[Federal Register Volume 68, Number 103 (Thursday, May 29, 2003)]
[Notices]
[Pages 32146-32148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13448]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47909; File No. SR-NASD-2003-82]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Extend a Pilot Amendment to NASD Rule 4120 
Regarding Nasdaq's Authority To Initiate and Continue Trading Halts

May 22, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 32147]]

(``Act''),\1\ and rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 12, 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 
(``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. 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 proposes to extend a pilot amendment to NASD rule 4120, 
which clarified Nasdaq's authority to initiate and continue trading 
halts in circumstances where Nasdaq believes that extraordinary market 
activity in a security listed on Nasdaq may be caused by the misuse or 
malfunction of an electronic quotation, communication, reporting, or 
execution system operated by, or linked to, Nasdaq. The purpose of this 
filing is to extend the pilot until August 15, 2003. Accordingly, there 
is no new proposed rule language. Nasdaq is making no substantive 
changes to the pilot, other than to extend its operation through August 
15, 2003.

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 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
    On May 11, 2001, Nasdaq filed with the Commission a proposed rule 
change to clarify Nasdaq's authority to initiate and continue trading 
halts in circumstances where Nasdaq believes that extraordinary market 
activity in a security listed on Nasdaq may be caused by the misuse or 
malfunction of an electronic quotation, communication, reporting, or 
execution system operated by, or linked to, Nasdaq.\6\ On July 27, 
2001, Nasdaq filed Amendment No. 1 to the proposed rule change, which 
requested that the Commission approve the proposed rule change on a 
three-month pilot basis expiring on October 27, 2001.\7\ Also on July 
27, 2001, the Commission approved the proposed rule change and 
Amendment No. 1.\8\ Since that time, the pilot period for the rule has 
been extended on several occasions.\9\
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    \6\ See Securities Exchange Act Release No. 44307 (May 15, 
2001), 66 FR 28209 (May 22, 2001)(SR-NASD-2001-37).
    \7\ See July 27, 2001, letter from Thomas P. Moran, Associate 
General Counsel, Nasdaq, to Alton Harvey, Division of Market 
Regulation (``Division''), Commission.
    \8\ See Securities Exchange Act Release No. 44609 (July 27, 
2001), 66 FR 40761 (August 3, 2001)(SR-NASD-2001-37).
    \9\ See Securities Exchange Act Release Nos. 44870 (September 
28, 2001), 66 FR 50701 (October 4, 2001)(SR-NASD-2001-60); 45344 
(January 28, 2002), 67 FR 5022 (February 3, 2002)(SR-NASD-2002-14); 
45851 (April 30, 2002), 67 FR 31858 (May 10, 2002)(SR-NASD-2002-57); 
46559 (September 26, 2002), 67 FR 63003 (October 9, 2002)(SR-NASD-
2002-125); and 46851 (November 19, 2002), 67 FR 70794 (November 26, 
2002)(SR-NASD-2002-159).
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    As a result of the decentralized and electronic nature of the 
market operated by Nasdaq, the price and volume of transactions in a 
Nasdaq-listed security may be affected by the misuse or malfunction of 
electronic systems, including systems that are linked to, but not 
operated by, Nasdaq. In circumstances where misuse or malfunction 
results in extraordinary market activity, Nasdaq believes that it may 
be appropriate to halt trading in an affected security until the system 
problem can be rectified. In the period during which the rule change 
has been in effect, Nasdaq has not had occasion to initiate a trading 
halt under the rule. Nevertheless, Nasdaq believes that the rule is an 
important component of its authority to maintain the fairness and 
orderly structure of the Nasdaq market. Accordingly, Nasdaq believes 
that the rule should remain in effect on an uninterrupted basis.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of section 15A of the Act,\10\ including section 
15A(b)(6),\11\ which requires, among other things, that a registered 
national securities association's rules be designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, and, in general, protect investors and 
the public interest. Nasdaq believes the proposed rule change provides 
Nasdaq with clearer authority to respond to and alleviate market 
disruptions and thereby protect investors and the public interest.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 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, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    In a letter dated July 27, 2001, Instinet Corporation 
(``Instinet'') commented on the proposed rule change as originally 
proposed and currently in effect.\12\ Nasdaq has filed a proposed rule 
change to modify the rule in certain respects and to make the proposed 
rule change permanent.\13\ Nasdaq believes that the amendments to the 
rule proposed in SR-NASD-2001-75 respond to the concerns expressed by 
Instinet without impairing the flexibility that the rule must retain in 
order for the rule to assist Nasdaq in meeting its overarching 
responsibility to maintain the fairness and orderly structure of the 
Nasdaq market. On October 2, 2002, the American Stock Exchange 
(``Amex'') submitted a letter comment on SR-NASD-2001-75.\14\ On April 
11, 2003, Nasdaq filed an amendment to SR-NASD-2001-75 that responds to 
the

[[Page 32148]]

Amex's comments.\15\ Pending final Commission action on SR-NASD-2001-
75, however, Nasdaq believes that the pilot period of the current rule 
should be extended to allow the rule to remain in effect on an 
uninterrupted basis.
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    \12\ See July 27, 2001, letter from Jon Kroeper, First Vice 
President, Regulatory Policy/Strategy, Instinet, to Jonathan G. 
Katz, Secretary, Commission.
    \13\ See Securities Exchange Act Release No. 45355 (January 29, 
2002), 67 FR 5351 (February 5, 2002)(SR-NASD-2001-75).
    \14\ See October 2, 2002, letter from Richard T. Chase, 
Executive Vice President, Member Firm Regulation, Amex, to Jonathan 
G. Katz, Secretary, Commission.
    \15\ See April 11, 2003 letter from John M. Yetter, Assistant 
General Counsel, Nasdaq, to Katherine A. England, Assistant 
Director, Division, Commission.
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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 \16\ and 
rule 19b-4(f)(6) thereunder.\17\ 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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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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    Nasdaq has asked the Commission to 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. Such waivers will allow the pilot to operate 
without interruption through August 15, 2003. For these reasons, the 
Commission designates the proposal to be effective and operative upon 
filing with the Commission.\18\
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    \18\ 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-2003-82 and should be 
submitted by June 19, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-13448 Filed 5-28-03; 8:45 am]
BILLING CODE 8010-01-P