Directed Order process to
perform essentially the same function that SelectNet performs today.
Accordingly, Nasdaq designed the SuperMontage Directed Order process to
be a negotiation process primarily for non-liability orders, with the
exception of Nasdaq market makers that affirmatively opt to accept
Directed Orders on a liability basis. For example, SuperMontage
participants will be required to designate Directed Orders as ``All-or-
None'' or Minimum Acceptable Quantity'' and to enter such orders for
100 shares greater than the receiving Quoting Market Participant's
displayed quote, just as they must do in SelectNet today. Nasdaq has
repeatedly stated its intention that SuperMontage Directed Orders
mirror SelectNet preferenced orders, as evidenced by how closely it
modeled future NASD Rule 4706(b) governing SuperMontage on current NASD
Rule 4720(c) governing SelectNet.
In July of 2001, Nasdaq filed, on an immediately effective basis, a
proposal that allows for the entry of preferenced SelectNet orders to
NNMS market makers if such orders are entered containing prices that
are inferior to the quoted bid and/or offers to which they are
directed.\6\ For example, in the situation where an NNMS market maker
is quoting 20.00 bid and 20.03 offer, a market participant would be
allowed to preference that market maker with either an order to sell at
20.01 or more, or an order to buy at 20.02 or less. These orders are
priced at levels that would not obligate the receiving market maker to
execute them under current firm quote standards. Therefore, NNMS market
makers may choose to either ignore such orders or negotiate with the
sending party to reach an agreement that would allow a trade to take
place.\7\
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\6\ See Exchange Act Release No. 44506 (July 3, 2001), 66 FR
36020 (July 10, 2001).
\7\ Market participants executing transactions as the result of
such messages remain obligated to protect customer limit orders they
hold in conformity with NASD IM-2110-2 (Trading Ahead of Customer
Limit Orders).
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The concept of entering preferenced orders at prices inferior to
the recipient's quoted price was not controversial when filed for
implementation with SuperSOES in July of 2001. Market participants are
accustomed to this functionality and have used it in compliance with
current NASD Rule 4720. Nasdaq proposes to incorporate the same
functionality into the SuperMontage Directed Order process, which will
essentially mirror the current functionality of SelectNet.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\8\ in general and with
section 15A(b)(6) of the Act,\9\ in particular, in that in that the
proposal 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, 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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\8\ 15 U.S.C. 78o-3.
\9\ 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
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)\10\ of the Act and
Rule 19b-4(f)(6) thereunder.\11\ 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,
[[Page 64687]]
or otherwise in furtherance of the purposes of the Act.
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\10\ 15 U.S.C. 78s(b)(3)(A).
\11\ 17 CFR 240.19b-4(f)(6).
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Nasdaq has requested that the Commission waive the 5-day pre-filing
notice requirement and the 30-day operative delay. The Commission
believes waiving the 5-day pre-filing notice requirement and the 30-day
operative delay is consistent with the protection of investors and the
public interest. In particular, the proposed rule change provides
functionality for the SuperMontage Directed Order process that is
equivalent to functionality currently available in SelectNet. In
addition, acceleration of the operative date will allow the proposed
rule change to become operative with Nasdaq's implementation of the
SuperMontage on October 14, 2002. For these reasons, the Commission
waives both the 5-day pre-filing requirement and the 30-day operative
waiting period.\12\
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\12\ 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 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 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 No. SR-NASD-2002-144 should
be submitted by November 12, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26687 Filed 10-18-02; 8:45 am]
BILLING CODE 8010-01-P