[Federal Register Volume 68, Number 16 (Friday, January 24, 2003)]
[Notices]
[Pages 3578-3579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1580]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47191; File No. SR-NASD-2003-4]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed rule Change by the National Association of 
Securities Dealers, Inc. Relating to the Primex Auction System[reg]

January 15, 2003.
    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 January 14, 2003, the National Association of Securities Dealers, 
Inc., 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 has 
designated this proposal as effective upon filing pursuant to section 
19(b)(3)(A)(iii) of the Act,\3\ and subparagraph (f)(2) of Rule 19b-
5.\4\ 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)(iii).
    \4\ 17 CFR 240.19b-5(f)(2).
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1. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is filing a proposed rule change to continue operating 
Nasdaq's application of the Primex Auction System[reg] (``Primex'' or 
``System'') as a Pilot Trading System pursuant to Rule 196-5 of the 
Act,\5\ until February 14, 2003, or until the Commission permanently 
approves Primex, whichever period is shorter. Pursuant to paragraph (f) 
of Rule 19b-5,\6\ Nasdaq is filing this proposed rule change as 
effective immediately. This filing does not propose any rule language 
changes.
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    \5\ 17 CFR 240.19b-5.
    \6\ 17 CFR 240.19b-4(f).
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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 Section 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
     The Primex Auction System is a facility of Nasdaq that has been 
operating as a Pilot Trading System (``PTS''), as defined in Paragraph 
(c)(2) of Rule 19b-5 of the Act.\7\ As such, Nasdaq was not required to 
file a proposed rule change under Rule 19b-4 of the Act \8\ as long as 
the Primex maintained its status as a PTS. Under paragraph (c)(2) of 
rule 16b-5, a system must comply with three criteria to maintain its 
status as a PTS.\9\ One such criteria is that, for each security traded 
in the PTS, the PTS can not trade more than one percent of the average 
daily consolidated trading volume of any such security, during at least 
two of the last four consecutive calendar months. Nasdaq represents 
that Primex exceeded this threshold for many securities. Therefore 
Nasdaq filed a proposed rule change seeking permanent approval of 
Primex.\10\ Nasdaq also filed a proposed rule change to continue 
operating the System or up to six months while the Commission 
considered granting permanent approval.\11\ This six-month period 
expired on October 31, 2002. On October 31, 2002, Nasdaq filed a 
proposed rule change, which was effective upon filing, to continue to 
operate Primex as a PTS until November 30, 2002.\12\ On November 26, 
2002, Nasdaq field a proposed rule change, which was effective upon 
filing, to continue to operate Primex as a PTS

[[Page 3579]]

until January 15, 2003.\13\ The Commission is still considering 
Nasdaq's filing seeking permanent approval of Primex. Accordingly, 
Nasdaq is filing this proposed rule change to continue operating Primex 
as a PTS until February 14, 2003, or until the Commission grants 
permanent approval, which ever period is shorter. Primex continues to 
operate in the manner described in the Form Pilot filing, as 
amended.\14\
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    \7\ 17 CFR 240.19b-5(c)(2).
    \8\ 17 CFR 240.19b-4.
    \9\ Pursuant to Rule 129b-5(c)92), to qualify as a Pilot Trading 
System, a system must: (1) Be in operation for less than two years; 
(2) with respect to each security traded on such Pilot Trading 
System, during at least two of the last four consecutive calendar 
months, has traded no more than one percent of the average daily 
trading volume, in the United States; and (3) with respect to all 
securities traded on such Pilot Trading System, during at least two 
of the last four consecutive calendar months, has traded no more 
than 20 percent of the average daily trading volume of all trading 
systems operated by the self-regulatory organization.
    \10\ Securities Exchange Act Release No. 45983 (May 23, 2002) 67 
FR 38152 (May 31, 2002).
    \11\ Securities Exchange Act Release No. 45982 (May 23, 2002) 67 
FR 38163 (May 31, 2002).
    \12\ Securities Exchange Act Release No. 46756 (October 31, 
2002), 67 FR 68221 (November 8, 2002).
    \13\ Securities Exchange Act Release No. 46924 (November 27, 
2002), 67 FR 72715 (December 6, 2002).
    \14\ Form Pilot--NASD-2001-01
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2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with the 
provisions of sections 15A(b)(6) \15\ and 11A(a)(1) of the Act.\16\ 
Section 15A(b)(6) of the Act \17\ requires the rules of the NASD to be 
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; and not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Section 11A(a)(1) of the Act \18\ sets forth a 
finding of Congress that new data processing and communications 
techniques create opportunity for more efficient and effective market 
operations.
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    \15\ 15 U.S.C. 78o-3(b)(6).
    \16\ 15 U.S.C. 78k-1(a)(1).
    \17\ 15 U.S.C. 78o-3(b)(6).
    \18\ 15 U.S.C. 78k-1(a)(1).
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    Nasdaq believes this proposed rule change is consistent with the 
NASD's obligations under the Act, as well as the finding of Congress, 
because it will allow Nasdaq to continue operating Primex while the 
Commission considers permanent approval. Among other things, the System 
provides members with an additional electronic, execution system, which 
is designed to provide members with flexibility in executing orders and 
the opportunity to obtain price improvement. To ensure the protection 
of investors, orders will not be executed at prices inferior to the 
National Best Bid or Offer.

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

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A)(iii) of the Act,\19\ and subparagraph (f)(2) of 
Rule 19b-5 thereunder,\20\ because the proposal will permit Nasdaq to 
continue operating Primex as a PTS while the Commission considers 
granting permanent approval. The proposal does not modify any rule or 
the operation of Primex.
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(5).
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    At any time within 60 days of the filing of a rule change pursuant 
to section 19(b)(3)(A) of the Act,\21\ the Commission may summarily 
abrogate the 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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    \21\ 15 U.S.C. 78s(b)(3)(A).
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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-2003-4 and 
should be submitted by February 14, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1580 Filed 1-23-03; 8:45 am]
BILLING CODE 8010-01-M