[Federal Register Volume 68, Number 74 (Thursday, April 17, 2003)]
[Notices]
[Pages 19043-19045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9413]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47663; File No. SR-NASD-2003-67]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. To Extend Operation of NASD's Alternative 
Display Facility on a Pilot Basis

April 10, 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 April 7, 2003, the National Association of Securities Dealers, Inc. 
(``NASD'') filed with the Securities and Exchange Commission the 
proposed rule change as described in Items I, II, and III below, which 
NASD has prepared. NASD has designated the proposed rule change as 
constituting a ``non-controversial'' rule change under Rule 19b-
4(f)(6),\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. 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\ 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

    NASD is proposing to extend for nine months the operation of its 
Alternative Display Facility (``ADF'') on a pilot basis. The current 
ADF pilot program, which the SEC approved on July 24, 2002, is due to 
expire on April 24, 2003. The pilot program permits members to quote 
and trade only Nasdaq-listed securities on or through the ADF. In 
addition, the proposed rule change would amend NASD Rule 4613A to 
clarify that ADF market participants must have in close proximity to 
their ADF Facility terminal at which they make a market in a Nasdaq 
security quotation data from all markets trading Nasdaq securities.
    Below is the text of the proposed rule change. Proposed new 
language is underlined; proposed deletions are in brackets.
* * * * *
4000A. NASD Alternative Display Facility
4100A. General
    NASD Alternative Display Facility (``ADF'') is the facility to be 
operated by NASD on a nine-month pilot basis for members that choose to 
quote or effect trades in Nasdaq securities (``ADF-eligible 
securities'') otherwise than on Nasdaq or on an exchange. The ADF will 
collect and disseminate quotations, compare trades, and collect and 
disseminate trade reports. Those NASD members that utilize ADF systems 
for quotation or trading activities must comply with the Rule 4000A, 
Rule 5400 and Rule 6000A Series, as well as all other applicable NASD 
Rules. The ADF pilot will expire on [April 24, 2003] January 26, 2004.
* * * * *
4613A. Character of Quotations
    (a) through (d) No change.

[[Page 19044]]

    (e) Other Quotation Obligations.
    (1) No change.
    (2) As required by Rule 11Ac1-2(e) under the Exchange Act [A]a 
member that uses an ADF terminal or other approved ADF electronic 
interface [is registered as a market maker in a Nasdaq security] shall 
be obligated to have available in close proximity to the ADF [NASD's 
Alternative Display Facility] terminal or interface [at which it makes 
a market in a Nasdaq security] a quotation service that disseminates 
the bid price and offer price from all markets trading [then being 
furnished by or on behalf of other market makers trading and quoting] 
that Nasdaq security.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    a. Pilot Extension. On July 24, 2002, the Commission approved SR-
NASD-2002-97,\4\ which authorizes NASD to operate the ADF on a pilot 
basis for nine months, pending the anticipated approval of SR-NASD-
2001-90, which proposes to operate the ADF on a permanent basis. As 
described in detail in SR-NASD-2001-90, the ADF is a quotation 
collection, trade comparison, and trade reporting facility developed by 
NASD in accordance with the Commission's SuperMontage Approval Order 
\5\ and in conjunction with Nasdaq's anticipated registration as a 
national securities exchange.\6\ In addition, on January 30, 2003, NASD 
filed proposed rule change SR-NASD-2003-009 to revise the transaction 
and quotation-related fees applicable to ADF activity during the pilot 
program. The rule change proposal became effective upon filing, with an 
implementation date of February 17, 2003.
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    \4\ Securities Exchange Act Release No. 46249 (July 24, 2002), 
67 FR 49822 (July 31, 2002).
    \5\ Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001) (SR-NASD-99-53).
    \6\ Securities Exchange Act Release No. 44396 (June 7, 2001) 66 
FR 31952 (June 13, 2001).
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    As proposed in SR-NASD-2001-90, the ADF would provide market 
participants the ability to quote and trade Nasdaq and exchange-listed 
securities. The current ADF pilot program, however, permits operation 
of the ADF with respect to Nasdaq securities only. This is because, at 
the time of SEC approval, several regulatory issues relating to the 
trading of exchange-listed securities on the ADF had not been resolved.
    According to NASD, the ADF has been operating successfully during 
the pilot period. NASD believes that the SEC, in approving the launch 
of SuperMontage, stated that the ADF met the conditions set forth in 
its SuperMontage Approval Order to provide an alternative quotation 
collection, trade comparison and trade reporting facility. NASD also 
notes that the issues related to trading exchange-listed securities--
and by extension, approval of the operation of ADF on a permanent 
basis--remain unresolved.
    Accordingly, NASD believes it is appropriate to extend the pilot 
period for ADF trading in Nasdaq securities, as set forth in SR-NASD-
2002-97 and SR-NASD-2003-09, until January 25, 2004 or until approval 
of SR-NASD-2001-90.
    b. Close Proximity Rule. In addition, the proposed rule change 
would amend NASD Rule 4613A to clarify that ADF market participants 
must have in close proximity to their ADF terminals (or other approved 
ADF electronic interfaces) quotation data from all markets trading 
Nasdaq securities. NASD believes that the current language in the rule 
suggests that ADF market participants must have quotation data in close 
proximity only from other market makers. NASD represents that it always 
intended for Rule 4613A to ensure that ADF market participants comply 
with the Vendor Display Rule.\7\ NASD believes that the proposed change 
reflects more recent guidance from the SEC that market participants 
must have readily available quotation data from all markets trading 
Nasdaq securities, not just market makers.\8\
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    \7\ See 17 CFR 240.11Ac1-2(c), Rule 11Ac1-2(c) under the 
Exchange Act.
    \8\ See letter from Robert L. D. Colby, Deputy Director, 
Division of Market Regulation, SEC, to T. Grant Callery, Executive 
Vice President and General Counsel, NASD, dated March 18, 2003.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD 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

    NASD neither solicited nor received written comments on this 
proposed rule change. NASD did solicit written comments on rule change 
proposals SR-NASD-2001-90 and SR-NASD-2002-28, the underlying rule 
filings to SR-NASD-2002-97 and SR-2003-009, respectively. NASD 
responded to the comments received in response to SR-NASD-2001-90 in 
its Amendment No. 2 to that filing, which was submitted to the SEC on 
May 24, 2002. NASD responded to the comments received in response to 
SR-NASD-2002-28 in its Amendment No. 1 to that filing, which was 
submitted to the SEC on May 14, 2002.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    NASD has designated the proposed rule change as a ``non-
controversial'' rule change that is effective upon filing pursuant to 
Section 19(b)(3)(A) of the Act \9\ and Rule 19b-4(f)(6) thereunder.\10\ 
NASD has represented that the proposed rule change does not 
significantly affect the protection of investors or the public interest 
and does not impose any significant burden on competition.
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6).
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    NASD requested that the Commission waive the written notice of its 
intent to file the proposed rule change set forth in Rule 19b-
4(f)(6)(iii).\11\ In addition, NASD has requested that the Commission 
waive the requirement that the rule change not become operative for 30 
days after the date of the filing, as set forth in Rule 19b-
4(f)(6)(iii),\12\ to prevent the current ADF pilot program from 
lapsing. The Commission finds good cause for the proposed rule change 
to become operative prior to the 30th day after the date of publication 
of notice of filing to assure the uninterrupted operation of the ADF 
pilot after April 24, 2003.
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    \11\ 17 CFR 240.19b-4(f)(6)(iii).
    \12\ Id.
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    At any time within 60 days of this filing, the Commission may 
summarily abrogate this proposal if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors,

[[Page 19045]]

or otherwise in furtherance of the purposes of the Act.
    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to NASD and, in particular, the requirements of 
section 15A of the Act \13\ and the rules and regulations thereunder.
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    \13\ 15 U.S.C. 78o-3
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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 NASD. 
All submissions should refer to SR-NASD-2003-67 and should be submitted 
by May 8, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9413 Filed 4-16-03; 8:45 am]
BILLING CODE 8010-01-P