[Federal Register Volume 68, Number 28 (Tuesday, February 11, 2003)]
[Notices]
[Pages 6976-6977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3318]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47308; File No. SR-NASD-2003-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Make Permanent Nasdaq's Pilot Program That 
Makes Available Certain Nasdaq Services and Facilities Until 6:30 P.M. 
Eastern Time

February 4, 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 31, 2003, the National Association of Securities Dealers, 
Inc. (``NASD''), 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 and II 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 five-day pre-filing 
notice requirement and the 30-day operative delay. 17 CFR 240.19b-
4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to make permanent its pilot program that makes 
available several Nasdaq services and facilities until 6:30 p.m. 
Eastern Time. The text of the proposed rule change is available at 
Nasdaq and at the Commission.

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. The Association 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 1999, the Commission approved a pilot program 
(``Program'') that made available certain Nasdaq systems and facilities 
until 6:30 p.m. Eastern Time.\6\ Under the original Program, Nasdaq 
provided, until 6:30 p.m., 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'').
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    \6\ See Securities Exchange Act Release No. 42003 (October 13, 
1999), 64 FR 56554 (October 20, 1999)(SR-NASD-99-57).
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    In August 2002, Nasdaq modified the terminology applicable to the 
Program to reflect the pending introduction of Nasdaq's SuperMontage 
system.\7\ Since its original approval, the Program has been extended 
numerous times and has operated continuously.\8\ Nasdaq now proposes to 
make the Program permanent.
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    \7\ See Securities Exchange Act Release No. 46398 (August 22, 
2002), 67 FR 55290 (August 28, 2002)(SR-NASD-2002-114).
    \8\ See Securities Exchange Act Release Nos. 42003 (October 13, 
1999), 64 FR 56554 (October 20, 1999)(SR-NASD-99-57); 42481 (March 
1, 2000), 65 FR 12310 (March 8, 2000)(SR-NASD-2000-07); 43302 
(September 19, 2000), 65 FR 57852 (September 26, 2002)(SR-NASD-2002-
56); 43953 (February 12, 2001), 66 FR 10927 (February 22, 2001)(SR-
NASD-2001-12); 45503 (March 5, 2002), 67 FR 10955 (March 11, 
2002)(SR-NASD-2002-29). The pilot is currently scheduled to 
terminate on January 31, 2003. See Securities Exchange Act Release 
No. 46532 (September 23, 2002), 67 FR 61367 (September 30, 2002)(SR-
NASD-2002-118).
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    Nasdaq proposes no substantive or technical changes to the pilot 
program. Nasdaq's permanent after-hours program will operate in the 
same manner as the current Program. Like the pilot, 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 p.m. 
Eastern Time will be entirely voluntary. Quotes entered after-hours 
will continue to be disseminated by Nasdaq via NQDS,\9\ and Nasdaq's 
ACT system will continue to accept trade reports up to 6:30 p.m. 
Eastern Time. Nasdaq will also continue to disseminate transaction 
reports to the public via the SIP. The after-hours session will 
continue to operate under the following general terms and conditions as 
set forth in the Commission's original approval order of the pilot:
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    \9\ The best bid and best offer in a particular security will be 
sent to the consolidated Securities Information Processor (``SIP'') 
for full public dissemination.
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    [sbull] Any Nasdaq market maker that wishes to post quotations and 
trade during the 4 p.m. to 6:30 p.m. time period shall be obligated to 
post firm two-sided quotations when opening and making its market but 
may thereafter enter or leave the market on the hour or half-hour up to 
6:30 p.m.
    [sbull] NASD member firms that do not wish to open their market and 
instead simply send customer or proprietary orders to other market 
participants for display and/or execution will likewise not be 
obligated to post firm two-sided quotes.\10\
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    \10\ NASD market makers that do not elect to open their quotes 
would still be obligated to trade report transactions during the 
4:00 p.m. to 6:30 p.m. time period consistent with current trade 
reporting rules.
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    [sbull] Regardless of an NASD member's quotation activity, all 
transactions in Nasdaq National Market, SmallCap, Convertible Debt and 
over-the-counter equity securities executed between the hours of 9:30 
a.m. and 6:30 p.m. Eastern Time must be reported to Act within 90 
seconds.
    [sbull] NASD members who participate in the after-hours session 
must operate in conformity with all NASD Rules except those that are 
limited by their express

[[Page 6977]]

terms, or by an official interpretation of the NASD, to a specific time 
period outside of the 4 p.m. to 6:30 p.m. time period. This obligation 
applies with particular force to the requirement to protect customer 
limit orders set forth in NASD IM-2110-2.
    [sbull] The NASD's Short Sale Rule (NASD Rule 3350) will not apply 
during the after-hours session.
    Nasdaq staff will continue to initiate trading halts,\11\ and 
adjudicate clearly erroneous trade disputes in the after-hours session, 
using the same standards and methods as employed during traditional 
market hours.\12\
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    \11\ Nasdaq notes that this trading halt authority will be 
limited to individual stocks only and will be undertaken in 
consultation with other markets operating after 4:00 p.m. Eastern 
Time. Market-wide trading halt rules currently in effect rely solely 
on percentage-based declines in the Dow Jones Industrial Average 
(``DJIA''), which is not calculated after the 4:00 p.m. close. In 
the event that a circuit breaker halt, triggered during regular 
market hours, prevents a normal close of U.S. primary markets, there 
will be no after-hours trading session that day.
    \12\ As during the pilot period, NASD Regulation, Inc. (``NASD 
Regulation'') is of the view that nothing in the instant proposal 
modifies or limits an NASD member's obligation to comply with the 
rules of NASD Regulation's Order Audit Trail System (``OATS'') when 
reporting trading activity taking place between 4:00 p.m. and 6:30 
p.m. Eastern Time.
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    Nasdaq believes the transparency and investor protection benefits 
resulting from the availability of Nasdaq's systems and facilities 
after the traditional trading day have proven their worth and should 
now become permanent.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\13\ in general, and with 
Section 15A(b)(6) of the Act,\14\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \13\ 15 U.S.C. 78o-3.
    \14\ 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) of the Act \15\ and 
Rule 19b-4(f)(6) thereunder.\16\ 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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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has requested that the Commission waive the five-day pre-
filing notice requirement and the 30-day operative delay. The 
Commission believes waiving the five-day pre-filing notice requirement 
and the 30-day operative delay is consistent with the protection of 
investors and the public interest. Acceleration of the operative date 
will allow Nasdaq's after-hours trading program to operate without 
interruption. For these reasons, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\17\
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    \17\ 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-2003-14 and should be 
submitted by March 4, 2003.
    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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-3318 Filed 2-10-03; 8:45 am]
BILLING CODE 8010-01-P